April 28, 2015

Renewable and Sustainable Crony Capitalism

By Norman Rogers

I recently attended a conference sponsored by the American Council on Renewable Energy or ACORE. Although ACORE is set up as an educational organization under the Internal Revenue Code, it mostly behaves as a trade association promoting the financial interests of investors in wind and solar energy. The conference was held in Washington, D.C., close to the gusher of money that supports the wind and solar industries. The conference participants were uniformly worried that government subsidies might be reduced. One speaker cautioned that the subsidies should be called “incentives”. According to that speaker, subsidies are what the fossil fuel industry gets.

Renewable power has serious problems, apart from costing too much. Wind doesn’t work if there is no wind and solar doesn’t work at night. The proprietors of solar and wind expect the electrical grids to accept and pay for all the power they can provide, whenever they provide it. If a cloud drifts in front of the sun, and the power output suddenly stops, the grid is expected to handle the problem and make up the missing power on a moment’s notice. This is just the opposite of the way that the operators of the electrical grids usually deal with power plants. Normally, grid operators tell the power plants when they want power and how much. The purveyors of wind and solar have enough political juice to be able to reverse the command hierarchy and boss the grid operators. Now you know why everyone is talking about smart grids. Existing grids are not smart enough to deal with more of this erratic power.

One might think that wind and solar would be cheap, since they don’t require fuel. This is not the case because the cost of construction is extremely high and it is much cheaper to build a conventional plant and pay for fuel rather than pay the debt service on extremely expensive renewable installations. There are hidden ancillary costs. For example the conventional power plants that step in, when renewable power suddenly drops off line, end up costing more because their capital costs are spread over fewer hours of operation. The renewable power does not displace a lot of conventional power; it just forces it to be idle more. Yes, wind or solar, when they are operating, save fuel that would otherwise be burned. But with coal or natural gas the fuel costs about 2 cents a kilowatt-hour. That, less additional hidden expenses, is pretty much the real value of renewable electricity. But, generating renewable electricity, excluding subsidies, costs, at best, about 7 cents for wind and more for solar.
Hardly any electrical utility in its right mind would bother with renewable electricity except for politics. Many states have enacted laws (renewable portfolio standards) requiring a certain proportion of renewable power by some date in the future. The Obama administration is working hard to make things as difficult as possible for coal and natural gas plants. Finally, large subsidies are provided to make renewable electricity cheaper than it otherwise would be.

The ultimate justification for renewable power is to reduce CO2 emissions and thus, supposedly, to prevent catastrophic global warming. This justification is wrong for a number of independent reasons. It is becoming obvious that the theory behind catastrophic global warming is wrong because the Earth isn’t warming and even if it does warm a little bit it won’t be catastrophic. Adding CO2 to the atmosphere may cause a little global warming but additional CO2 is extremely beneficial to plants and agricultural production. It turns out that plants are generally starved for CO2 and they do much better, and require less water, when they can breathe more freely. Even if you believe in the global warming myth, the main source of growing CO2 emissions is Asia. Efforts to reduce CO2 in the U.S. will have negligible effect. Finally, if you are really alarmed about CO2 the answer is nuclear power, not windmills. Nuclear is potentially cheap and emits no CO2. In short, global warming is nonsense, and the myth is kept alive by incessant propaganda from special interests, including scientists and their unions (scientific societies).

Many of the speakers at the ACORE conference placed their faith in imagined rapid technical progress. For example, lithium batteries, such as are used to power the Tesla automobile, could be used to store utility scale electricity if only they were 10 times or 100 times cheaper and if only they would last for 20 years, instead of 3 years, when cycled daily. Many of the conference participants seemed to believe that Moore’s law should apply to wind and solar power. Moore’s law postulated that the number of transistors on a chip doubles every 18 months due to technological progress. However, it hardly seems likely that any such law applies to wind and solar power. A solar photovoltaic panel cannot have greater than 100% efficiency and, absent subsidies, cannot cost less than zero. And, even if it did cost zero and did have 100% efficiency, solar power would still not work at night and it would still require square miles of land and structures to support the panels, as well as labor to install them.
The imagined Moore’s law for renewable energy provides an alibi for the exorbitant cost of wind and solar. Supposedly we are currently in a development phase that temporarily requires government subsidy until the renewable energy revolution arrives and we all celebrate with whipped cream and strawberries. Perhaps we will have superconducting undersea cables bringing solar power at night from the Australian desert, or even solar power beamed down by microwave from satellites positioned where the sun always shines. Takes your breath away.

The many subsidies and mandates for renewable energy are a tangle that only highly paid lawyers and accountants can fully understand. Legal fees can run to millions, a fact that may explain why the president of ACORE is an attorney. An example subsidy is the ITC or investment tax credit for solar energy. A company with a large tax liability can invest in a solar power scheme and receive a 30% of the plant cost tax credit

that may be used to reduce its taxes. If 80% of the scheme is financed by a low interest government loan, another subsidy, the immediate tax credit returns more than the cash investment. In addition, the property, expected to last for 25 years, can be depreciated in only 5 years, providing additional tax relief. The sale of power is usually on favorable terms because politicians have forced the power companies to buy it. Power revenue is guaranteed by a long-term power purchase agreement (PPA). This type of activity attracts companies with large tax bills, such as Google. Google has stated that it expects to earn 14% return on money invested in renewable power. Not only does investment in renewable power bring in money from the government, but the companies can pretend to be altruists protecting the Earth. Thus, when the average homeowner pays his electric bill he may be actually subsidizing Google as well as the entire renewable energy industry. He will also be paying taxes to support even more subsidies. This gives some insight as to why some homeowners in California pay more then 30 cents per kilowatt-hour for electricity, an amount that compares with 7 or 8 cents in many states that are less enthusiastic concerning renewable energy.

Three Republican United States senators gave speeches supporting renewable energy at the ACORE conference. Charles Grassley, from Iowa, Cory Gardner, from Colorado, and Dean Heller, from Nevada. Iowa is the heartland of government subsidies for wind, and more importantly, corn ethanol. Colorado has a nest of true believers in global warming at the Peoples Republic of Boulder. Senator Gardner barely beat his liberal Democratic opponent. It’s more of a puzzle to understand why the senator from Nevada, Dean Heller, is supporting renewable energy. His website doesn’t exhibit enthusiastic support for renewable energy.

The renewable energy industry seems to have its political ducks in a row. They get subsidies on the pretense that they are saving the Earth. The scientifically ignorant media provide propaganda support. The cost of their subsidies is buried in the tax code and in people’s electric bills. The industry’s main problem is Republicans that are skeptical about global warming and subsidized industries. The industry has to recruit republicans and that explains why three Republican senators were featured at the conference. Those of us who understand the nature of this fraud need to put heat on wavering Republicans (and Democrats).