Looking for renewable policy certainty in all the wrong places

From EnergyWire comes the headline, “In Missouri, industry wants off the ‘solar coaster’.” (link here via Midwest Energy News).

A utility rebate program authorized by voters in 2008 is making Missouri into a solar leader in the Midwest. But $175 million set aside to subsidize solar installations is [nearly] fully subscribed … and the same small businesses that scrambled to add workers last year to help meet surging demand are facing layoffs….

Heidi Schoen, executive director of the Missouri Solar Energy Industries Association, said the industry, which has generated thousands of jobs and millions of dollars in new taxes for the state, is just looking for certainty.

“We want off the solar coaster,” she said. “We don’t want to be in this boom-and-bust situation.”

It is a patently false claim.

If they wanted off of the boom-and-bust policy ‘solar coaster,’ they’d get off. They could go do unsubsidized solar installations for example, or if (when?) that proves unprofitable get work doing something else. By their actions they signal that they prefer the booms-and-busts that come with reliance on politicians for favors.

Better red than dead, but not red yet (on solar power)

In her New York Times Economix column Nancy Folbre recently said (“The Red Faces of the Solar Skeptics,” March 10, 2014):

If the faces of renewable energy critics are not red yet, they soon will be. For years, these critics — of solar photovoltaics in particular — have called renewable energy a boutique fantasy. A recent Wall Street Journal blog post continues the trend, asserting that solar subsidies take money from the poor to benefit the rich.

But solar-generated electricity is turning into a powerful environmental and economic success story. It’s also threatening the balance sheets of electric utility companies that continue to rely heavily on fossil fuels and nuclear energy.

I don’t count myself a renewable energy critic, but I do find myself as a critic of most renewable energy policies and so feel a bit like Folbre is addressing her points to me. In response I’ll say my face isn’t red yet, and I’m not expecting it to turn red anytime soon.

Folbre is a distinguished economist at the Univ. of Massachusetts, but she isn’t a specialist in environmental or energy economics, and I think her thinking here is a little muddled. (In this muddling through she has similarly distinguished company–consider this response to a Nobel prize winner.)

So a sample of my complaints: She trumpets the fast declining price of solar panels by picking a factoid out of a story in ComputerWorld: “declined an estimated 60 percent since the beginning of 2011!” ComputerWorld? Maybe the work of the U.S. Department of Energy or other more traditional information sources wasn’t sensational enough (claiming as it does, merely that “U.S. solar industry is more than 60 percent of the way to achieving cost-competitive utility-scale solar photovoltaic electricity”).

An investment company would have to acknowledge that cherry-picked past results are no guarantee of future performance, but it isn’t even clear that she is firm on the idea of “cost.” Folbre declares that generous subsidies and feed-in tariffs have “allowed solar photovoltaics to achieve vastly lower unit costs.” Really? Well maybe if we subsidize it a little harder, it will become free for everyone!

C’mon professor, get serious! Perhaps it is true that generous subsidies and feed-in tariffs have allowed owners of solar PV systems to experience lower out-of-pocket expenses, but it is a little embarrassing to see a distinguished economist make this mistake about costs. Should we conclude congressional junkets overseas don’t cost anything because the government foots the bill?

Not until the penultimate paragraph does Folbre get back on firm ground, talking about renewable energy policy rather than technology:

Subsidies are not the ideal public policy for promoting clean energy. As a recent analysis by the Carbon Tax Center points out, a carbon tax devised to protect low-income households from bearing a disproportionate share of higher energy prices would yield more efficient overall results, as well as encouraging solar power.

But in our subsidy-encrusted energy economy, some subsidies are better than others. As farmers say, make hay while the sun shines.

Yes, as any economist ought to say, “subsidies are not the ideal public policy for promoting clean energy.” In fact, it’s been said here a time or two.

[HT to Environmental Economics.]

Debating wind power cost estimates – 3

[Series header: On the Morning of October 15 the Institute for Energy Research in Washington DC released a report I’d written about wind power cost estimates sponsored by the federal government. (Links available here.) Later that day Michael Goggin of the American Wind Energy Association, the lobbying organization in Washington DC that represents the wind energy industry, posted a response on the AWEA website: “Fact check: Fossil-funded think tank strikes out on cost of wind.” I’m considering points made by the AWEA response in a series of posts.]

The AWEA response to my report includes the retort, “IER is also incorrect in alleging policy support for wind energy is large or unusual.” (Link in source.)

Actually, no claim in my report suggests policy support for wind is large relative to other energy resources–I don’t discuss subsidies or policy supports for other energy sources. I didn’t intend to allege a relative subsidy size claim. But if Goggin is interested in my view, it is: Unfortunately, policy supports for politically-favored energy sources are not at all unusual, and they tend to reduce overall economic performance, and we’d be better off if we gave up on trying to direct energy markets from Washington DC.

We can’t reach back and undo all of the damage from bad energy policies of the past, but we ought to fix the energy policy we have now. And by “fix” I mean cut energy production subsidies, purchase mandates, favorable tax treatments, regulatory limits on competing energy resources, and otherwise minimize the role of political influence in the choices of energy producers and consumers.

Cut them all down: renewable subsidies, fossil-fuel subsidies, and nuclear subsidies. Sure, do something about pollution, and I’m not in principle against government-sponsored research, but various energy production subsidies and other policy supports tend to benefit a few at the expense of the rest of us.

What my report does claim is the PTC-subsidy for wind power imposes costs on non-wind participants in power markets. Without the PTC, we’d have a lot fewer wind turbines connected to the grid; the wind turbines that did get built would not bid into markets at negative prices, and with fewer wind turbines installed the resulting modest displacement of non-wind power might even be a net economic benefit.

Part of the problem is the PTC subsidizes output at the margin and so directly distorts prices and the generation mix in regional power markets. The alternative Investment Tax Credit subsidy sometimes available to wind power developers, on the other hand, is inframarginal and a bit less distorting: excessive amounts of wind are built, but ITC-subsidized wind power faces no special incentive to run at negative prices. (In economics terms, the ITC is more like a lump-sum transfer while the PTC is a per-unit production subsidy. A per-unit production subsidy is typically seen as more distortionary than a lump-sum transfer.) Generally, when wind power runs at negative prices, it suggests that non-wind baseload power plants are being pushed into a costly pattern of cycling off and back on. These cycling costs, as well as the modest wear-and-tear on the wind turbines operating when their output has negative value, are excess costs caused by the PTC subsidy.

Next: So far I’ve been responding to the introduction of the AWEA/Goggin response. The rest of the response goes into a little more detail on certain points–I’ll respond in a little more detail as seems appropriate.

Perverse outcomes of water subsidies

I’m intruding on David Zetland’s turf, but in this 2012 Guardian article from 2012 Roger Cowe makes some compelling arguments about why agricultural water subsidies lead to perverse outcomes, do not help the poor, and waste a precious, scarce resource. Water is the only industry in which regulation more perversely stifles self-organizing processes for managing scarcity than electricity. His conclusion is apt:

Like most other perverse subsidies, the goal of improving access to water is not at issue. The perversity arises because making water cheap, especially to crop farmers, leads to excessive use and unintended, environmentally harmful consequences. And the poor, who are often the main targets of subsidies, typically don’t benefit. Irrigation benefits landowners rather than their tenant farmers. And surprisingly, consumption subsidies do few favours for poorer families.

Is Iowa solar power ruling a camel’s nose into electric utility’s monopoly tent?

Michael Giberson

Eagle Point Solar, a for-profit solar power installer and operator, proposed to build a solar PV array on a Dubuque, Iowa municipal building under a long-term contract with the city. Under the contract, Eagle Point would own the solar array and sell power to the city in a “behind the meter” arrangement.

The local electric utility, Interstate Power and Light Company (IPL), challenged the arrangement as infringing on its exclusive service territory. In April of 2012, the Iowa Utilities Board agreed with IPL that the retail electric sales contract would require Eagle Point to be an electric utility and it would thereby be prohibited from providing service in IPL’s assigned exclusive electric service area.

Eagle Point appealed and in March 2013 the Iowa District Court for Polk County overturned the Iowa Utilities Board ruling. Eagle Point was declared not to be a public utility and therefore not in conflict with IPL’s assigned exclusive electric service area. Kari Lydersen at Midwest Energy News summarized key parts of the ruling:

The ruling emphasized that since there is no state statute defining what it means to sell to the public, the utility board should have relied on a decision in a 1968 Iowa case involving the state commerce commission and a natural gas company. Based on a series of tests outlined in that case and actually drawn from a previous Arizona case involving a natural gas company, the court decided that Eagle Point would not meet the definition of either a “public utility” or an “electric utility.”

Among other things, Schemmel noted, Eagle Point would not be able or required to meet all requests for service and it would not be competing with Alliant or creating a monopoly of its own.

Schemmel also pointed out that the solar panels would not meet all of the building’s electricity needs, hence the building would still be hooked up to the grid and buying electricity from Alliant. The building’s demand for electricity from the grid would be reduced, but this would be equivalent to the demand reduction created by energy efficiency measures like weatherization, Schemmel found.

The court also considered a state law declaring it “the policy of this state to encourage the development of alternative energy production facilities” as balancing against the public interests in the law granting monopoly territories to electric utilities.

A significant factor in this case was the ability of for-profit companies like Eagle Point, but not non-profit entities like city governments, to access numerous federal and state subsidies for solar power installations. If the deal was just about power supplies the city could have simply bought the solar array from Eagle Point. But this angle is actually less interesting that the broader possibilities of the precedent to support distributed generation.

The Iowa Utilities Board could appeal the decision to the state’s Supreme Court. But at least until that happens, or if the Supreme Court affirms the district court rules, behind-the-meter distributed power systems appear to be legal in Iowa (at least if they are “alternative energy” based generators, and if they don’t result in entirely removing a customer from electric utility service).

Small renewable providers and cogenerators, start your engines.

Eagle Point Solar: Dubuque City Operations Center

Eagle Point Solar: Dubuque City Operations Center

Free solar power tomorrow!

Michael Giberson

Well, not free-free, but subsidy-free. Maybe.

When I read a headline promising “Solar Power to Hit Cost Parity Next Year,” it reminds me of the sign above the bar promising “Free Beer Tomorrow.” Like tomorrow, “next year” is always approaching and never here.

RP Siegel begins his Triple Pundit article, “Solar Power to Hit Cost Parity Next Year,” in full solar triumph mode:

They said it couldn’t be done. They tried to tell us that renewable energy could only survive if it were propped up with government subsidies. Never mind that our whole system of economic development, beginning with the patent office, is predicated on the idea that fledgling, underfunded industries need special protection for a limited time until they are strong enough to go it alone. Never mind that the fossil fuel industry, which can hardly be considered fledgling or underfunded, is still receiving billions in taxpayer subsidies.

But like the little engine that could, or the middle aged rock star that, after twenty years of struggling in sleazy dives has suddenly become an overnight sensation, solar power, having now surpassed the 100 GW threshold, has finally arrived and is good to go, in many places, without subsidies.

Great, so can we now pull the plug on solar power subsidies? And, by all means, yank the fossil fuel subsidies too.

(I’m passing over the wildly off-the-mark claim about “our whole system of economic development.” Not credible enough to take seriously. As it turns out, neither is the “grid parity” claim credible yet. But let’s at least explore the triumphant claims of success.)

Curiously, the article follows the “has finally arrived and is good to go … without subsidies” declaration with accounts of subsidized success. Apparently one-third of the 100 GW of world solar power capacity has been installed in Germany because of its generous feed-in tariff policies. Installations in China are growing fast. India and then Spain are mentioned. Spain built a lot of solar with subsidies, but recently stopped the subsidies. I’ll come back to India, but let’s look closer at the claim for Spain. Let the fisking begin!

Spain, the article declares, has achieved “grid parity,” backing the claim with only a link to a post at Forbes.com last December. The Forbes.com blog by Peter Kelly-Detwiler, “Solar Grid Parity Comes to Spain,” builds off a report from Bloomberg titled “First Large Solar Plants Without Subsidy Sought in Spain.” The Bloomberg article reports that many large-scale solar projects have applied to connect to the power grid, and the head of solar energy analysis at Bloomberg New Energy Finance is quoted as saying, “Spain is probably set to have Europe’s first utility- scale solar parks without subsidies.” So following the chain of links we have gone from gleeful declarations of “grid parity” to mere grid-connection paperwork that “probably” will yield “solar parks without subsidies” according to a solar energy analyst.

But read a little more and you get the views of the solar power lobbyist in Spain who reports that while many companies are anxious to develop solar power projects…

The biggest hurdle they face is to get the government of Prime Minister Mariano Rajoy to restart the planning process for new solar generation, said Eduardo Collado, director of operations at lobby group Union Espanola Fotovoltaica. Rajoy ordered the end of subsidies for new projects 10 months ago.

“None will go ahead until that changes, even though there are a few plants definitely needed at points in the system where the network operator wants them,” Collado said in an interview.

So, none of the subsidy-free projects will go forward until the policy that ended subsidies is changed?

Still, just a bit later in the article, a solar power developer said it would be able to build without subsidies. Maybe, at long last, this report justifies the triumphant claim that Spain has reached “grid parity”?

Not exactly. In June 2012 the developer said it expected to be able to build without subsidies in the last half of 2013, because “we think the cost of photovoltaic will have dropped enough by then and, given the irradiation in Spain, will be totally competitive.” So once again we have hopes of grid parity “next year,” which through the magic of sloppy reporting become triumphant claims that “Spain has … achieved grid parity.”

So what about India? As the Triple Pundit post reports, Deutsche Bank anticipates solar power transitioning “from subsidized to sustainable markets in 2014″ based on the emergence of “large unsubsidized markets in places like India, where sunshine is plentiful and the alternatives are expensive.” Okay, so once again we have analysts claiming that solar power could live subsidy free soon, just not yet, and no doubt one day such predictions will come true.

But in parts of India, as with many other places around the world, where centralized grid power is expensive or unreliable or unavailable altogether, solar power is already an economical option. Solar power is a product with a few successful market niches, and these market niches will likely continue to grow as (and if) costs continue to fall.

Without extensive policy interventions, a sustainable solar power industry would tend its market niches and prepare to exploit other niches as it became more competitive.

And, by the way, please do yank fossil fuel subsidies and address externalities with appropriate policies, and let fossil fuels shrink to their market-justified size as well.

Get policy right and let the market sort ‘em out.

Fossil energy subsidies and renewable energy competitiveness

Michael Giberson

Some, not all, of you believe that fossil fuel energy gain massive and undeserved subsidies from the federal government, that such subsidies way outweigh subsidies for renewable energy, and that subsidies for fossil fuels undermine the market success of renewable energy.

You may want to read Severin Borenstein’s post, “Are Fossil Fuel Subsidies Really the Problem for Renewables?

In brief, he claims that government-based fossil fuel subsidies don’t amount to much per unit of energy delivered so don’t undermine renewables, are pretty stupid anyway, and the more significant fossil fuel support is elsewhere.

Negative power prices due to wind power’s subsidy

Michael Giberson

On the NYTimes.com Green blog, Matthew Wald reports on “An argument over wind.” The issue is the scheduled-to-expire Production Tax Credit for wind power. As previously mentioned here, former PTC-supporter Exelon Corp. has come out against the PTC extension. It parted ways from the American Wind Energy Association, of which it had long been a member, over the issue.

Wald reports on an Exelon-funded study done by The NorthBridge Group, “Negative Electricity Prices and the Production Tax Credit.” According to Wald:

The study sponsored by Exelon, prepared by the NorthBridge Group, which does extensive consulting for utilities around the country, found pockets where the number of negative hours reached 12 percent or more. While various types of electricity generation have received subsidies over the decades, said Frank Huntowski, one of the authors, “I don’t think we’ve seen something as dramatic as this.’’ …

Negative pricing occurs mostly on spring and fall nights when the wind is blowing strongly but offices, stores and factories are mostly closed and temperatures are so mild that there is virtually no demand for home heating or air-conditioning. The phenomenon existed before the surge in construction of wind machines, but the new industry is making it worse, some industry participants say, especially for companies with baseload plants that were built to run at a steady rate around the clock.

That is a special problem for Exelon, which runs many nuclear plants in the Midwest; nuclear plants cannot change their output quickly.

Long-time readers may recall that we’ve discussed negative power prices many times before here on Knowledge Problem. This link will execute a search of the KP archives: negative+prices.

Related:

Losing the race to sound conclusions on the Production Tax Credit

Michael Giberson

When I worked on public policy issues in Washington, DC, I used to read the National Journal. It tended a bit toward Washington-establishment thinking, but at least it gave evidence of thinking. Now much farther from the daily fray, I only occasionally come across the National Journal, and usually just the so-called Energy Experts Blog. I’m less impressed with the National Journal than I used to be.

Recently they’ve posted a bundle of energy “experts” on the production tax credit. I mentioned the other day that one of the “experts” thought the PTC paid $2,200 per megawatt (actually it pays $22 per megawatt-hour). I just noticed another “expert” reporting that the PTC is set to expire at the end of 2013 (oops, off by 365 days). I guess we’re getting raw, unvarnished expertise on the Energy Experts Blog, nothing subjected to the indignities of editorial review.

But worse than these little slip ups is the general lack of depth to many of the arguments. For “Ms. 2013,” who works for the Pew Clean Energy Program, whether or not we continue the Production Tax Credit is apparently about being at the top of the world in building “clean energy.”

Really? This is your policy criteria? Whether we can wear the “#1 Clean Energy Nation” T-shirts and wave the big “We’re #1″ green energy foam fingers? I thought these kinds of public policy decisions should be informed by considerations of costs and benefits, not a bunch of cheesy cheerleading routines.

Quoted, so you can see what I’m talking about:

In 2011, for the first time in several years, the United States led the world by investing more than $48 billion in clean energy. The clean energy sector represents one of the fastest-growing industries globally, with investment increasing more than 600 percent between 2004 and 2011 (excluding research and development).

We’re in danger of losing our place at the top, however. To maintain our lead amid fierce international competition and to continue to attract private capital, there must be policy certainty. While other nations have national policies to encourage the adoption of clean energy, we rely on a patchwork of state policies and cyclical federal tax incentives, one of the most important of which is to end in a year.

The production tax credit (PTC) is an effective tool to keep electricity prices low and encourage the development of proven clean energy projects. While not large–about 2.2 cents per kilowatt hour–it gives American businesses the certainty they need to continue to invest, build, and deploy. But it’s set to expire at the end of 2013. Uncertainty about whether Congress will act to extend the PTC has already resulted in a sharp drop in investments in wind energy production, threatening the livelihoods of the more than 78,000 people nationwide who are in wind-supported jobs.

When Congress has allowed the PTC to expire in the past, wind installations declined by 73 to 93 percent.

“Wind-supported jobs”? Funny phrase, given the context. Apparently they are 73 to 93 percent tax-break supported jobs. The wind-supported jobs are the ones that would be left in the business after the tax break goes away.

Any economic historians in the audience who can spot check this energy development claim?

Michael Giberson

Please let me know ASAP if you can find any economic historians, energy policy specialists, economists or persons with at least a high school diploma who actually believes the following claim:

For over a century, every major energy source – petroleum, coal, nuclear, natural gas and renewables – has been developed due in large part to favorable federal policy that includes incentives. Without federal assistance of these fuel sources, it is unlikely that our nation would have grown to the economic superpower that it is today.

While the National Journal‘s collection of pro and con Production Tax Credit opinions includes a lot of bullshit, this pair of claims rises to the top. Fully 100 percent USDA prime bullshit, in my opinion.

But prove me wrong, please: find me an interested party with a plausible argument and a grasp on one or two facts that justifies the above claims.

MORE: By the way, the loose thinking and sloppy work isn’t only on the pro-PTC side. Guys arguing that wind power turbines are killing way too many birds slip in the claim that the PTC pays $2,200 per MWh. Um, no, only about $22 per MWh. And, of course, they are focused like a laser beam on the seen dead birds near wind turbines and ignore the unseen dead birds killed by other power production methods.

But thanks for joining us here on the “Let’s Pretend We’re Actually Serious People Doing Serious Thinking” show.