The NY Times piece is entitled “A Gold Rush of Subsidies in Clean Energy Research.” Besides the loaded term “clean energy,” the article is refreshingly frank considering the source:

Halfway between Los Angeles and San Francisco, on a former cattle ranch and gypsum mine, NRG Energy is building an engineering marvel: a compound of nearly a million solar panels that will produce enough electricity to power about 100,000 homes

The project is also a marvel in another, less obvious way: Taxpayers and ratepayers are providing subsidies worth almost as much as the entire $1.6 billion cost of the project. Similar subsidy packages have been given to 15 other solar- and wind-power electric plants since 2009.

The government support — which includes loan guarantees, cash grants and contracts that require electric customers to pay higher rates — largely eliminated the risk to the private investors and almost guaranteed them large profits for years to come. The beneficiaries include financial firms like Goldman Sachs and Morgan Stanley, conglomerates like General Electric, utilities like Exelon and NRG — even Google.

A great deal of attention has been focused on Solyndra, a start-up that received $528 million in federal loans to develop cutting-edge solar technology before it went bankrupt, but nearly 90 percent of the $16 billion in clean-energy loans guaranteed by the federal government since 2009 went to subsidize these lower-risk power plants, which in many cases were backed by big companies with vast resources.

When the Obama administration and Congress expanded the clean-energy incentives in 2009, a gold-rush mentality took over.

As NRG’s chief executive, David W. Crane, put it to Wall Street analysts early this year, the government’s largess was a once-in-a-generation opportunity, and “we intend to do as much of this business as we can get our hands on.” NRG, along with partners, ultimately secured $5.2 billion in federal loan guarantees plus hundreds of millions in other subsidies for four large solar projects.

“I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects,” he said in a recent interview. “It is just filling the desert with panels.” [Bold added.]

Regardless of which companies take advantage of lucrative federal subsidies, they are economically inefficient. If it makes sense to pump resources into a project, the private sector will do so. After all, pharmaceutical and software companies spend billions developing products that might take years to reach the final consumer.

Yet as the NY Times piece makes clear, there is yet another insidious aspect to massive government handouts for “clean energy”: the struggling taxpayers end up shoveling giant profits into the hands of very wealthy people. Not only do these subsidies distort energy markets, they also redistribute wealth from the average taxpayer into the hands of the politically connected.

Bad News and Good News

The Monday after Beacon Power filed, The Hill carried the story:

A Massachusetts company that received a $43 million Energy Department loan guarantee last year filed for bankruptcy Sunday, a step certain to fuel criticism of federal green energy financing in the wake of the solar company Solyndra’s collapse.

Beacon Power Corp., which develops energy storage systems, filed for bankruptcy protection in the U.S. Bankruptcy Court in Delaware.

Beacon Power had received a federal loan guarantee to help build an energy storage plant in Stephentown, N.Y., that began operating in January. The Treasury Department’s Federal Financing Bank provided the loan.

Critics of the DOE loan program were quick to pounce:

“This latest failure is a sharp reminder that DOE has fallen well short of delivering the stimulus jobs that were promised, and now taxpayers find themselves millions of more dollars in the hole,” said Rep. Cliff Stearns (R-Fla.), the GOP’s point man on the Solyndra investigation and a senior member of the Energy and Commerce Committee, in a statement to The Hill and other outlets.

Naturally, the DOE rushed to do damage control, and reassure taxpayers that the government was looking out for them:

Energy Department spokesman Damien LaVera said there are “many protections for the taxpayer” in the agreement with Beacon Power.

“The Department’s loan guarantee is for the project Stephentown Regulation Services, LLC, not the parent company, and the loan was set up in a way that ensures the Department is not directly exposed to the liabilities of the parent company,” he said in an email Monday.

…

“It is important to note that this plant itself, which is operational and generating revenue, is a valuable collateral asset. In addition, under the terms of our loan guarantee agreement, Stephentown Regulation Services, LLC currently has cash reserves and proceeds from the plant that it was required to hold as collateral on the loan,” LaVera said. [Bold added.]

LaVera is right, it would be reassuring to taxpayers if the loan to the Stephentown project were completely separate from the bankrupt parent company, and if those cash reserves were still airtight collateral on the loan.

Unfortunately, those taxpayer protections evaporated a mere two days later at the bankruptcy hearing, as the WSJ reports:

A Massachusetts company that received a $39 million loan from the Department of Energy before declaring bankruptcy won interim approval Wednesday from a Delaware judge to use cash collateral for the loan to help pay operating expenses during its reorganization.

Judge Kevin Carey overruled an objection by the DOE in granting permission to Beacon Power Corp. to use some $3 million in cash collateral to keep its business going.

…

In response to Beacon’s request to use the cash collateral, the DOE asked for a breakdown of expenses related to the Stephentown facility. [Beacon attorney William] Baldiga said providing a breakdown is virtually impossible because the company is highly integrated.

“There are virtually no expenses that are paid at the Stephentown level,” said Baldiga. [Bold added.]

Oops. Taxpayers should at least be glad that their cash collateral was safe and sound for a full 48 hours after the DOE issued its statement.

Why Is Uncle Sam Investing in Flywheels?

Besides the comedy, the episode raises the more fundamental question: Why is the federal government providing loan guarantees to a company working on flywheels, anyway? Beacon’s website gives part of the story:

The world’s first 20 MW flywheel energy storage plant, designed, built and operated by Beacon Power in Stephentown, New York, reached full capacity on June 21, 2011. The plant operates continuously, storing and returning energy to the grid to provide approximately 10% of the state’s overall frequency regulation needs.

The reason the DOE is committed to spurring flywheel development is that solar and wind power are intermittent energy sources. In contrast to more conventional forms (such as fossil fuels, nuclear, and hydropower), solar and wind electrical generation do not provide a steady and reliable source of power. If such technologies are ever to serve more than a niche market, they will need to be supplemented with extensive storage capacity. As a 2008 Sandia National Laboratories report explained:

PV [Photovoltaic] systems are a small part of today’s electricity infrastructure and have little effect on the overall quality or reliability of grid power. Nevertheless, state and federal efforts are currently underway to greatly increase the penetration of PV systems on local and regional utility grids to achieve goals related to emissions reduction, energy independence, and improved infrastructure reliability. However, when PV penetration reaches sufficiently high levels (e.g., 5 to 20% of total generation), the intermittent nature of PV generation can begin to have noticeable, negative effects on the entire grid.

Figure 1 [listed in the report] illustrates the transient nature of PV generation as clouds pass over a typical residential system during the course of a day. Both the magnitude and the rate of the change in output are important: in mere seconds, the PV system can go from full output to zero (essentially), and back again. At high levels of PV penetration, this intermittency can wreak havoc on utility operations and on load-side equipment, due to fluctuations in grid voltage and power factor. Fluctuations at this scale simply cannot be allowed. [Page 10, bold added.]

The use of extensive storage (whether in batteries, flywheels, etc.) is thus necessary if the shares of solar and wind power are to significantly grow in the electrical mix. For this reason, the comparisons of generation costs among different technologies are often misleading, because solar and wind should carry the additional costs of storage technology.

These costs can be quite significant, depending on the storage technology. The Sandia report (page 22) shows that at least for residential and small commercial applications, storage costs (as of the 2008 report) ranged from $150/kWh for lead batteries, to $1,000/kWh for high-speed flywheels, and over $1,300/kWh for lithium ion batteries.

Conclusion

The bankruptcy of the second DOE-backed company in the renewable energy sector is yet another red flag that the government has no business running a bank (or hedge fund) with tax dollars. Government officials shouldn’t be picking specific winners and losers, even if one believes in the threat of climate change. The reason the private sector won’t fund these projects is that they are unprofitable, and that’s exactly why the government shouldn’t be backstopping them either.

In contrast was Lee Raymond of ExxonMobil, rejecting investments in wind and solar as a fad that would not serve his stockholders well. Renewable energy, generally speaking, Raymond told the Economist magazine back in 2003, “is a complete waste of money.”

Today Enron is a decade gone, and a humbled BP is back to petroleum with gusto. Shell has big plans for Arctic oil and gas development and tells plodding regulators: Let’s Go. And as Chevron CEO John Watson explained in a recent policy address: “Affordable energy is the priority that should underpin all of our actions.” Renewables, he added, need to become cost-competitive to have their era.

Even the New York Times is waking up to energy reality. In its special energy section this week, the Times had multiple articles educating readers about how the future belongs to the efficient, and political favor is the lifeline for the inefficient. Clifford Krauss in the feature article explained that fossil fuels are entering a new phase of productivity and growth. Matthew Wald’s “Solar Power Industry Falls Short of Hopes in Job Creation” was joined by Kate Galbraith’s “Future of Solar and Wind Power May Hinge on Federal Aid.” Reading these articles, Myron Ebell of the Competitive Enterprise Institute said: “It will be interesting to see how the Times’s columnists Paul Krugman and Thomas L. Friedman will handle [all this energy] news.”

At Energy Biz, Ken Silverstein, a perennial cheerleader for politically correct renewables, wrote of a new mentality from the oil and gas industry. “The fossil fuel sectors are fighting back against a wave of popular sentiment that they say is ill-founded,” he noted. “The oil, gas and coal industries say that their products are abundant and reliable, allowing this nation to achieve its economic well-being.” Silverstein quoted the philosophical, public-good argument of Chevron’s Watson.

I believe the United States has an opportunity – in fact, a great responsibility– to create an energy policy with affordability at its core. We need a refreshed policy approach that recognizes the value of fossil fuels and allows a market-driven transition to affordable substitutes over time. And I would suggest that only an energy policy with affordability as its central goal has the potential to deliver long-term economic, energy and environmental security.

Hear! Hear!

But what is new is really old. As W. S. Jevons explained so well in his 1865 classic The Coal Question, dilute, unreliable renewables cannot power machinery. Today, the message of energy density is being promulgated by the nation’s leading energy journalist, Robert Bryce.

Energy reality is demoting “politically correct” to Obama Bad. Does the President’s so-called “dream ‘green’ team” get it

Investors Defend the Green Gravy Train

A recent Reuters story explains that green investors are rushing to defend the process that showers them with taxpayer backstop for their loans:

U.S. renewable energy investors defended the government energy loan program at the center of the political firestorm ignited by the high-profile collapse of solar panel maker Solyndra, one of the program’s beneficiaries.

Partners at top private equity firms that have participated in the government’s loan guarantee program for alternative energy described the program’s review process for applicants as “robust” and even more in-depth than in the private sector.

“It’s probably the toughest due-diligence exercise that any of us had ever experienced,” Neil Auerbach, a managing partner at Hudson Clean Energy Partners, a private equity firm that invests in the sector, told the Retech renewable energy conference in Washington on Wednesday.

Auerbach said his experience with the loan guarantee program might reflect the Energy Department’s applying lessons it learned after approving earlier projects, such as Solyndra.

“What we might have seen over these 40 loan guarantee approvals is a program start with a prototype — the first one through the chute was Solyndra — then successive screw-tightening exercises that were going on,” said Auerbach, a former partner with Goldman Sachs.

Solopower, a solar company backed by Auerbach’s fund, received a $197 million loan guarantee this year to retrofit a solar manufacturing plant in Wilsonville, Oregon.

…

Ed Feo, a managing partner at USRG Renewable Finance, said he also found that the level of detail required for the federal program was more than he was used to. He said in his experience the agency conducted “rigorous” oversight.

…

Feo said the loan guarantee program should not be blamed for the fall of Solyndra but should judged on the basis of all its investments, not just those involving a single company.

“If you want to innovate and you want to facilitate innovation, you have to accept the fact sometimes things don’t work and there’s a cost associated with that,” Feo said.

Feo is simply wrong in the quotation bolded above, when he implies that—aww shucks—taxpayers will just have to sometimes eat half a billion dollars and tolerate FBI investigations if they want “innovation.” On the contrary, at one point this country was supposed to be a free market, in which the government left innovation—and more specifically, the determination of how energy would be produced and distributed—to the voluntary private sector.

Bogus Oversight

Besides their obvious self-serving bias in defending the government’s loan guarantees, the green investors quoted above are confusing bureaucracy with actual safeguards. By its very nature, government operations are inefficient and choked with red tape. Any small business owner recognizes the labyrinthine complexity of the tax code and labor laws. Yet these codes are riddled with carve-outs and privileges for special interests. That’s partly why the codes are so complicated.

It’s the same thing with “green” guarantees. The government can’t simply guarantee every loan application with “renewable” in the description; the Treasury would be bankrupt in a month. (Or rather, it would be officially bankrupt, as opposed to its current status as merely unofficially bankrupt.) So the government has to put up barriers, to make sure the gravy gets steered only to those people who really lobby for it.

Conclusion

Despite the defenses of those who are currently enjoying the program, the government’s loan guarantees for green projects are turning out to be more and more crooked. Currently 14 such grants are under investigation. Solyndra wasn’t a lone bad apple.

It would be nice to think that the bureaucratic hurdles for such loan guarantees dovetail perfectly with the requirements for a sensible business plan. But we know that must not be true: If it were, the investors wouldn’t need taxpayer backstops, they would go to the private capital markets for funding.

If the goal instead is to frankly subsidize bad business ventures, because of a non-financial concern for environmental objectives, then officials should at least have the decency to be frank with the American taxpayers that that’s what is going on here.

In its heyday, Enron set out to become the world’s leading renewable energy company, having entered the solar business in 1994 and wind business in 1997. Enron CEO Ken Lay believed that Enron, as a green company, was about the energy future; ExxonMobil and the other oil majors were about the energy past.

In 1999, Enron lobbyists persuaded Gov. George W. Bush and the Texas legislature to enact an electricity restructuring bill that included the nation’s stiffest renewable quota. Texas would become the leading wind state in the nation in fairly short order and lead America’s renewable-energy boom.

Business-wise and legislatively, Enron did more than any other U.S. company to promote the dream of a “green” energy economy.

Today, we have the sordid tale of bankrupt Solyndra, the California solar company which received a $535 million federal loan from the federal government. This loan was made despite Solyndra accumulating losses of $558 million in the five prior years. The company’s recent bankruptcy and layoff of 1,100 apparently caused President Obama to forego mentioning “green jobs” in his September 8^th Jobs for America speech.

Enron’s Solar Misdirection: 1994

But if politicians had paid attention to Enron years ago, they would have seen through Solyndra’s risky, government-dependent strategy. Solyndra is just one more company to promise a solar breakthrough and fail to achieve their claims.

Seventeen years ago, Enron announced a breakthrough via the New York Times of a proposed solar project that could generate electricity at a rate competitive with that from fossil fuels. “Solar Power, for Earthly Prices: Enron Plans to Make the Sun Affordable” reported a fixed rate from Enron of $0.055 per kilowatt hour for the life of the contract.

Enron’s solar price surprised even environmental pressure groups. “Even the most optimistic supporters of solar power have doubted that they would see commercially competitive production until the next century,” Times reporter Allen Myerson wrote. “The Worldwatch Institute, an environmental group in Washington, said earlier this year that solar cell electricity, now as low as 20 cents a kilowatt-hour, might reach 10 cents by 2000 and 4 cents by 2020.”

But while there was some skepticism, there was also optimism that mighty Enron was going to do what existing solar manufacturers had hitherto been unable to accomplish. The Times article also reports:

Size is key, according to Sigurd Wagner, a professor of electrical engineering at Princeton University.

“If a good group of people puts a plant of that scale in, it will have a real consequence on costs,” he said. “It’s not going to go down by just a little bit, but by a factor of two.”

To accomplish this feat, Enron was banking on government help at many levels. “Enron has asked the Government to buy or guarantee a market for its power, with annual increases of 3 percent, for 30 years,” explained Myerson. “It also depends on leasing Government land, receiving Federal tax benefits for renewable energy and financing construction with tax-free industrial development bonds.”

But the project never materialized. No announcement was made or autopsy performed. Evidently, the different governmental jurisdictions could not stomach what Enron was demanding. There was a lot of smoke amid Enron’s mirrors. Even today, the U.S. Energy Information Administration estimates the levelized cost of photovoltaic solar at above twenty cents per kWh, some four times what Enron was touting back in 1994.

Lessons

There is little excuse for the present situation of the Obama Administration with its solar loan guarantees souring.

Did not DOE Secretary Stephen Chu tell the New York Times that solar technology would have to improve fivefold to be competitive? Aren’t politically dependant companies, á la Enron, bad risks given that consumers bat last? Evidently, Obama’s Department of Energy has evidently shown far less prudence than Clinton’s Department of Energy did in solar matters.

Government trying to pick energy winners instead has picked energy losers—and picked the taxpayer’s pocket.

Daniel Simmons contributed to this post.

The story of Pebble mine is complicated, but has a similar theme in the energy debate. It begins with anti-energy activists who lobby the EPA to use the Clean Air Act in an unprecedented fashion. This maneuver by the EPA has the support of Senator Cantwell. In other words, activists have convinced the EPA to study large-scale mining efforts even before the Pebble Partnership has proposed an actual mine. Now, Senator Cantwell has announced the she will support the EPA taking the unprecedented step of trying to preemptively veto the mine before all the permits and evaluations have been considered.

As the Washington Post noted:

“Cantwell is making her request [for EPA to attempt to preemptively veto the mine] as the EPA conducts a scientific analysis of the proposed mine that is expected to be released this fall…If she is successful, she will help thwart a project that could result in the extraction of more than 107 million ounces of gold and 80 billion pounds of copper from a 150-square-mile site, an area as large as the city of Chattanooga, Tenn.”

Given Sen. Cantwell’s affinity for renewable energy, her support for the EPA on this issue comes as a shock, since the minerals in Pebble mine will provide the key elements (namely copper) for electric cars and renewable energy production.

Sen. Cantwell argues that we should reduce our dependence on foreign oil by using electric cars, but she probably does not realize that an electric vehicle requires three times as much copper as a conventional vehicle. This means we need to either mine the rare earth metals and create jobs here or import them from China.

Similar to electric vehicles, wind farms are copper intensive. For example, the Sweetwater Wind Farm in Texas is installing 61 1.5 megawatt General Electric turbines, making it the largest wind project in the world. However, this one project requires 47,500 linear feet of copper cable for the transformers and an additional 30,000 linear feet for transmission lines. Again, we can create jobs at home by developing our own resources or we can import the rare earth metals from abroad.

There are many more examples of how copper and other minerals (especially rare earth minierals) play an integral role in renewable energy development, but these two examples demonstrate that Senator Cantwell backed herself into energy corner. If we can’t mine our natural resources, we can’t produce the renewable energy that she supports legislatively in Congress.

We have the power to grow our economy and the natural resources to develop new technologies, but we need government to end its campaign against energy production and put Americans back to work. This might be too much to ask, but if Congress and state legislatures mandate the use of renewable energy as part of a renewable portfolio standard, at least allow our companies to produce the raw materials and create the jobs that come with energy production.

Iberdrola

According to its website, Iberdrola is “the number one energy company in Spain, the world’s top wind power producer and one of the largest utilities internationally.” Its U.S. subsidiary, Iberdrola Renewables, “is the second-largest wind operator in the U.S. and also operates more than 621 MW of gas-fired generation and more than 129 BCF of owned and contracted U.S. natural gas storage.

The Spanish parent company Iberdrola was specifically mentioned in the famous Calzada green jobs study as one of the rent-seeking firms benefiting from government handouts (to the detriment of economic efficiency and taxpayers). As we’ll see, the U.S. subsidiary has played a similar game in our country, using American taxpayers for business “success.”

No Renewables Company Left Behind

Iberdrola Renewables has benefited greatly from its cozy relationship with the U.S. federal government. From the company’s press release of September 1, 2009 we learn.

Iberdrola Renewables, Inc. today confirmed it has received US Treasury Department approval of five grants totaling $294,889,003 supporting new wind energy projects in four states. These grants represent investment by Iberdrola Renewables of approximately $1 billion in US wind power.

The grants were authorized under the American Recovery and Reinvestment Act in lieu of renewable energy production tax credits (PTCs) typically provided to wind generation facilities. Grants were awarded to the Peñascal Wind Project (Texas), Moraine II Wind Project (Minnesota), Locust Ridge II Wind Project (Pennsylvania), and Hay Canyon and Pebble Springs Wind Projects (Oregon).

“The approval of these grants today is a key event for Iberdrola Renewables,” said Ralph Currey, President and Chief Executive Officer. “Switching from the PTC to the grant program was made necessary by the collapse of US financial markets last fall. This change will enable our company and others to keep investing in new renewable energy while the financial markets mend. Thanks to the grant program, Iberdrola Renewables is proceeding with new renewable investments in 2009 and will continue to do so next year and beyond.”

As the part we’ve put in bold indicates, Iberdrola Renewables was dependent on taxpayer-financing. Private investors, with their own money on the line, would not have taken such a risk. But alas, officials in the Obama Administration decided to make that decision for them—and other taxpayers.

The American Recovery and Reinvestment Act was definitely a “stimulus” for Iberdrola, because it was the subsidy that kept on giving. On September 22, 2009, Iberdrola issued another happy press release:

Iberdrola Renewables, Inc. today confirmed it has received US Treasury Department approval of three additional grants totaling $250,953,367. These grants represent investment by Iberdrola Renewables of approximately $860 million in US wind power in three states.

The grants for three additional wind farms put into service in 2009 result in a total of almost $550 million in Stimulus grants awarded to eight Iberdrola Renewables projects. To date, the company has submitted eight grant applications for new renewable energy projects totaling 980 megawatts (MW) of generation and more than $1.8 billion of investment by Iberdrola Renewables, and received grants for all eight.

…

The grants were authorized under the American Recovery and Reinvestment Act in lieu of renewable energy production tax credits (PTCs) typically provided to wind generation facilities. Grants were awarded to the 160 MW Barton project (Iowa), 146 MW Farmers City project (Missouri), and the 120 MW Barton Chapel project (Texas). The financial crisis of last fall took away the ability of many renewables companies to use the PTC, jeopardizing investment in renewable projects.

Iberdrola’s success depends on government favoritism. Just as Time magazine, which reported:

With operations in 23 countries, including Britain, Romania and Brazil, Iberdrola Renovables is rolling hard and fast, nowhere more so than in the United States. Chairman Ignacio Galán could not be more effusive about his company’s prospects there, calling the Obama Administration’s support of renewables an “unprecedented success.” The company’s rapid-fire growth was made possible by President Obama’s decision to invest heavily in renewable energy to fight climate change — and recession — under his economic-recovery plan. As part of that plan, Iberdrola received over $1 billion in cash grants from the U.S. Treasury, the biggest sum ever awarded to a renewable company anywhere.

Defenders of Iberdrola might ask, “So what?” After all, just because a wind power company receives government handouts, doesn’t mean there’s anything suspicious going on. Or does it?

Iberdrola’s Lobbying

We don’t want to burst anyone’s misconceptions about how government grants work, but it turns out Iberdrola mail-room workers weren’t shocked to discover hundred-million dollar checks coming in out of the blue. Iberdrola officials have worked closely with the government to achieve the “unprecedented success” courtesy of American taxpayers.

For example, in March 2009 Senator Harry Reid let the cat out of the bag on the crafting of “The Clean Renewable Energy and Economic Development Act of 2009”:

Fortunately, Nevada and other parts of the desert southwest have enough solar energy potential to power our country seven times over.  If that potential is combined with the wind energy from the Great Plains and the hundreds of thousands of megawatts of geothermal energy deep beneath the earth, the whole country could have cost-free fuel for many generations to come.

Innovators and entrepreneurs in every state have already begun to harness this power. But the field is in its infancy – and it will only mature with significant and sustained support and attention at the federal level.

…

Mr. President, the need for reform is very clear. That is why I am introducing a bill today that charts a course to a cleaner, greener and smarter national energy transmission system without sacrificing reliability or affordability. This will ensure a more secure and sustainable energy future for America.

…

Here are just a few of the organizations that provided valuable input in the drafting process for this bill: The Energy Future Coalition; the Center for American Progress; the Pickens Plan; Energy Foundation; Sierra Club; Natural Resources Defense Council; National Wildlife Federation; Audubon Society; The Wilderness Society; Bonneville Power Administration; Western Area Power Administration; Tennessee Valley Authority; Bureau of Land Management; Federal Energy Regulatory Commission; Department of Energy; North American Electric Reliability Corporation; National Association of Regulatory Utility Commissioners; California PUC; Working Group for Investment in Reliable and Economic Electric Systems; Florida Power & Light; Midwest Independent System Operator; PJM Interconnection; ITC Transmission; Trans-Elect Transmission; Pacific Gas & Electric; American Electric Power; American Public Power Association; Large Public Power Council; Salt River Project; National Rural Electric Cooperative Association; Solar Energy Industries Association; Bright Source Energy; RES-Americas; American Wind Energy Association; Iberdrola Renewables; Colorado River Energy Distributors Association; Electric Power Supply Association; National Electrical Manufacturers Association; and many more.

Lest it be thought that Iberdrola’s “input” into Senator Reid’s bill was an act of pure altruism on their part, here is what Donald N. Furman, Senior Vice President of Business Development, Transmission and Policy for Iberdrola Renewables, said in testimony before the Senate Committee on Energy and Natural Resources referring to an earlier version of the bill:

I want to commend Senator Reid for his leadership in introducing S. 2076, the Clean Renewable Energy and Economic Development Act. This legislation would establish national renewable energy zones, encourage regional cost allocation for transmission built to serve renewable generation, enable utilities building transmission in renewable energy zones to recover their costs from ratepayers, and fund Federal utility construction of transmission in renewable energy zones if private entities fail to make their own investments. The Reid bill also would require the Bonneville Power Administration (“BPA”) and the Western Area Power Administration (“WAPA”) to use their transmission systems to aid in the integration of wind and solar power. These are all remedies that would prove extremely helpful. Senator Reid’s legislation wisely recognizes that the Federal utilities can play an important role in promoting the development of renewable energy.

Yes, we imagine it is very “helpful” for a business when the government forces customers to buy its products. It almost makes hundreds of millions in grant money just icing on the cake.

Incidentally, for those who like to follow the money, during 2007-2010 Iberdrola contributed almost $233,000 to various political groups, including almost $30,000 to Barack Obama and $6,000 to Harry Reid. (The totals include contributions from Iberdrola’s employees, family members, and political action committee.)

In addition, Iberdrola contributed $25,000 to efforts to stop California’s Proposition 23, which would have suspended that state’s global warming law. As the linked Grist article makes crystal clear, “green” enthusiasts have no problem with businesses making donations to achieve political victories—so long as the green enthusiasts agree with the special interests.

Conclusion

Although the case of Solyndra has the juiciest details for a scandal, it is not a lone “bad apple” spoiling an otherwise angelic bunch. By their very nature, companies seeking government patronage cannot survive the discipline of the market. Rather than turning a profit on their own merits, these firms must rely on taxpayer handouts and mandates forcing customers to buy their products.

Politics being what it is, these potential recipients of government largesse don’t sit back and wait to get called. They actively lobby for the handouts and mandates. So far, Iberdrola has lobbied very successfully in the U.S. and around the world.

• Renewable energy subsidies increased by 186 percent from $5.1 billion to $14.7 billion. Renewables saw by far the largest jump in federal benefits. Of the $14.7 billion in fiscal year 2010, $6.2 billion (65 percent of the increase) was related to the Obama administration’s economic stimulus law.
• Wind led the various renewables with a more than 10-fold increase in subsidy from $476 million to $4,986 million.
• Solar subsidies increased by more than a factor of 6 from $179 million to $1,134 million and led the electricity sector subsidies on a unit of production basis.
• Subsidies for biofuels increased by 66 percent, from $4 billion to $6.6 billion.
• Conservation and end-use subsidies more than tripled from $4 billion to $14.8 billion. Conservation subsidies increased from $369 million to $6,597 million, a factor of almost 18. End-use subsidies increased from $3,618 million to $8,241 million, more than a doubling.

In contrast,

• Federal subsidies for coal increased 44 percent from $943 million to $1,358 million.
• Federal subsidies for oil and natural gas increased 40 percent from $2,010 million to $2,820 million.
• Federal subsidies for nuclear energy increased 46 percent from $1,714 million to $2,499 million.

Federal Subsidies and Support for Electricity Production

The focus of the congressional request was on subsidies for electricity generation, both on a total dollar amount and on the amount per unit of electricity production. From 2007 to 2010, federal subsidies for electricity production increased from $6,582 million to $10,902 million, an increase of 66 percent. The largest dollar amounts went to wind and nuclear. But, on a unit of production basis, the winners were clearly wind and solar.

Source: Energy Information Administration, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, July 2011, http://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf

Federal Subsidies and Support per Unit of Electricity Production

Absent from this report is an accounting of subsidies by unit of production, which the previous report released by EIA in 2008 contained.[ii] In the 2011 report, EIA states “while the overall amount of federal subsidies and support provided per unit of overall energy consumption or production has clearly grown, simply dividing the current value of subsidies by current consumption or production does not reflect either the long-term impact of the imbedded subsidies and or the future impacts of current subsidies and support that may only be starting to impact energy markets.”  While whatever this statement is meant to imply may be true, these measures are another indicator of how federal dollars are being used and the value the nation is getting from them. It is interesting that the same upper management in EIA that thought that the amount expended divided by the amount produced was an appropriate indicator three years ago, no longer believes it should be reported now even though that information was requested by congress.

EIA does state that “Relative to their share of total electricity generation, renewables received a large share of direct federal subsidies and support in FY 2010. For example, renewable fuels accounted for 10.3 percent of total generation, while they received 55.3 percent of federal subsidies and support.” While this statement is true, the difference is skewed much more than presented by these statistics because hydroelectric power provides the largest share of renewable generation (about 60 percent), but got only 0.6 percent of all subsidies and 1.5 percent of all renewable subsidies.

The Institute for Energy Research decided to calculate the federal subsidies and support per unit of electricity production from the information provided in EIA’s report and the generation data in its Monthly Energy Review.[iii]  The ratio of dollars to production is given in the following figure. As can be seen by the figure, solar is being subsidized by over 1200 times more than coal and oil and natural gas electricity production, and wind is being subsidized over 80 times more than the more conventional fossil fuels on a unit of production basis.

*Natural Gas and Petroleum Liquids

Source: Energy Information Administration, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, July 2011, http://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf

Non-electricity Sector Subsidies

Biofuels, including ethanol, received $7,646 million in federal subsidies and support in fiscal year 2010, more than double its $3,249 million received in FY 2007, and the largest component of non-electricity production subsidies (73.2 percent). This translates into a unit of production subsidy of $7.09 per million Btu, over 15 percent higher than in FY 2007. Biofuels received 3.5 times more federal support than natural gas and petroleum liquids did in fiscal year 2010.

Federal subsidies and support for natural gas and liquids in the non-electricity production sector totaled $2,165 million in fiscal year 2010, about 20 percent of the non-electricity sector subsidies and support.  On a consumption basis, natural gas and petroleum liquids subsidies in fiscal year 2010 were $0.04 per million Btu based on non-electricity consumption. This was the metric used in EIA’s 2008 report. On a production basis, natural gas and petroleum liquids subsidies in fiscal year 2010 were $0.07 per million Btu, excluding the domestic share of natural gas and oil consumed by electric generating plants. In either case, subsidies for biofuels in fiscal year 2010 were over 100 times more on a Btu basis than those for petroleum and natural gas.

Conclusion

EIA’s report shows that on a total dollar basis, wind energy has the highest federal subsidy. However, on a unit of production basis, solar energy is by far the costliest form of electricity production. Both of these technologies are being promoted by the Obama Administration and many environmentalists in lieu of the more cost effective fossil fuels. Also, one thing that bears investigation is why EIA did not include the amount of federal subsidies and support provided per unit of overall energy consumption as it had in its previous report.

• Renewable energy subsidies were 49 times greater than fossil fuel subsidies when evaluated on a Btu (British thermal unit) basis of production. In other words, when making a comparison based on the amount of energy produced, renewable subsidies were 49 times greater than fossil fuel subsidies.
• On a straight amount-of-subsidy basis, renewable fuels received over 6 times more tax revenue dollars than fossil fuels received, as estimated by the Joint Tax Committee.
• Renewables received a 77 percent share of total federal energy incentives in 2009, while fossil fuels received a 13 percent share but produced more than 7 times the energy.

The April CRS Analysis

In April, the CRS produced a report that discussed the reasons why governments provide subsidies, listing the estimated tax revenue losses as a result of  U.S. energy-related subsidies for 2010 to 2014. According to the CRS, governments provide subsidies to fix market failures, i.e. to correct distortions in energy markets, or to achieve an economic objective. But, as CRS notes, tax policy is determined within a political system with compromises, which complicates the process and can either mitigate or compound the distortions. Current and past policies have been used in an attempt to reduce imported oil through greater use of domestic resources and to decrease environmental emissions by promoting renewable energy and conservation.

The total tax revenue lost due to energy-related federal subsidies for the 5-year period from 2010 to 2014 is estimated at $71 billion with renewables getting the lion’s share of $49 billion or 69 percent. See table below.

The May CRS Analysis

The May CRS analysis, like the one above, is based solely on Federal tax incentives targeted to energy. It does not include federal support that is also available to other industries or forms of federal financial support such as research and development funds, nor does it include state energy incentives. The tax expenditure estimates are from the Joint Tax Committee and are projected revenue losses, not actual losses.

The study found that in 2009, estimated tax revenue losses for the energy sector totaled $19.9 billion. Of the $19.9 billion, renewable energy received $15.4 billion in tax breaks, while fossil fuels received $2.5 billion. Another $2 billion worth of tax breaks went toward conservation, efficiency, alternative vehicles, and other energy-related tax incentives. Alcohol fuels and biofuels received the largest share of tax breaks in 2009, consisting of estimated tax revenue losses of $12.5 billion. Over half of this amount was for black liquor qualifying for a tax credit as an alternate fuel mixture—a tax credit that was discontinued after 2009. Black liquor is a fuel obtained from digesters in the process of chemically pulping wood that is burned in a recovery furnace to extract certain basic chemicals.

Tax Incentives by Category, 2009

Source: Congressional Research Service, http://assets.nationaljournal.com/pdf/051411_CRSsubsidies.pdf

CRS used primary energy production data reported by Energy information Administration (EIA) in its Annual Energy Review to compare the amount of production from each source. The following figure provides the distribution of primary energy production in 2009 by fuel type using EIA data. Fossil fuels represented 77.9 percent of total energy production in the United States in 2009, while nuclear fuel represented 11.4 percent, and all renewable fuels combined represented 10.6 percent. Of the renewable share, biomass represented the largest portion, exactly half at 5.3 percent, with hydroelectric power second with a 3.7 percent share. Wind and solar energy represented a combined 1.1 percent of the 10.6 percent renewable production share.

Primary Energy Production by Source, 2009

Source: Congressional Research Service, http://assets.nationaljournal.com/pdf/051411_CRSsubsidies.pdf

One way to compare subsidies is based on the amount of energy produced. When evaluated on a unit of production basis, fossil fuel estimated subsidies were $0.04 per million Btu (British thermal unit) and renewable fuel subsidies were $1.97 per million Btu. In other words, renewable fuel subsidies were 49 times greater than fossil fuel subsidies on a per Btu basis.

Alcohol and biofuels, excluding black liquor, received estimated subsidies of over $6 per million Btu based on production of 981 trillion Btu in 2009. Alcohol and biofuel subsidies on a Btu basis of production were over 150 times higher than fossil fuels subsidies. While biofuels and other oxygenates received the largest share of subsidies, these fuels only produced  3.9 percent of total petroleum products supplied in 2009, according to EIA.

CRS also compared the 2009 estimated tax revenue losses by tax subsidy category to the estimated tax revenue losses estimated for 2010. The alcohol and biofuels tax subsidies decreased from an estimated $12.5 billion to $6.3 billion because black liquor is no longer eligible for the subsidy, but those for other renewables increased from $2.9 billion to $6.7 billion. The latter increase was mainly due to the section 1603 grants that are provided for qualifying investments in lieu of tax credits. Those grants allow solar plants and wind farms to get an immediate rebate of 30 percent of their investment cost instead of taking the 30 percent over time as a tax credit. That change increased the lost tax revenues due to those subsidies from $1.1 billion in 2009 to $4.2 billion in 2010. The decline in tax revenue losses for alcohol fuels was due to the scheduled expiration of the excise tax credit at the end of 2010. That tax credit, however, was temporarily extended through the end of 2011 by the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010 (P.L.  111-312). The tax revenue losses from subsidies for energy efficiency improvements to existing homes also saw a large increase, rising from $0.3 billion in 2009 to $1.7 billion in 2010. The revenue losses from tax subsidies for fossil fuels were estimated to decline from $2.5 billion in 2009 to $2.4 billion in 2010. Total revenue losses due to direct energy subsidies in 2010 were estimated to be $19.1 billion, 4 percent less than in 2009.

Conclusion

While renewable energy advocates do not want to admit it, renewables get the lion’s share of direct energy subsidies both on a total dollar basis and also when compared to the amount of energy produced. Fossil fuels garnered an estimated 13 percent of 2009 energy tax incentives, while renewable energy received 76 percent. Alcohol and biofuels subsidies received the largest share of renewable tax incentives in 2009. In 2010, total tax incentives were estimated to be 4 percent less than in 2009, but fossil fuels still only garnered an estimated 13 percent, while renewables totaled an estimated 68 percent. And, on a unit of production basis, renewable subsidies in 2009 were 49 times as great as fossil fuel subsidies.

The questions for policy makers are: “What market distortions are the subsidies trying to fix? Are the distortions mitigated or compounded by the subsidies? Are benefits being reaped?”

Committee on Energy and commerce

The Institute for Energy Research (IER) is a non-profit organization that conducts historical research and  evaluates public policies in energy markets. IER articulates free market positions that respect private property rights and promote efficient outcomes for energy consumers and producers. IER staff and scholars educate policymakers and the general public on the economic and environmental benefits of free market energy. The organization was founded in 1989 as a public foundation under Section 501(c)(3) of the Internal Revenue Code. Funding for the institute comes from tax-deductible contributions of individuals, foundations, and corporations.

Energy Secretary Steven Chu and other administration officials paint a very dire picture of the U.S.-vs.-China race for clean energy, implying that China is quickly outstripping United States in that race.[1] However, all the facts are not on the table. In both 2008 and 2009, the United States added more non-hydroelectric renewable capacity than it added traditional capacity (natural gas, coal, oil, and nuclear).[2] At the end of 2010, the United States and China each had over 20 percent of the world’s installed wind capacity.[3] While it is true that China’s total installed wind capacity was about 5 percent more than that of the United States in 2010, not all of China’s wind capacity is connected to the electric grid. Adjusting for that difference, the United States has in essence over 30 percent more useable wind capacity than China.  At the end of 2009, the United States ranked fourth in solar capacity, with only Germany, Spain, and Japan having a larger amount; China did not even make the list of the top 8 countries.[4] According to the Pew Environment Group, in 2010, China had about 75 percent less solar capacity installed than the United States. [5]

Where China is outstripping us in domestic construction is in coal-fired, nuclear, and hydroelectric generating technologies. Legal and bureaucratic red tape makes it is much more difficult to build these energy technologies in the United States than in China. China is eclipsing the United States in all forms of energy, and especially the most cost-efficient energy sources. For example, their ability to quickly permit energy projects allows them to build the cleanest and most efficient coal plants.[6] China is building supercritical plants that produce about 15 percent less carbon dioxide emissions for $500 to $600 per kilowatt[7], much lower than the $2800 per kilowatt cost in the United States, exclusive of financing costs, according to the Energy Information Administration.[8]

China realizes that it needs affordable energy to fuel its economic growth and manufacturing productivity, and it is building all forms of generating technologies at breakneck speed. By contrast, the electric generating construction program in the United States has slowed tremendously, owing to regulatory, financial, legal and demand problems. Economic growth has slowed in the United States and with it our energy demand has grown more slowly. History shows that the United States became the world’s workshop – replacing Britain – shortly after we became the world’s largest consumer of energy. Since energy is literally, “the capacity to do work,” the United States needed enormous amounts of energy in the 20th century to do more work than our competitors, and ended up the lone superpower in the world. Policymakers need to understand that energy availability and affordability spur economic growth. Without reasonably priced energy, it will be difficult to achieve high levels of economic growth in the United States, and industry will move offshore where energy is more affordable, taking jobs away when we can least afford to lose them.

As the following chart illustrates, the use of energy to propel the U.S. economy and increase the capacity to do work led to unprecedented growth and opportunity. Of note is the fact that the U.S. economy once ran entirely on renewable forms of energy from well before our founding until well after the Civil War, at which time the advent of new forms of concentrated energy enabled us to surpass Britain in energy consumption and economic output. It is therefore important to understand China’s energy path today realistically. Data from the International Energy Agency indicated that China consumed more energy than the United States in 2009 – the first time since 1885 that the United States was no longer the number one user of energy.[9] Just 8 short years ago the United States used twice as much energy as China, according to statistics from the Energy Information Administration.[10]

Comparison of Generating Capacity Data for the U.S. and China

Energy Information Administration data for 2008 (the most recent year available from the Energy Information Administration) indicates that China added more than 5 times the total generating capacity that the United States did (80 gigawatts of total capacity for China, versus 15 gigawatts of capacity for the United States).[11] While that statistic is in itself interesting, the split between fuel types is even more interesting. Embedded in these capacity addition statistics is China’s 26 gigawatts of hydroelectric capacity to none for the United States. China also added 47 gigawatts of thermal capacity (primarily coal), while the U.S. added 6 gigawatts (primarily natural gas). That’s almost 8 times more thermal capacity and on a carbon dioxide-emitting basis, over 15 times more.

So, based on an apples-to-apples comparison of newly built capacity in 2008, China is out stripping us in hydroelectric and coal-fired capacity, which the Administration and environmental organizations fail to mention. Not only did they build more hydroelectric and coal-fired capacity in 2008 than we did, but their total hydroelectric capacity is over twice that of the United States, and as of the end of 2008, their coal-fired capacity was almost twice that of the United States.

Why is China Building Wind and Solar Capacity?

China builds wind and solar partly because ratepayers in other countries pay them to do so. China has  taken advantage of the Clean Development Mechanism (CDM) under the Kyoto Protocol to obtain funding for its solar and wind power.[12] Under this program, administered by the United Nations, wealthy countries can contribute funds and get credit for “clean technology” built elsewhere as long as it is additional, that is, as long as that technology would not have been built otherwise. China is the world’s largest beneficiary of the program and has benefited to the point where about 30 percent of its wind capacity is not operable because it is not connected to the grid.[13] However, in mid 2009, the United Nations started questioning whether the Chinese CDM program was in fact “additional,” because the U.N. found that China was lowering its subsidies to qualify for the program.[14] That is, China was reducing its own government’s support in order to get international subsidies.

What are China’s Electric Construction Plans?

Both China’s generating sector and its industrial sector rely heavily on coal, with 80 percent of its electric generation being coal-fired.[15] Even with China’s substantial clean energy targets, the Energy Information Administration expects fossil fuels, mostly coal, to generate 75 percent of the country’s electricity in 2035. Clean energy sources (nuclear, wind, solar, biomass, and hydroelectric power) generated 19 percent of China’s electricity in 2009, and they are expected to increase their share to 25 percent by 2035. China has the world’s largest hydroelectric capacity, generating 16 percent of its electricity from water.

Hydroelectric  Power

Most of China’s hydroelectric capacity is from very large dams on major rivers. China’s most famous hydroelectric project, the Three Gorges Dam that many thought was an impossible engineering feat, brought its final generator on line in October 2008, with a total capacity of 18.2 gigawatts. The Three Gorges Project Development Corporation plans to further increase the project’s total installed capacity to 22.4 gigawatts by 2012. The 12.6-gigawatt Xiluodu project on the Jinsha River is scheduled for completion in 2015 as part of a 14-facility hydropower development plan. China also has the world’s second tallest dam (at nearly 985 feet) currently under construction, as part of the 3.6-gigawatt Jinping I project on the Yalong River. It is scheduled for completion in 2014 as part of a plan by the Ertan Hydropower Development Company to construct 21 facilities with 34.6 gigawatts of hydroelectric capacity on the Yalong.

The Chinese government has set a target for 300 gigawatts of hydroelectric capacity by 2020, and according to the Energy Information Administration, the Chinese government has sufficient projects underway to meet the target.[16] China currently has about twice the hydroelectric capacity of the United States and its 2020 goal is almost four times more capacity than the United States is expected to have by then.

China has a goal to produce 15 percent of its primary energy from renewable energy by 2020.[17] According to an official from China’s National Energy Administration, “Hydropower is the key to reaching that target. It will make up 9 to 10 percentage points out of the 15.”[18] By comparison, most proposals for renewable energy mandates in the United States do not include existing hydroelectric power as a source.

Wind

The Global Wind Energy Council reports that China had 42,287 megawatts of wind capacity at the end of 2010, 5 percent more than the U.S. total of 40,180.[19] China added 16,500 megawatts in 2010 to 5,115 megawatts added by the United States. Both Europe and the United States saw a slowdown in installations of wind turbines due to the financial crisis, reduced electricity demand expectations, and issues regarding the future forms of subsidies.

According to the Pew Environment Group, China has a goal to produce 150,000 megawatts of wind by 2020.[20] To help meet this goal, China is planning to build the world’s largest wind farm in the northwest part of the country. The plan was to complete 5 gigawatts in 2010, and expand to 20 gigawatts by 2020, at a cost of $1 million per megawatt,[21] or $1,000 per kilowatt, about 40 percent of the cost of an onshore wind unit in the United States, according to the Energy Information Administration.[22]

Unlike the United States that can back up its wind power with several fuel types, China backs up its wind power with coal-fired plants when the wind does not blow or when the electric grid is inadequate to handle the wind capacity. According to the China Power Union, only 72 percent of the country’s total wind power capacity is connected to the grid.[23] Adding to the problem is poor connectivity between regional transmission networks, which makes it difficult to move surplus power from one part of the country to another and thus requires each region to have sufficient reserve capacity.[24] For example, the wind project in Jiuquan in Gansu, although fairly large at 10 gigawatts, is located too far from the regional load-bearing center. In Inner Mongolia, less than 2 gigawatts of wind power was originally connected to the grid, with an additional 8.3 gigawatts needing to be connected. China plans to spend over $600 billion to upgrade its power grid to accommodate all of its new electricity expansion over the next decade.[25]

Currently China is mainly manufacturing wind turbines for domestic use, but with saturation in China’s domestic market, many wind turbine manufacturers have looked to overseas markets to meet their expanding output. With the Investigative Reporting Workshop of the American University finding that 79 percent of U.S. stimulus funds for renewable projects have gone to overseas firms, mainly for wind projects, it is no wonder that the Chinese are looking into U.S. markets.[26] China’s wind industry tried to enter the U.S. market to build a 600-megawatt wind farm in West Texas as part of a consortium of Chinese and American companies. The original proposal had the wind turbines manufactured in China, creating thousands of jobs there, but only a few hundred temporary installation jobs in the United States.[27] Due to criticism from some U.S. senators, the Chinese firm agreed to build a plant in Nevada to manufacture turbine parts. However, although the Chinese are providing the financing for the project, the consortium needs $450 million, 30 percent of the wind farm’s cost, to come from a federal stimulus grant. The $1.5 billion cost for the project is $2.31 million per megawatt, or $2,310 per kilowatt,[28] over twice the cost of wind farms in China.

Not only does China want to enter in the U.S. market by building wind farms, but U.S. manufacturers have plants in China, capitalizing on their lower labor cost. GE, a major U.S. wind turbine producer, already owns three facilities in China that produce turbine components.[29] And it opened a factory[30] in Vietnam that employs 500 local workers and will export 10,000 tons of components to GE Energy assembly plants around the world.[31]

Solar

China leads the world in solar cell manufacture, but 95 percent of its production is exported. [32] According to the Pew Environment Group, China had 800 megawatts of solar capacity at the end of 2010 compared to 3,100 megawatts in the United States. China’s target for 2020 is 20,000 megawatts of solar capacity so it has a long way to go.[33] In 2009, China generated only 0.01 percent of its grid-connected electricity from solar energy.[34] However, Arizona-based First Solar has signed a deal to build the first phase (30 megawatts) of what was to be the world’s largest solar farm (2,000 megawatts) in China in cooperation with China Guangdong Nuclear Solar Energy Development Company Ltd. (CGN SEDC).  CGN SEDC will be the majority project owner and operator, providing the engineering, procurement and construction functions. First Solar will supply its thin-film solar photovoltaic modules and will support CGN SEDC with advisory services.[35]

Realizing that the United States may be a good market for solar, China’s Suntech, the world’s largest supplier of solar panels, opened a solar manufacturing plant in Arizona last year.[36] Suntech will be supplying solar panels to the 150-megawatt Mesquite solar plant in Arizona with construction beginning this year and completion in 2013. The company has orders for 350 megawatts of utility sales in 2011.[37] Suntech’s factory will create finished panels from subcomponents that will be manufactured in the company’s Chinese facilities. According to Suntech, locating the assembly in the U.S. will lower delivery time and costs, as well as reduce the overall carbon footprint of getting finished panels to U.S. customers.[38]

Due to lower operating costs in China, a U.S.-based firm, Evergreen Solar, after receiving at least $43   million in incentives from the state of Massachusetts, moved its assembly plant to China, laying off 800 workers in the United States.[39] Chinese solar manufacturers have been able to lower prices because of financing from state-owned banks and lower manufacturing costs. World prices for solar panels have fallen as much as two-thirds in the last three years.

Nuclear

According to the World Nuclear Association, China has 13 nuclear reactors operating and at least 25 reactors under construction, half of the units in the world’s construction pipeline.  Many more units are planned with construction due to start within three years. As of June 2010, official installed nuclear capacity projections were 70 to 80 gigawatts by 2020, 200 gigawatts by 2030 and 400 to 500 gigawatts by 2050.[40] If China meets its 2030 target, it will have twice the amount of nuclear capacity as the United States.[41] China Daily reports that nuclear power should contribute up to six percentage points towards China’s goal of attaining 15 percent of primary energy consumption from non-fossil energy by 2020.[42]

China has under construction the world’s first Westinghouse AP1000 units, a demonstration high-temperature gas-cooled reactor plant. China’s four AP 1000 reactors under construction at two different sites,  Haiyang and Sanmen,[43] are the same reactors that the U.S. Nuclear Regulatory Commission (NRC) has ruled need additional analysis, testing, or design modifications of the shield building to ensure compliance with NRC requirements.[44] At least eight more at four sites are planned, and about 30 more are proposed to follow. For the first four units, construction is expected to take 50 months from pouring of concrete to fuel loading and an additional six months to be connected to the grid. The construction time is expected to be significantly reduced for the following units. The cost of the first four is expected to be less than $2000 per kilowatt and $1600 per kilowatt for future units.[45] The initial cost is over 2.5 times the cost projected for a plant built in the United States exclusive of financing costs, according to the Energy Information Administration.[46] China builds these reactors at lower cost than the United States because of less red tape, state-owned financing, and low cost labor familiar with large infrastructure projects.

The Chinese are aiming to enter into the global nuclear marketplace by 2013—just a few short years. With Western know-how being transferred and low-cost manpower, China can become a formidable competitor, as they have become to wind and solar markets. The World Nuclear Association indicates that the Chinese are very quickly becoming self-sufficient in reactor design. That is not surprising, when western nuclear companies provide technical training and related documents to the Chinese. Westinghouse, for example, as part of their contractual agreement with its Chinese customers, turned over more than 75,000 technical documents.

The United States is not the only country working with the Chinese to construct nuclear plants. France, for example, is honchoing a project of third-generation reactors in the Guangdong province, where construction on two European pressurized reactors is underway based on a contract signed in November 2007 with France’s Areva. In fact, work is progressing much better than the company’s other projects due to the experience Areva gained on them and to the 9,000 Chinese laborers on-site, who work 7 days a week at 10-hour shifts. The first reactor should be on-line at the end of 2013 and the second in the fall of 2014. Two more may follow in the future.[47] Clearly, western nuclear companies are hoping for a long-term partnership with the Chinese, but, in reality, they may only be gaining near term profits, instead.

Public concern over Japan’s nuclear accident has led China to review the safety of its operating and proposed nuclear units. The country temporarily suspended approvals for new nuclear units to revise its safety standards and has asked for safety checks at their six operating nuclear plants.[48] One of the problems at the Japanese nuclear units affected by the earthquake and the tsunami has been fixed in the design of advance nuclear reactors. Instead of using diesel generators to pump cooling water into the reactors, Westinghouse’s AP1000 uses a passive cooling system where water circulates by natural convection instead of needing electricity to pump the cooling water.[49]

Coal

China gets over 70 percent of its energy from coal,[50] and 80 percent of its electricity. According to the Department of Energy’s National Energy Technology Laboratory (NETL), from 2006 through 2009, China has been building 55 to 80 gigawatts of coal-fired power a year, and has over 70 gigawatts more under construction. NETL reports that China has plans to build over 200 gigawatts of coal-fired plants in the near future.[51] (See figure below.)

According to Australia, China is planning to build 500 coal-fired plants over the next ten years.[52] That means every week or so, for the next decade, China will open another large coal-fired power plant. The Energy Information Administration forecasts that coal will still generate about 75 percent of China’s electricity in 2035, even with its massive building programs in other generating technologies. According to Ashok Bhargava, a China energy expert at the Asian development bank, “No matter how much renewable or nuclear is in the mix, coal will remain the dominant power source.”[53]

Prospects for Electric Capacity in the United States

The United States has made it difficult to build generating plants in this country, particularly coal-fired and nuclear power plants. According to NETL, only eleven coal-fired plants totaling 6,682 megawatts became operational in the United States in 2010, but this was the largest increase in coal-fired capacity additions in one year since 1985.[54] Prospects of cap-and-trade legislation, reviews and re-reviews by the Environmental Protection Agency, direct action protests, petition drives, renewable portfolio mandates in many states, competition from subsidized and mandated wind power, and lawsuits have slowed the construction of new coal-fired plants.[55] According to the Sierra Club, plans for over 150 coal plants have been shelved due to their activities.[56] The graph above compares the coal-plant additions in the United States to that of China, showing only a handful of coal plants under construction in the United States. Because the capital cost of most of our existing coal-fired plants has been paid, that fleet produces 45 percent of our electricity at very little cost. Average production costs for coal-fired generators in 2009 were only 2.97 cents per kilowatt hour, slightly higher than our nuclear plants at 2.03 cents per kilowatt hour.[57]

No nuclear plant has started up in the United States since 1996, and no construction permits have been issued since 1979. NRC requirements, financing difficulties, and slow fulfillment of the nuclear provisions of the Energy Policy Act of 2005 have slowed the construction of new nuclear power reactors. However, as part of the 2005 Energy Policy Act, President Obama announced that his administration is offering conditional commitments for $8.33 billion in loan guarantees for nuclear power construction and operation. Two new 1,100 megawatt Westinghouse AP1000 nuclear reactors were to be constructed at the Alvin W. Vogtle Electric Generating Plant in Burke, Georgia, supplementing the two reactors already at the site. Before the nuclear accident in Japan, the two new nuclear generating units were expected to begin commercial operation in 2016 and 2017 at a cost of $14 billion. As part of the conditional loan guarantee deal, the U.S. Nuclear Regulatory Commission must determine if the AP1000 fulfills the regulatory requirements for a construction and operating license. (These are the same units permitted, licensed, and being constructed in China right now.) But, as a recent Wall Street Journal energy conference noted, loan guarantees are “meaningless in the absence of regulatory certainty.” [58]

Natural gas and wind power are the technologies that seem best able to surmount the financial, regulatory, and legal hurdles of getting plants permitted and operational in the United States. However, organized local opposition has halted even some renewable energy projects by using “not in my back yard” (NIMBY) arguments, changing zoning laws, opposing permits, filing lawsuits, and bleeding projects of their financing.[59]

Generating Costs of New Technologies

According to the Energy information Administration (EIA), the annualized cost of solar photovoltaic technology is 21.07 cents per kilowatt hour (in 2009 dollars), and solar thermal is 31.18 cents per kilowatt hour. Offshore wind is expected to cost 24.32 cents per kilowatt hour, and onshore wind is less at 9.7 cents per kilowatt hour. These costs are levelized costs, which is the present value of the total cost of building and operating a generating plant over its financial life, converted to equal annual payments and amortized over expected annual generation. The EIA estimates these costs for the year 2016, which is the first future year that generating technologies can be compared because of the different lead times for building the plants. Some plants, such as photovoltaic plants, require 1 or 2 years to build, while others (such as nuclear plants) require 6 or more years.[60]

The costs for new solar and wind technologies are generally higher than the costs of competing technologies. For 2016, natural gas combined-cycle technologies have costs estimated at 6.31 to 6.61 cents per kilowatt hour, and pulverized coal and coal-fired integrated gasification combined-cycle technologies have costs of 9.48 and 10.94 cents per kilowatt hour, respectively. EIA includes a 3-percentage point increase in the cost of capital when evaluating investments in greenhouse gas intensive technologies to represent the difficulties in obtaining financing, which is equivalent to a $15 per ton carbon dioxide emission fee.[61] (See figure below.)

If one considers just the capital cost of building these plants, without finance charges, the EIA estimates those at $4,755 per kilowatt (in 2009 dollars) for photovoltaic technology, $4,692 per kilowatt for solar thermal technology, and $5,975 for offshore wind.[62] Of course, plant costs can vary depending on site locations, terrain, labor costs, and other factors. For a solar photovoltaic plant that came on line last October in southern Florida, Florida Power and Light spent $152 million building a 25-megawatt plant, which is equivalent to $6,080 per kilowatt. [63]

The Cape Wind project, off the coast of Cape Cod in Massachusetts, is expected to be the first offshore wind farm in the United States. The 130-turbine wind farm is estimated to cost at least $2 billion and was approved last year by Interior Secretary Ken Salazar after more than eight years of federal review. National Grid, the state’s largest utility, is to buy half of Cape Wind’s power, starting at 18.7 cents per kilowatt hour,[64] less than EIA’s estimate of 24.32 cents per kilowatt hour, but increasing annually at 3.5 percent in a 15 year deal.  But that’s still about twice what the utility pays for power from conventional sources, and almost twice the average U.S. cost of electricity—9.9 cents per kilowatt in 2010.[65] As one might expect, the project is having trouble getting buyers for the other half of the project’s output due to its high cost.[66]

Summary

China is on a fast track to bring online new generating units using coal, nuclear, hydroelectric, solar, and wind power, which will allow its economy to continue to grow. Because China is endowed with a sizable amount of coal resources and because coal is the cheapest energy source in China, coal-fired generating additions will far outpace those of other technologies. By continuing to rely heavily on currently available coal technology, China will remain the number one emitter of carbon dioxide. According to the Energy Information Administration, China’s carbon dioxide emissions are already 5 percent higher than those of the United States, and by 2035, they are expected to be over twice that of the United States.[67]

The United States, on the other hand, has made it difficult to build generating plants in this country. Prospects of cap-and-trade legislation and reviews and re-reviews as well as changing emissions requirements by the Environmental Protection Agency have slowed the construction of new coal-fired plants. NRC requirements, financing difficulties, and slow fulfillment of the nuclear provisions of the Energy Policy Act of 2005 have slowed the construction of new nuclear power reactors. Even renewable energy projects have been halted by “not in my back yard” (NIMBY) protesters. They have blocked energy projects by organizing local opposition, changing zoning laws, opposing permits, filing lawsuits, and bleeding projects dry of their financing. Without reasonably priced energy, it will be difficult to achieve high levels of economic growth, and U.S. industry will just move offshore where energy is more affordable.

Our President has a goal to reduce oil imports by one-third by 2025 to improve our energy security. However, we may be just trading one energy source for another since Chinese manufacturers can easily produce solar and wind generating technologies for far less than manufacturers in the United States. After many years of relying on unstable governments in the Middle East and elsewhere for oil, the United States may now turn to China for renewable energy technologies.

The United States became the world’s most productive economy by using its energy resources to increase output and make life better for its citizens. Contrary to the claims of some, the Chinese are not fixated on “green technology” solely, and in fact, are growing other parts of their energy mix much more extensively. The Chinese are building all generating technologies much more quickly than the United States, and are using energy to build an economy for the future.

At IER, we urge Members of the Committee to look at his matter comprehensively, since history tells us energy consumption is directly linked with economic growth. Should the United States choose to concentrate solely on a path of expensive energy sources for our future “capacity to do work,” our nation will do less work. That is a stark departure from the path that led and sustained our position in the world, and has implications far beyond those related to energy security.

Thank you for the opportunity to supply this testimony for the Committee’s use.