Effective August 1, 2021, China will stop subsidizing new solar farm projects, distributed solar projects for commercial users, and onshore wind farms. For years, China had been generous towards wind and solar projects. This has resulted in China having the largest solar and wind capacity in the world, as well as cornering the market for the manufacturing of products essential to renewable technologies. Then, in 2018, China halted the allocation of quotas for new projects and lowered tariffs on electricity generated from renewable energy by 0.05 yuan per kilowatt-hour, a cut of 6.7 to 9 percent depending on the region. The motivation behind the cut was that China wanted to ensure the local solar industry was economically sustainable over the long term.
However, more recently, China’s finance ministry committed to granting 57 percent more subsidies to solar power projects this year, but cut subsidies for wind power. That has all changed now most likely because China has amassed a massive debt in subsidies owed to wind and solar companies as a result of its previously generous support for new solar and wind projects. China’s backlog in subsidy payments exceeds 400 billion yuan ($62.64 billion). China has apparently decided it is time to “pay the Piper.”
Electricity generated from the new solar and wind projects in China will be sold at local benchmark coal-fired power prices or at market prices. Electricity prices for offshore wind and concentrated solar power projects in China that receive approvals in 2021 will be decided by the provincial governments where they are located.
U.S. Solar and Wind Subsidies
The United States has a federal Solar Investment Tax Credit, which currently defrays 26 percent of solar-related capital expenditures for all residential and commercial customers (down from 30 percent during 2006 to 2019). Under current law, after 2023, the tax credit will be reduced to a permanent 10 percent for commercial installers and will disappear entirely for home buyers. For wind, the United States has a production tax credit, a per-kilowatt hour credit for electricity generated by eligible renewable sources that applies to their first 10 years of operation. At the end of December 2020, Congress extended the production tax credit at 60 percent of the full credit amount, or $0.018 per kilowatt hour ($18 per megawatt hour), through December 31, 2021. This payment occurs whether the electricity is needed or not, so if the wind is blowing and the turbine is producing power, the tax credit produces revenue for the wind farm.
The solar and wind power industries are understandably lobbying to extend these subsidies, as they represent the foundation of their business model. As Warren Buffett famously said, “For example, on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”
The Biden administration supports extending tax credits for solar-panel purchases and is weighing whether to extend the law to cover tax credits that would also help domestic panel makers and disadvantage imports. He even supports a “direct pay” approach, which would enable companies with no tax obligation to secure payments from taxpayers for constructing solar installations. The administration also plans to require federal contractors to purchase solar panels from U.S. suppliers. Currently, the United States produces 3 percent of the world’s solar modules, while China produces 71 percent. Changes in the U.S. tax code would require Congressional action; administrative actions Biden can do by executive order.
U.S. solar-power manufacturers that want to build solar panels, such as First Solar, support tariffs to fight low-priced goods from abroad, particularly China. However, tariffs increase panel prices, which tends to slow the adoption of solar technology and the employment of panel installers. As a result, solar-panel importers and companies that install panels, oppose tariffs. The two groups also support different types of tax changes. Biden needs to deal with these different factions and be careful about backing commercial industries. If the U.S. government should begin backing commercial industries, that effort will most likely lead to a lobbying blitz by comnanies looking for government backing.
Biden’s $2.25 trillion infrastructure plan called for a 10-year extension of tax credits for wind, solar and other renewable energy sources, among other measures needed to catalyze investments in a “clean energy economy” and encourage low-emission technologies. According to Gina McCarthy, the White House’s domestic climate advisor, a mandate that could require utilities across the nation to generate clean electricity and a tax-credit extension worth hundreds of billions of dollars for the wind, solar and other renewable energy industries are must-haves in a package being put together by the White House.
Wind and Solar are Expensive Technologies Due to Their Unreliability
Solar and wind are touted to provide low-cost, reliable energy, but that is not the case. Because solar and wind power are unreliable, they do not replace reliable power plants. Rather, they add to the cost of providing reliable power. The more wind and solar that grids use, the higher their electricity prices. German households have seen prices double in 20 years due to wasteful, unreliable solar and wind infrastructure. Germany’s residential electricity prices are 3 times ours — which are already too high due to solar and wind.
Lawrence Berkeley National Laboratory issued a study recently, showing that wind and solar are adding significant costs to ratepayers all over the country. According to the study,
“The value of electricity generated from wind and solar sources declines as supply increases. This decline in value has varied over time and across regions, indicating that strategies to mitigate value decline will need to be carefully targeted. To help guide development of these strategies, we empirically determine wind and solar value at ∼2,100 plants within United States wholesale markets by using local prices and plant-specific generation profiles. We determine how each plant loses (or gains) value because of its output profile, transmission congestion, and curtailment. In regions where wind or solar account for roughly 20% of electricity generation, its value is 30% to 40% below the regional average value of a flat output profile at all plants. Solar value reductions are most sensitive to output profile and wind value reductions are sensitive to both profile and congestion, region dependent.”
In other words, while small amounts of inherently intermittent wind and solar technologies can add value to a system, at the levels already achieved in many states, their value declines and ratepayers must pay for other technologies to produce electricity.
China is realizing more wind and solar power is not a positive undertaking and is ending its subsidies to wind and solar projects in its country. President Biden, on the other hand, wants to extend wind and solar subsidies to reach a carbon free electric sector by 2035 and to reduce greenhouse gas emissions by 50 to 52 percent by 2030, which he announced as his commitment to the Paris Climate agreement. As countries have found, solar and wind increase electricity prices; they do not decrease them. Politicians are able to mislead Americans into believing that wind and solar are “free” because they have no fuel component. However, their intermittency means that the grid must have duplicative power to provide back-up when wind and solar generators are not performing. The additional generators must be funded, increasing electricity costs to consumers. But, those back-up generators can provide power to the grid on a 24/7 time schedule, which wind and solar power cannot do. And above a certain level of market penetration, wind and solar drive energy prices higher for consumers and become a costly luxury good, according to Lawrence Berkeley National Laboratory.