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Renewable Energy: Why Take Risk When Taxpayers Will Eat the Loss?

Those who study energy policy know that the taxpayers have been subsidizing renewable energy sources for decades. Since these alternatives cannot (yet) survive except in tiny niches on their own, they need government support. A recent NYT article on the topic was surprising in how blatantly it acknowledged what some of us have been saying all along.

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.

 

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