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Solar-energy cronyism in full force

A WSJ piece this week sheds light on yet another example of energy cronyism benefitting the favored few at the expense of the rest of us. The story is, unfortunately, one we know all too well these days: small-time, inefficient energy technologies staying afloat by taxpayer subsidies yet enriching a segment of the Obama Administration’s political base. It’s so trite, but it bears repeating because it’s so true: If solar energy (like wind and other “green” energies) were economical and commercially viable, it would flourish without subsidies. Investors wouldn’t need the government to backstop them. The technologies would stand on their own and become more than a very minor contributor to our nation’s energy-supply mix. Subsidy-backed energies like wind energy, solar energy, & ethanol are simply fleecings of American taxpayers & consumers. The WSJ story:

Welcome to SolarCity, the latest booming green company that has never recorded a profit. The startup’s stock price has soared by 600% since its IPO last December—it closed on Monday at $57 a share—and spiked after the company announced a couple of weeks ago that it expects business to grow by 70% to 90% next year. Yet the company, based in San Mateo, Calif., and specializing in deploying rooftop panels, ended the first six months this year $61 million in the red.

Ordinarily, that sort of number might disconcert investors. But SolarCity’s business model is powered by government subsidies, which also fueled the 500% stock run-up and turn to profit this year of the electric-car maker Tesla. Steering both companies is Elon Musk.

In addition to being the chairman of SolarCity and CEO of Tesla, Mr. Musk is the largest shareholder in both companies. The increase in their stock prices has raised his net worth by more than $5 billion over the past year.

SolarCity’s second-quarter filing with the Securities and Exchange Commission notes that the company’s “ability to provide solar energy systems to customers on an economically viable basis depends on our ability to finance these systems with fund investors who require particular tax and other benefits” (emphasis added).

The company’s base is a 30% federal tax credit that accrues to investors who provide upfront financing for the rooftop panels that SolarCity installs for customers at no charge. Customers “lease” the panels from SolarCity by paying for the solar power they generate, which is priced below their utility’s retail rate.

Customers, however, must sign a contract agreeing to cede “any and all tax credits, incentives, renewable energy credits, green tags, carbon offset credits, utility rebates or any other non-power attributes of the system” to SolarCity. The tax credits are passed on to its investors, which include the venture-capital firms Draper Fisher Jurvetson, DBL Investors and Al Gore’s Generation Investment Management LLP.

A thick layer of state and local incentives also supports SolarCity. California, for example, has allocated $3.3 billion in rebates for solar installations through 2016 and compensates residents between $0.20 and $0.35 cents per watt of expected performance (about 5% to 10% of the total cost of installation). San Francisco, which has a 100% renewable goal, provides additional rebates ranging from $2,000 to $10,000 per residential installation.

Meantime, school districts in California have received a total of $400 million this year for energy-efficiency projects, including window-glazing and solar-panel installations. SolarCity has contracted with school districts in Barstow, Simi Valley, Los Angeles and other cities.

SolarCity also benefits from “net metering” policies that 43 states, including California, have adopted. Utilities pay solar-panel customers the retailpower rate for the solar power they generate but don’t use and then export to the grid. Retail rates can be two to three times as high as the wholesale price of electricity because transmission and delivery costs, along with taxes and other surcharges that fund state renewable programs, are baked in.

So in California, solar ratepayers on average are credited about 16 cents per kilowatt hour on their electric bills for the excess energy they generate—even though utilities could buy that power at less than half the cost from other types of power generators.

SolarCity and its competitors also implicitly benefit from energy policies like renewable mandates, fracking moratoriums and greenhouse-gas regulations that drive up electricity prices and enable the company to charge its customers more for solar power. Indeed, in its latest SEC filing, SolarCity warns investors that “a reduction in the price of natural gas as a result of new drilling techniques or a relaxation of associated regulatory standards” could harm its business.

The company could also suffer if some of the solar incentives that investors “require” were to be withdrawn. But reducing the subsidies will be difficult because of their growing constituencies.

Consider the fight shaping up in Arizona over the Arizona Public Service Co. utility’s efforts to scale back net-metering policies that would make solar customers pay their share of the grid’s fixed costs. The advocacy group Tell Utilities Solar won’t be Killed, or TUSK, is likening net metering to “school choice” because it provides ratepayers an alternative to the utility monopoly. Meanwhile, the Alliance for Solar Choice, founded by SolarCity and its rooftop competitors Sungevity, Sunrun and Verengo, has run commercials denouncing a proposal by Arizona Public Service to reduce net-metering subsidies as a “solar tax.”

Support for the solar interests has also come from the Obama fundraising outfit Organizing for Action, which has sent emails warning that utilities are trying to shut down an industry that is helping “families and businesses to lower their energy costs.” Progressive organizations and have posted a satire on YouTube that features a utility president warning that “rooftop solar threatens our industry’s entire business plan, which is to force you to buy dirty energy from the dirty power plants that poison poor communities.”

Unwinding government programs—particularly those that purport to benefit the 99%—is inordinately tough, as evidenced by lawmakers’ reluctance to roll back ethanol subsidies or enact entitlement reforms. No wonder investors see a bright future for SolarCity.

Energy Dept. continues to rack up millions in failed loans

Solyndra…Fisker…Beacon Power. One after another, companies with federal loan guarantees go bankrupt. One after another, evidence of the foolishness of having Department of Energy bureaucrats dole out taxpayer dollars to “green” technologies that can’t survive without (or with) taxpayer assistance. Government has absolutely no business favoring (via loans, subsidies, etc.) certain businesses/technologies over others. They’re terrible at it. It’s not their job. Yet they continue to do so, because if they’re not busy spending our money with impunity – without regard to sound cost-benefit analysis, with no mind paid to returns on investment or bottom lines – what is there for them to do?

It should come as no surprise, then, to learn that another Energy Department loan was not money well spent. Last Friday, the ED announced that it will lose about $42M on a loan to VPG, maker of vans for the disabled. Time reports,

Vehicle Production Group, or VPG, suspended operations in February and laid off 100 workers. The company had paid back $5 million of a $50 million federal loan this spring, and the remainder of its debt was sold at auction this week to Humvee manufacturer AM General, which paid $3 million to buy the Energy Department loan.

VPG, of Allen Park, Mich., received a federal loan in 2011 under the same clean-energy program that provided a $529 million loan to electric car maker Fisker Automotive Inc. Fisker had received $192 million before a series of problems led U.S. officials to freeze the loan in 2011. The Obama administration has seized about $28 million from California-based Fisker, which has laid off three-fourths of its workers.

An Energy Department spokesman said sale of the VPG loan was a last resort.

“After exhausting any realistic possibility for a sale that might have protected our entire investment, the department determined that auctioning the remainder of VPG’s loan obligation offered the best possible recovery for the taxpayer,” spokesman Bill Gibbons said in an email.

The VPG loss and the potential loss of more than $160 million in the Fisker case would be the largest losses of federal loan money since the 2011 failure of solar panel maker Solyndra. That company’s collapse, which came despite a $528 million loan from the Energy Department, has triggered sharp Republican criticism of the Obama administration’s green energy program.

Rep. Jim Jordan, R-Ohio, chairman of a House Oversight subcommittee on economic growth and regulation, has called the loan program “one of the most disastrously mismanaged and corrupt programs in U.S. history,” a claim that Democrats reject.

So, well done, Energy Dept. You’re great at what you do. It’s just too bad that what you do is so bad for the rest of us.

With Keystone rejection, Obama shows true colors

For all his talk about creating jobs and reducing on dependence on oil from dangerous nations, President Obama once again stands in the way of both. On top of his recalcitrance on harnessing the vast natural resources within our own borders, President Obama has now (as many of us expected) rejected a deal that would pipe oil from our friendly Canadian neighbors to Gulf-Coast refineries.

As reported by Business Week,

“The jobs promised by the building of the Keystone pipeline were central to union support for the project originally and the focal point of Republican criticism of Obama. TransCanada said the 1,661-mile (2,673-kilometer) project would carry 700,000 barrels of crude a day from Alberta’s oil sands to refineries on the U.S. Gulf coast, crossing six U.S. states and requiring as many as 20,000 workers to build.”

But, wait, what will Canada do with the abundant tar-sand crude they are ready and willing to send our way? Simple: For starters, send it to China. From Bloomberg:

President Barack Obama’s decision yesterday to reject a permit for TransCanada Corp.’s Keystone XL oil pipeline may prompt Canada to turn to China for oil exports. Prime Minister Stephen Harper, in a telephone call yesterday, told Obama “Canada will continue to work to diversify its energy exports,” according to details provided by Harper’s office. Canadian Natural Resource Minister Joe Oliver said relying less on the U.S. would help strengthen the country’s “financial security.” The “decision by the Obama administration underlines the importance of diversifying and expanding our markets, including the growing Asian market,” Oliver told reporters in Ottawa. Currently, 99 percent of Canada’s crude exports go to the U.S., a figure that Harper wants to reduce in his bid to make Canada a “superpower” in global energy markets.

So, if you’re keeping score at home: Canada wins. China wins. USA loses.


Germany Finds Going Green is Tough Going

Earlier this month, I posted about Germany’s decision to shutter it nuclear-energy fleet, in an effort to “green” their economy. My chief sentiment was, “Good luck with that.” Good luck weening your economy off of non-renewable forms of energy after you axe nuclear and are left with a gaping hole where 23% of your country’s electric generation used to reside.

Yesterday’s Wall Street Journal reports on Germany’s carbon-cutting plans:

“It’s not impossible,” said Laszlo Varro, head of the gas, coal and power markets division at the Paris-based International Energy Agency, an intergovernmental body that acts as energy-policy adviser to 28 industrialized member countries. “But if you take out nuclear energy, decarbonization will be more expensive and more difficult.”

…in the short term, Germany has already said the policy reversal means it will have to build additional coal-power plants.

Last week, while formally presenting the nuclear phaseout plan before Parliament, Ms. Merkel said the country would need to boost its fossil-fuel power-generating capacity twice as much as already planned over the next decade, by roughly 20 gigawatts in new coal and natural gas-fueled plants instead of the 10 gigawatts it had earmarked before its nuclear-policy reversal.

“If we want to exit nuclear energy and enter renewable energy, for the transition time we need fossil-fuel power plants,” Ms. Merkel said, without specifying how much would come from more carbon-intense coal-fired or gas-fueled plants.

Although most experts believe Germany can double its renewable energy share to 35% by 2020, the aggressive target isn’t quite enough to fill the gap left by nuclear power. That leaves it with importing electricity from its neighbors and building new gas and coal-fired plants.

Allow me to package this up for you nice and tidy: We, Germany, are prematurely wiping out almost a quarter of their electricity supply, in the wake of the nuclear situation in Japan. But, not to worry, technologies that are currently unreliable and not commercially viable will eventually, we think, with a big push from government (a.k.a. taxpayers), might one day power our lives. In the meantime, since we know no non-fossil-fueled technology (other than nuclear power, which we’re nixing) can meet our needs, we’ll ramp up coal-fired power production. We’ll burn more natural gas, too. Yes, we know they, unlike nuclear plants, emit carbon and traditional pollutants, but our hands our tied. Yes, we tied them ourselves, but enough with the finger pointing. Yes, we know that we can’t say for sure whether this “transition period” will actually lead to the widespread use of our favored renewables, but we’re hoping for the best.

Germany axes atomic power. In favor of what?

Propelled by, among other things, rising anti-nuclear-power sentiments post-Japanese tsunami, Germany recently announced plans to shut its 17 nuclear-power plants by the year 2022. That’s all well and good if they can find a suitable replacement for a power supply that, as recently as March, accounted for almost a quarter of the country’s electric-power generation.

Combine this heavy reliance on nuclear power with the fact that Germany is Europe’s biggest economy – and the world’s 4th largest – and it’s obvious that Germany is about to create a huge vacuum, both electrically and economically.

So, where will they turn to fill this void? Coal? It supplies about half of the country’s electricity, but the outlook on coal is anything but positive, given the continent’s carbon-cutting plans. Natural gas? Potentially, but given the fuel’s price volatility and the difficulties facing European shale gas, there are significant roadblocks. Wind and solar? Both will certainly ramp up but with myriad negatives, including the fact that (1) both are intermittent resources that cannot (like nuclear power) provide steady, ’round-the-clock power, (2) both are expensive, particularly on an equalized (cost-per-power-produced) basis, & (3) both are reliant on government assistance, surely not a positive given the Euro-zone’s debt crises and Germany’s outlays to the economically weaker Euro nations.

At the end of the day, the fact is that Germany is blackballing an energy resource that has, to this point, been safe, commercially-viable, and reliable. Moreover, they’ve done so without a promising (economically, politically, and/or technologically) replacement ready to step in and pick up the slack.

Insanity: Doing the same thing over and over and expecting different results

“If at first you don’t succeed, try, try again” is often sound enough advice. But when it comes to faulty energy policies that continually fail cost-benefit analysis, the advice is misguided. California is living proof.

As if the Golden State’s energy and electricity prices aren’t high enough from “green” energy policies, Gov. Jerry Brown yesterday signed into law a “greener” energy plan. Reminiscent of climate-control regulations (think Kyoto) that become increasingly more stringent, California is vowing to obtain even more electricity from renewable-energy sources, in spite of the fact that the prior regulations were too onerous.

According to the new law, 33% of the state’s electricity must come from renewable sources like wind, solar, and geothermal energy by the year 2020. Formerly, the number was 20% by the end of 2010, yet the state failed to reach that level.

The Wall Street Journal writes, “California’s three largest investor-owned utilities failed to achieve an earlier state target to garner 20% of their electricity from renewable sources by the end of 2010, hitting 18% instead, according to the California Public Utilities Commission. The utilities avoided penalties because they had made a good faith effort. They entered into contracts to buy a sufficient quantity of green-generated electricity from independent suppliers but the suppliers couldn’t generate enough power.”

The wind turbines and solar panels couldn’t generate enough power? Shocking.

One way to turn your economy around: Slash solar subsidies.

They weren’t the only cause of Spain’s economic doldrums, but lavish Spanish solar-energy subsidies were certainly one of the reasons. We’ve known this, and apparently Spain wised up a bit. Late last month, the Spanish government acted to atone for its solar-subsidizing sins, choosing to slash solar handouts by 30%. A good start, for sure, but given Spain’s economic woes and the fact that their subsidies have led to a solar-construction frenzy that has produced more than 6 times the solar-power capacity than the government planned for the end of 2010, Spain shouldn’t stop there.

The Wall Street Journal writes:

Spain is one of a number of cash-strapped European countries that have been forced to review their generous system of subsidies for renewable energy, in order to lower electricity bills for consumers struggling under austerity measures and public spending cuts.

Like Germany, Spain has long had feed-in tariffs, which guarantee prices for low-carbon electricity and so assure renewables companies a higher return than they could expect from the free market. They were seen as crucial if European countries were to meet tough targets for cutting greenhouse-gas emissions.

In Spain, solar-PV plants connected to the grid by September 2008 receive a feed-in tariff of €450 ($589) per megawatt hour of electricity for 25 years—roughly 10 times the price utilities pay for power produced from conventional sources such as gas and coal.

Small investors poured in to take advantage of the incentives, building huge installations of photovoltaic panels across Spain. The country now has 3,200 megawatts of solar capacity, more than six times what the government expected to have by the end of 2010. Last year alone it handed out €2.6 billion in subsidies for solar power.

2.6 billion Euro. That’s almost 3.4 billion dollars, if my online currency converter is correct. And for what? For the energy resource that is arguably the worst bang for your buck, on the basis of how often the resource produces power (a.k.a capacity factor). Last I checked, there weren’t any ticker-tape parades celebrating the U.S. economy, yet we’re still propping up small-potatoes renewables with taxpayer dollars. Throw in the fact that our economy is about to take a big one on the chin from the EPA’s new carbon-cutting measures, and I’d say that, for once, it might not be a bad idea to take a cue from the Spanish government and slash spendthrift solar subsidies.

More renewable reality

Solar Frontier KK, whose parent company is one of Japan’s largest oil companies, is set to open what will be the largest solar-power installation in the world, at a cost of $1.25 billion. Just a couple of problems: low demand and low efficiency. From The Wall Street Journal:

But funneling profit from still-cash-rich oil refining into Showa Shell’s solar operations is a gamble. Nippon Oil Corp., which has become part of JX Holdings Inc., had forged a joint venture with Sanyo Electric Co. to build a solar-cell factory by the end of the fiscal year that ends in March. Those plans were put on hold, however, amid plunging prices for solar panels as a flood of entrants into the market have intensified competition.

Credit Suisse on Wednesday downgraded several solar-energy stocks, expressing concerns that demand can’t keep up with new supply.

A spokeswoman for Japan’s Sanyo Electric Co., which sells crystalline-silicon photovoltaic modules but not thin-film panels, says it is researching thin-film technology but doesn’t see it as a viable business option until its efficiency improves. Sanyo’s modules convert 18.6% of sunlight into energy, compared with 11% for Solar Frontier’s current thin-film panels.

Solar Frontier says panels from its new factory are expected to be 13% efficient, however, about what Sanyo says is viable.

The take-home points from this example (which, by the way, are the norm): (1) Renewable energies are fueled by government policy, not supply and demand. (2) Renewables energies are – currently – exercises in subsidizing inefficiency. (For more, see my previous post on the premature promise of renewables.)

The Premature Promise of Renewables

Add biomass energy to the list of renewables that, no matter how high our hopes for them, are not all they’re cracked up to be. Add burning plants and wood chips to the list of unconventional fuel sources that are not all that “green” yet cost a bunch of green.

I’m sure the coal haters have already stopped reading, but for those renewable-energy fans who are still with me, maybe I can keep you reading. I’m all for renewables. We need more energy, so if wind or sun or algae or wood chips can help us produce more power, fantastic. But if the politically-motivated rush toward unconventional fuels (i.e. non-fossil fuels) makes us pick these fuels before they’re technologically and/or economically ripe, then count me out. If we have to prop up a fuel with taxpayer-funded subsidies, then adding more of that fuel to our energy portfolio will inevitably do more harm than good (economically, no doubt, but potentially even environmentally).

But back to biomass. A story in today’s Wall Street Journal has the skinny:

Hampered by extremely-high costs and burdensome government regulations, biomass plants are shutting down:

Here at the Northern Nevada Correctional Center, officials in 2007 built a $7.7 million biomass plant to meet all the power needs of the medium-security prison. But last month, two years after the plant opened, prison officials closed it, citing excessive costs. …Across the U.S., other biomass projects have met similar fates. In Loyalton, Calif., Sierra Pacific Industries Inc. on Aug. 20 announced it would close a 16-megawatt plant, citing federal logging restrictions that made it more difficult to get wood from surrounding forests. In Gunnison, Colo., Western State College of Colorado in July shelved plans to install a biomass boiler on its campus amid high costs for supply and operation. And in Snowflake, Ariz., a local utility, the Salt River Project, canceled a long-term power-buying contract with a 24-megawatt plant after the plant’s operator filed for Chapter 11 bankruptcy protection in July. Another operator has since taken over the facility.

At the Northern Nevada Correctional Center, meanwhile, officials hoped the biomass plant they built with help from a federal grant would eventually wipe out their $40,000-a-month power bill and even allow them to profit by selling excess power. Situated at the base of the Sierras, they counted on downed trees and other wood debris from the nearby Lake Tahoe Basin to help power the one-megawatt plant. But wood turned out to be harder to get than the prison had anticipated, because of the regulatory bureaucracy at Lake Tahoe, says Damon Haycock, the prison’s business manager. Local officials also demanded that the plant install a ‘baghouse,’ or extra filtration system, to meet clean-air standards far more rigorous than the federal government’s, which raised costs and reduced efficiency, Mr. Mohlenkamp says. The plant began losing $500,000 a year, leading officials to close it.

Biomass energy isn’t all that “green:”

…threatening the industry’s growth are concerns that biomass power isn’t as ‘green as supporters say it is. Backers say biomass power is a carbon-neutral form of energy: The trees that feed biomass plants sequester carbon when they are growing, offsetting the carbon that’s released when they are burned for fuel. But some environmental groups have complained that biomass plants spew too much pollution into the air, while others worry that an expansion of biomass energy could lead to excessive logging, claims the industry denies. Partly driven by those concerns, the Massachusetts Department of Energy Resources on Sept. 17 proposed a rule requiring that biomass incinerators become 60% more efficient to qualify as a renewable resource. If adopted, industry executives say, the rule could cripple biomass production in Massachusetts and spread to other states.

My favorite part of the article is a quotation that you will always find (in some form) in these articles from rentseeking advocates of more renewable energy:

‘As long as the biomass industry is forced to compete with coal and natural gas, we will not grow this industry,’ says Bob Cleaves, chief executive officer of the Biomass Power Association, a trade group based in Portland, Maine.

Forced to compete? Sounds dreadful. Surely we don’t expect them to do this. Seems like just sticking out their hands should suffice. I mean, it’s worked to this point.