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The New Math of Renewable Energy: $50 = $100

Posted By David Kreutzer, Ph.D. On May 25, 2012 @ 1:30 pm In Featured | Comments Disabled

Suppose you could produce $50 of electricity but it cost you $100 to do so. Would that make any sense? It would if you work at the White House.

In a speech at a wind-turbine blade manufacturer in Iowa, President Obama called for extending two sets of subsidies that turn energy economics upside down and force higher costs on consumers and taxpayers.

The first extension is for the production tax credit (PTC), which is set to expire at the end of the year. It provides wind-energy producers with a subsidy of about 40 percent of the wholesale cost of electricity. So, when a wind-energy producer sells $50 worth of electricity, Uncle Sam adds another $20 for a total revenue of $70 to the producer.

The second extension is for the Advanced Energy Manufacturing Credit—originally funded in President Obama’s “stimulus” bill. This 30 percent credit cuts the cost of $100 worth of equipment to just $70.

So there you have it. Fifty dollars of actual revenue is bumped up to $70 with the PTC and $100 of costs are cut to $70 after the special tax credit. That is, $50 = $100 after taxpayers make up the difference.

When wind-energy advocates claim that wind power is on the verge of being competitive, they mean that after the PTC and the manufacturing credit, wind is almost, maybe someday soon, or maybe later (and only if you ignore transmission costs and fickleness of supply problems) on par with conventional power. What a deal.

Perhaps not all of the costs of the wind farm will qualify for the manufacturing credit, but don’t despair. There is more. Many states and regions have renewable power mandates that force consumers to buy renewable electricity—regardless of costs. So there is almost no limit to how expensive renewable electricity can be and still generate a profit for the supplier.

And even that’s not all. Many renewable energy projects and manufacturers receive federal loan guarantees that cut millions of dollars off their costs. In green-energy math, $50 may be greater than $100.

No matter how slick the financial shell games may be—subsidies on top of subsidies on top of mandates—overpriced electricity cannot boost the economy. It may seem like a boost if you are the one getting the subsidy…at least for a while. The workers at the Iowa plant better hope their presidential green-energy photo op works out better for them than it did for Solyndra’s employees.


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