Government Gluttony at the American Wind Energy Association (Summers/Browner/Klain memo indicates growing ‘wind fatigue’)

The American Wind Energy Association (AWEA) is on a mission to keep its members fat and happy as they bloat up at the public trough. The goals are simple:

1) Create a set-aside power market that pays a premium for wind energy and eliminates competition for lower-cost, more reliable fuel options;

2) Encourage policies that pave the way for wind-related transmission development at the expense of rate- and taxpayers; and

3) Make permanent the free-flow of public subsidies for renewables and shield the spigot from changing political and economic tides.

In the last two years, AWEA’s had some success. On the power market front, more than half the States have RPS programs mandating that a percentage of their electricity needs be met with renewable energy. Many states have loose enough standards to avoid the damage that otherwise would be done, but Texas, in particular, has coerced its way into windpower growth (the legacy of Enron, by the way).

Senator Bingham (D-NM) introduced a bill seeking the same non-compete set-aside for the entire country that he hopes will be acted on during the lame-duck session. (See Daren Bakst’s criticism of this proposal here.)

On transmission, the Federal Energy Regulatory Commission (FERC) issued a notice of proposed rulemaking (NOPR) that considers transmission planning and cost allocation processes that would facilitate broader public policy goals — i.e. a national grid system to deliver wind power. This deviates from current rules that look mainly at grid reliability. And Obama’s $787 billion stimulus passed in February 2009 authorized billions be spent on renewable energy and energy efficiency initiatives which kept the wind industry from collapsing when the big investment banks needed bailing out.

The debates surrounding a national RPS policy and actions by FERC on transmission are not settled and will likely come down to cost. But the stimulus programs that spent lavishly on pet wind projects — while a success for AWEA members — are proving to be a waste for the public.

Under the stimulus, we saw the investment tax credit, popular back in the 1980’s, brought back. The ITC enables developers to obtain direct cash outlays from the government for up to 30 percent of their costs. According to Greenwire (October 14), any company or person who qualifies and applies for the money can get a grant through the Treasury Department which is prohibited by law from ranking the projects. Grants are unlimited for those who qualify and meet the deadlines.

Between direct cash payouts, federal loan guarantees, existing state tax credits and State RPS policies that assure a premium for renewable energy, wind developers could not fail. Is this the American way? Should AWEA have “American” in their name.

Spanish energy giant Iberdrola Renewables, Inc., who received nearly a billion dollars in cash grants alone, claimed the money helped create more development but according to Gilbert Metcalf, a Tufts University professor who teaches energy economics and tax policy: “Any time you use subsidies to encourage new investment, you’re always going to end up giving money to people who would have done the project anyway.” (Greenwire October 14) And that appears to be exactly what happened.

A preliminary evaluation of the ITC grant outlays published earlier this year by the Lawrence Berkeley National Laboratory found that 61% of the grant money distributed through to March 2010 “likely would have deployed under the PTC [production tax credit] if the grant did not exist.” In many cases, money went to projects that were already under construction and, in others, projects were already producing electricity.

The Summers Memo

So what did the public receive in return for all the money spent? High risk and overpriced carbon reduction benefits according to an October 25 White House memo penned by chief economic aide Larry Summers and senior policy aides Carol Browner and Ron Klain. The memo uses the 845-megawatt Shepherds Flat wind energy facility in Oregon to illustrate the issues with the programs. Shepherds Flat will be the largest wind plant in the country consisting of 338 GE wind turbines.

According to Summers, the $1.2 billion in governmental subsidies covered 65% of the cost and risk for project while the equity sponsors incurred only about 11% with an estimated return on equity of a 30%. That’s a hefty return for a project where the American public takes the bulk of the risk!

Summers makes clear in the memo that project would have likely “moved without the loan guarantee” since the “economics are favorable for wind investment given the tax credits and state renewable energy standards”. Examining the Carbon reduction benefits, the memo concludes that the reductions “would have to be valued at nearly $130 per ton CO2 for the climate benefits to equal the subsidies (more than 6 times the primary estimate used by the government in evaluating rules)”.

The Wall Street Journal published an informative editorial on the memo that’s well-worth reading.

Conclusion

It’s time Capitol Hill took a hard look at the renewables feeding frenzy now underway and adopt policies that are best for us as a Country. For starters, it should let programs set to expire this year to do just that! There are cheaper and much more effective opportunities for achieving clear energy goals without coddling an industry with a poor product that has yet to show it can survive without public handouts.

Read more at Master Resource