Critics say solar can’t survive without government handouts, and supporters point to decades of subsidies for fossil fuels. Are subsidies corporate welfare, or do they level the playing field? The simple answer is yes…to both.
Lies, damned lies, and statistics
“There are three kinds of lies: lies, damned lies, and statistics.”
Often attributed to Mark Twain, it was actually British Prime Minister Benjamin Disraeli who originally coined this classic phrase. Often, in a debate, opponents will throw out seemingly contradictory statistics, and yet both sides can be telling the truth. How is that possible? It’s all about context.
It is true that renewables received more subsidies than coal, natural gas and nuclear combined (in 2007) and it is also true that fossil fuels have received 75 times more money in subsidies than renewables (since 1918). Some renewable energy proponents argue that externalities, like cleaning up environmental pollution, the cost of storing nuclear waste and the cost of military actions in the oil-rich middle east should be added to the list of fossil fuel subsidies. Fossil fuel supporters claim that big tax breaks like depletion allowances are not actually subsidies at all. Agreeing on the metrics to get an accurate picture of subsidies can be difficult.
Comparing apples to apples
It can be said that comparing solar subsidies to coal or nuclear subsidies is like “comparing apples and oranges.” A true side-by-side comparison can be very hard to make, considering all of the variables and all of the differences between the different energy sectors. There is one thing that everyone can agree on, though. David Hochschild, a California Energy Commissioner said it best:
“There is a myth around subsidies, but there is no such thing as an unsubsidized unit of energy.”
Hochschild was speaking at the Energy Productivity Summer Study in 2016. He made the case that energy production, be it renewable or fossil, is subsidized to some degree by the government. Hochschild showed a graph that shows the accumulated energy subsidies in the US under federal programs, starting in 1918. Oil and gas and nuclear are historically the biggest winners in the subsidy game. Federal renewable energy subsidies are a small fraction. “The fossil fuel industry hates to talk about that,” said Hochschild.
How useful is this historical data, though? The biggest problem is getting an honest assessment of what data to leave in, and what to leave out. It is quite common to see the entire energy sector lumped into one pie chart like the one Hochschild presented. Incentives for transportation fuels like gasoline, diesel and ethanol are presented right alongside electrical generation sources like wind, solar, nuclear and… where is coal? Although this makes an impressive case for how little has been spent on solar as compared to oil production, it really doesn’t give us a decent apples-to-apples comparison. Even when compared on a dollars per kilowatt basis, renewables are often lumped together, large wind and rooftop solar, which also doesn’t tell you a whole lot about solar’s place in the subsidy race.
Finally, discussions of “government handouts” often focus on federal incentive programs, often ignoring state, local and utility company incentives. There are so many factors to consider, it can seem like there is no chance of getting to the bottom of the subsidy question, but for the sake of simplicity, we will focus on the federal incentives.
Tax breaks, grants, and R&D
What is commonly thought of as “government incentives” fall into several categories, like tax breaks and grants for research and development. Are these subsidies? What constitutes a subsidy, exactly? A subsidy is defined as “…a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.” By definition, tax incentives are not necessarily subsidies. But sometimes they are… let’s look at the most popular federal solar program.
For independent owners of residential and business photovoltaic systems, the most frequently tapped are the federal “Investment Tax Credits” (ITC.) According to the Solar Energy Industry Association (SEIA)fact sheett on the ITC:
- The ITC is a 30 percent tax credit for solar systems on residential (under Section 25D) and commercial (under Section 48) properties.
- The residential and commercial solar ITC has helped annual solar installation grow by over 1,600 percent since the ITC was implemented in 2006 – a compound annual growth rate of 76 percent. (See more solar industry data.)
- The existence of the ITC through 2021 provides market certainty for companies to develop long-term investments that drive competition and technological innovation, which in turn, lowers costs for consumers.
Because the ITC is a tax credit and not a direct payment like a grant or a rebate, it is more popular with fiscal conservatives than some other programs. However, The Section 1603 Treasury Program allows solar and other renewable energy project developers to receive a direct federal grant in lieu of the ITC. As of December 2013, the Treasury Department had awarded $4.4 billion in grants to solar projects. When taken as a grant, the ITC most definitely serves as a subsidy.
Research and Development
Since the election of Donald Trump to the presidency, there has been a lot of talk about Trump’s energy secretary, Rick Perry, cutting the budget at the Department of Energy (DOE) and specifically at the National Renewable Energy Laboratory (NREL). Trump’s proposed fiscal year 2018 budget has proposed the following cuts to the two labs:
- NREL, would see its overall budget would be slashed 22%, energy-storage research eliminated, and solar energy research cut 22% cut itself.
- Berkeley Lab would absorb an overall 28% budget cut. As with NREL, energy-storage research is eliminated, and solar’s research budget would also sustain a nearly fatal reduction of 54%.
So far though, the only cuts to take effect have been at two other labs-Oak Ridge National Laboratory and the Brookhaven National Laboratory– where 500 jobs are being eliminated. Interestingly, these labs focus on nuclear research, not solar.
As of 2015, before the presidential election, the US federal government was allocating only about $5 billion to energy research, which is a small fraction of what competitors like China spend annually on energy R&D. The funding was distributed like this:
- Nuclear – $1 billion
- Coal and carbon sequestration research- $350 million
- Solar – $188 million
- Wind – $90 million
- Oil and gas research – $25 million
The research dollars for nuclear and coal far outstrip the funding for solar, and always have. However, one solar project above all others gave solar R & D investments a bad name: Solyndra.
Solyndra: The wrong technology at the wrong time
“The Solyndra transaction went through more than two years of rigorous technical, financial and legal due diligence, spanning two administrations, before a loan guarantee was issued,” he said. “Based on thorough internal and external analysis of both the market and the technology, and extensive review of information provided by Solyndra and others, the (Energy) Department concluded that Solyndra was poised to compete in the marketplace and had a good prospect of repaying the government’s loan.”
-Energy Secretary Steven Chu
Republican critics of President Obama and the solar industry still love to reference the Solyndra case. Solyndra was a solar startup company that had a promising new technology for increasing the efficiency of solar panels. The company received a $535 million loan guarantee from the Department of Energy under the American Recovery and Reinvestment Act of 2009. Along with $198 million from private investors- including Goldman Sachs- they built a state-of-the-art manufacturing plant in Fremont California.
Unfortunately for the company, investors and American taxpayers, China began dumping cheap silicon onto the US market at precisely the time Solyndra was about to release its new product. It simply could not compete with the huge drop in the price of conventional solar panels, and the company entered Chapter 11 bankruptcy in mid-2011.
Solyndra became the whipping boy of anti-solar activists and the Solyndra case is truly a perfect example of misplaced subsidies. But despite the collapse of that one company, many other subsidized companies have gone on to create new jobs and a new market for clean energy. Solyndra has proven to be the exception, not the rule.
Is it time for the government to get out of the energy business?
Texas Congressman Lamar Smith is the Chairman of the House Science, Space, and Technology Committee. He wrote recently in an op-ed on RealClear Energy:
“…While it’s true that many fossil fuel tax incentives are permanently installed in the tax code, it’s clear that federal incentives for energy technology heavily favor renewable energy and energy efficient technologies. This means higher costs for American consumers and an energy market that is heavily influenced by federal government policy.
It’s not the role of the federal government to pick winners and losers in the energy market. Instead of costly tax incentives, subsidies, loans or loan guarantees, the federal investment is most effective when we prioritize the basic research that benefits all forms of energy. It’s time to level the playing field and reduce federal intervention in the energy market.”
Smith’s comments illustrate the problem with so much of the criticism that solar has to contend with. He openly admits that tax code is “permanently” fixed to favor fossil fuels, he points at renewables as the problem. He cites higher costs despite recent studies that show that solar is actually cheaper than coal in many cases. Finally, he calls for “leveling the playing field,” despite having already admitted that tax code slants the field in favor of fossil fuels. The hypocrisy of this attitude is so blatant, and yet still so common.