Renewable Energy and Government Subsidies Go Hand-in-Hand (for Now)

The Obama Administration is coming under fire for providing subsidies to renewable energy sources—such as solar, wind, and geothermal. And not for the first time.

The latest tiff results from a $528 million loan to Solyndra LLC. Despite the federal funds, the private, California-based solar panel maker went belly up on September 1, Chapter 11 bankruptcy protection, and laid off every one of its more than 1,100 workers.

U.S. Secretary of Energy Steven Chu has gotten more political flak from the loan program in recent months.

Political opponents claim it is an example of government waste in the making. Adding to the fodder are several other government-supported projects in geothermal and solar that are under pressure, too.

Since 2009, Washington has doled out some $16 billion (B) in 28 loans. The Energy Department says this loan money has resulted in 60,000 jobs.

However, with $6B being committed in only the last few weeks (to beat a September 30 budgetary deadline), disasters like this one with Solyndra are something best avoided when Chu speaks on renewables.

Just as predictably, they are likely to figure prominently in the rhetoric coming from the other side.

Admittedly, using solar, wind, and geothermal to generate electricity does remain more expensive than using fossil fuels—although proponents argue the cost will come down as economy of scale kicks in, and as new inverter and technical applications improve energy efficiency.

Supporters also point to the anticipated rise in oil prices, nothing that this will make the switch to "clean energy" less costly (in relative terms).

With the introduction of new mercury, nitrous, and sulfurous oxide standards looming, and the prospects of carbon standards only delayed (but hardly out of the picture), coal is likewise feeling the pressure.

Cost considerations are already prompting the retirement of some 90 gigawatts (GW) of electrical generating capacity by 2020. Another 20 GW of coal capacity is likely to be closed by the emission restrictions.

Most of that void must be filled by alternative sources.

Don't forget about the expected huge additional surpluses of natural gas coming on-line from unconventional sources like shale and coal bed methane. Cleaner than either coal or oil, gas is being touted in many regions as the energy of choice. But it is largely unaccounted for in the argument defending renewables.

Nonetheless, most projections see the market demand moving forward as being influenced primarily by both gas and renewables.

In short, the post-coal age—discussed as an idea for so many years—suddenly seems to be coming fast.

Meanwhile, the current debate that the Solyndra failure has prompted likewise brings in an even broader question. Can renewable energy sources make it in the market without a significant push from the government?

Not initially. . .

Power generation per unit remains more expensive, and infrastructure and support costs will only add to the expense.

Even in Europe, where the importing of natural gas results in a much more expensive energy product for the end consumer, and oil products are already priced high by a combination of raw material costs and hefty taxation, the move to wind farms and solar requires significant public sector subsidies.

The upshot: Today, on a strict balancing of costs, renewables are not competitive.

Yet this is not merely an issue about how much energy costs. . .

The prospects of domestically sourced power providing a potentially significant steady stream of new jobs and local manufacturing, along with the prospect of genuine exports in both technology and production, are at the base of the clean power movement.

Then there is the real possibility of breakthroughs substantially altering the cost dynamics in the near future.

And those in the industry have no qualms in believing game-changers are coming.

Take last week, for example.

During some interesting sessions with the power execs in Pebble Beach, I continually heard them speak about a new vision, complete with new ways of generating electricity, transporting that power, and using smart grids to more efficiently coordinate its use.

The debate about renewables is no longer only about different energy sources. It is about a genuinely different view of how things should be in the U.S. market—a consciously different and intentional vision.

This is about choosing an energy infrastructure. . .not having one thrust upon us by outside elements.

That creativity and direction is guided by something other than simply dollar signs.

On that score, and on both sides of the Atlantic, at least for now, governments have decided to weigh in, putting their thumbs on the market scales.

Of course, there is a limit to what taxpayers are prepared to tolerate. That means further support may well depend upon genuine signs that renewables can provide an acceptable alternative.

As for the failures, house cleanings will come in short order. . .

Just last Friday, the U.S. Justice Department moved to take control of Solyndra. It now faces a criminal investigation by the FBI, as well as scrutiny from Congressional investigators and government auditors at Energy and the Treasury.

Sincerely,

Kent