Sorry, Critics - Solar Is Not a Rip-Off
By By Joe Desmond, SVP of Government Affairs and Communications,
BrightSource Energy
September 24, 2012
On September 21, the LA Times ran a story about large-scale solar
projects titled, "Taxpayers, ratepayers will fund California solar
plants," with the subhead: A new breed of prospectors -- banks,
insurers, utility companies -- are receiving billions in subsidies while
taxpayer and ratepayers are paying most of the costs. Critics say it's a
rip-off.
BrightSource
is mentioned as one of the companies that will be delivering
clean, renewable energy to Southern California Edison and PG&E
from our
Ivanpah Project. As this goes to print, Ivanpah is now
nearly 60 percent complete and on track to deliver its power
next year. When completed, it will be the largest solar thermal
project in the world.
As with many stories, what’s not included is just as
important as what’s reported. So in the interest of fostering
informed discussion, here’s our list of 15 important points we
wish had been included in the story, in no particular order.
- Ratepayers have always funded power plants – whether
coal, nuclear, natural gas, hydro, biomass, wind or solar.
- Earlier this year, the California Public Utilities
Commission issued a report highlighting how the falling cost
of renewable energy is leading to cost-competitive prices
for utilities, with costs not only having been significantly
reduced to date, but with the “prospect that prices in
future years will be lower still.” The study found that:
(a) In 2020, the total statewide electricity expenditures of
achieving a 33% RPS is projected to be 10.2% higher compared
to an all-gas scenario.
(b) Even if California makes no further investments in
renewable energy, this analysis projects that average
electricity costs per kilowatt-hour will rise by 16.7% in
2020 compared to 2008 in real terms.
- Government has
always employed a variety of incentives to encourage the
development of all domestic energy resources at the state
and federal level. These incentives are varied, but include
direct subsidies, tax breaks, market support (for example,
U.S. government policy is to provide ports and inland
waterways as free public highways, and in ports that handle
relatively large ships, the needs of oil tankers represent
the primary reason for deepening channels. They are usually
the deepest draft vessels that use the port and a larger
than?proportional amount of total dredging costs are
attributable to them), technology demonstration programs,
research and development (R&D)
programs, procurement mandates, information generation
and dissemination, technology transfer, directed purchases,
and government?funded regulations.
- Subsidies reduce the cost to build a power plant, which
in turn lowers the cost of electricity that must be charged
to pay for it. In California, that’s because renewable
energy is procured through a competitive process, and
subsidies are reflected in the bid prices. They do not line
the pockets of banks, insurers and utility companies.
- Lower interest rates (as a result of available loan
guarantees) translate to lower energy rates in the same way
a low-interest mortgage reduces a homeowner’s monthly
payment.
- Government-backed loans are paid back with interest to
taxpayers, making the loans an investment, not a subsidy.
- Insurance and performance guarantees are required for
all power plants to protect ratepayers if something goes
wrong. Without those protections, a power plant - renewable
or fossil - could not be financed and constructed.
- Not surprisingly, tax-based policy incentives are not
particularly effective when tax burdens have been shrinking
or non-existent. The 1603 Treasury Grant Program (referred
to as the “cash grant” in the LA Times story) was
enacted to address challenges in the tax equity markets
following the 2008 financial collapse. It has
proven to be an efficient finance mechanism that allowed
taxpayers and small businesses to maximize the return and
value of current tax policy by enabling access to additional
sources of lower cost private capital. In turn, these
savings can help lower the cost of renewable energy for
consumers by as much as $20/mwh.
- Contrary to how it was reported, the 1603 grant program
built upon on and was designed to enhance existing policy –
the bipartisan Investment Tax Credit (ITC). The ITC was
enacted as part of the Energy Policy Act of 2005 and then,
in 2008, was extended by President George W. Bush to run
through 2016. Under Section 48 of the Internal Revenue Code,
qualified commercial energy projects – solar, fuel cells,
and small wind projects, as well as geothermal,
microturbines, and combined heat and power projects – are
eligible for a credit equal to 30% of the project’s
qualifying costs. The 1603 program simply allowed these same
projects to elect a cash grant of equivalent value.
- In the case of Ivanpah, the vast majority of the cash
grant will be used to repay a portion of the guaranteed loan
with interest. The remainder of the cash grant will fund
reserves required by the terms of our loan guarantee.
- California utilities don’t earn profits on fuel costs,
such as natural gas. Instead, they are passed through to
ratepayers without a markup. Natural gas is a commodity, its
price is volatile and it is projected to increase over time.
In contrast, once a solar plant is constructed, the fuel –
sun - is free as long as the plant operates. Imagine buying
a car that, with proper maintenance, would run 30 to 50
years and the gasoline was always free. (You get the idea.)
- The returns earned on renewable project investments are
comparable to the returns earned on other large
infrastructure projects of similar size with a similar risk
profiles. No more, no less.
- Renewable power technologies are inherently
capital-intensive, often (but not always) with relatively
high construction costs and low operating costs. For this
reason, renewable power technologies are typically more
sensitive to the availability and cost of financing than are
natural gas power plants, for example.
- When considering impacts associated with exploration,
extraction, processing, transportation and conversion of
fossil fuels used to power most electrical power plants,
utility-scale solar is one of the most
land-efficient resources available today. The federal
government has dedicated nearly 2,000 times more acreage to
oil and gas leases than to solar development. In 2010 the
Bureau of Land Management approved nine large-scale solar
projects, with a total generating capacity of 3,682
megawatts, representing approximately 40,000 acres. In
contrast, in 2010, the Bureau of Land Management processed
more than 5,200 applications gas and oil leases, and issued
1,308 leases, for a total of 3.2 million acres. Currently,
38.2 million acres of onshore public lands and an additional
36.9 million acres of offshore exploration in the Gulf of
Mexico are under lease for oil and gas development,
exploration and production.
- Utility-scale solar has proven to
drive job growth, innovation and competitiveness in our
state. The renewable energy sector is growing and
benefiting thousands of companies and tens of thousands of
workers in California. Utility-scale solar energy projects
are also driving tens of billions of dollars in direct
investment into California, and providing tax revenues to
the state and to local communities. Ivanpah alone is a $2.2
billion project with an estimated $300 million in tax
revenues over its 30 year life. These projects’ supply
chains also result in billions of dollars in indirect
economic benefits. At Ivanpah, the majority of the supplies
are from domestic vendors across 17 states.
Lead image:
Reality sign via Shutterstock
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