Should the government get out of renewable energy project funding?
December 9, 2013 | By
Barbara Vergetis Lundin
Over the past decade, federal and state governments have significantly increased their support for nonconventional energy technologies, ranging from wind-powered electricity generators to battery-powered cars. This support has come in many different forms, including mandatory minimum amounts of renewable energy, such as state renewable portfolio standards for electricity generation; emission restrictions, such as California's zero emission vehicle standard; and various other subsidies.
According to new research, 22 out of 26 Department of Energy stimulus loans went to "junk" grade investments before they were awarded taxpayer-backed loans as part of the DOE's Section 1705 loan program and the 2009 stimulus bill that focused on renewable energy, electric power transmission, and biofuels projects. The $16 billion dollar program invested in various failed enterprises like Solyndra but that is just the tip of the iceberg. By encouraging private investment in unduly risky projects, it diverted money away from more sustainable projects that might actually result in environmental improvements, the Reason Foundation contends. The companies that spent the most on lobbying received the biggest Section 1705 loans, according to the Reason Foundation research. "These projects were rated by credit rating agencies as junk investments with a high likelihood of failure, but the Department of Energy didn't seem to care because it was giving loans to the firms that were well connected or were spending the most on lobbying," said Julian Morris, vice president of Reason Foundation and co-author of the report. The report also questions why 83 percent of the American Recovery and Reinvestment Act's Section 1705 loans went to solar energy projects, with wind receiving 11 percent. "The U.S. gets less energy from solar than it does from biomass or even geothermal," Morris said. "It smacks of crony capitalism that the energy technology with the lowest market share, solar, got nearly all of the…loans. It is a managerial failure that the administration chose so many high-risk projects in one energy sector and didn't diversify its investments." Does the government belong in the business of funding these types of projects? Certainly, the incentives do help advance renewable energy projects of any type. "If the government insists on continuing to fund these projects, it should shift to a system that rewards success," said Victor Nava, policy analyst at Reason Foundation and co-author of the report. Ultimately, the Reason Foundation believes the government should remove itself from funding energy projects altogether. If there is a political consensus that such funding should continue, then a more neutral mechanism should be used that rewards demonstrated success, rather than subsidizing failure, the report concludes. For more:
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