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By Bill Peacock
“If America wants to keep gasoline-powered cars and big refrigerators … able to pay for travel in and out of the country … avoid European and California-style energy poverty, the only hope is to convince politicians to end subsidies for renewable energy and all other forms of energy.”
Most renewable energy advocates complain about the subsidies given to fossil fuels. “We have heard testimony,” said US Senator Sheldon Whitehouse, “about the threat of climate change in all sectors of our economy.”
So what is the federal government doing to protect against this threat? Actually, we subsidize the danger. As you will hear today, the United States subsidizes the fossil fuel industry with taxpayer dollars.
Join Sen. Whitehouse in this vein are groups like the International Monetary Fund, Electric Future, and the Natural Resources Defense Council.
Exaggerations
The amount of fossil fuel subsidies is very high. Whitehouse demanded US subsidies in 2022 of only $20 billion. The IMF estimates the amount previously at $660 billion (for 2020). As a multi-year total shows the Figure 1this statement is not accurate.
Source: Bennett, et al; US Joint Committee on Taxation 2019 & 2023; US EIA; Congressional Budget Office
Perhaps the statement is an attempt to disrupt the massive renewable energy subsidies that are driving the “energy transition” from fossil fuels to renewable energy. As seen above, renewable energy received $74 billion from the US government in 2010–19. They are expected to increase to $244 billion from 2020 to 2029.
These subsidies are the only reason that wind and solar are on the US grid on a commercial scale. And it is the main reason that the US grid is experiencing an unreliable level. The subsidy also represents a takeover of the US power grid by the federal government, following in the footsteps of Wall Street takeovers, health care, and education.
If Americans want to keep gasoline-powered cars and big refrigerators, if they want to be able to travel in and out of their country, if they want to avoid European and California-style energy poverty, the only hope is to convince them. politicians to end subsidies for renewable energy and all other forms of energy.
Rapid Growth of Renewable Subsidies
Energy subsidies from the US government come in three forms: tax expenditures, direct expenditures, and research and development expenditures. Although the proportion varies based on the type of energy, the majority of federal energy subsidies are in the form of tax expenditures, or tax credits.
The US Energy Information Administration calculates each form of subsidy for each fuel source for the years 2016 to 2022. Picture 2 shows that for the seven-year period covered in the EIA report, renewable subsidies were more than three times larger than fossil fuel subsidies: $83.8 billion to $25.8 billion. This subsidy relationship in the EIA report is reflected in our research.
Source: US Energy Information Administration
As seen in Figure 1Bennett et al. found that from 2010 to 2019, subsidies for renewable energy more than doubled subsidies for fossil fuels, $74.1 billion to $37.9 billion. Today that gap is widening. From 2020 to 2029, subsidies for renewable energy are expected to be $244.9 billion compared to $22.5 billion for fossil fuels. Federal subsidies for fossil fuels have been reduced by 40%, while subsidies for renewables have increased by 230%.
Source: Congressional Budget Office and US Joint Committee on Taxation
While renewable subsidies increased from 2010 to 2022, the growth exploded after the passage of the Inflation Reduction Act, which was signed by President Joe Biden on August 16, 2022. Figure 3 shows that before the IRA becomes law, wind and solar subsidies from 2023 to 2029 are projected to be $66 billion. After the IRA, he is expected to be worth $174.8 billion. But this likely underestimates the level of subsidies. The original CBO estimates used for 2028-29 have proven in previous years to understate actual costs. This increase in renewable subsidies contrasts with the estimated decrease in subsidies for fossil fuels over the same period (Picture 1).
Takeover of the US Electric Grid
The push to increase renewable subsidies in the IRA marked perhaps the final stage in the US government’s 30-year effort to take over the US electricity grid. The effect of subsidies on the decisions made by investors in the energy market highlights the success of the government. The success is based on the fact that renewable energy subsidies are not only greater than subsidies for thermal plants in absolute terms but even greater in each unit of electricity produced (Figure 4).
Source: Bennett et al
This shows the significant effect that renewable subsidies have on the profits of renewable energy generators. IBISWorld estimates that US wind generators will receive $49.7 billion in revenue this year, with another $19.5 billion flowing to solar generators. In a combined $69.2 billion, this means that approximately $21 billion in federal wind and solar subsidies for 2024 will increase the return on investment for generators by 30% above what they get for selling electricity. Generators in Texas, the nation’s leading generator of electricity from renewable energy, have experienced a similar boost. In 2018, federal and state subsidies for renewable energy totaled $2.5 billion. This adds an additional 28.8% to Texas renewable generators on top of revenue from sales.
These taxpayer-funded, government-guaranteed rebates are the reason renewable generation is fueling the US power grid and driving investment in reliable thermal generation. Investment in renewable energy has grown from $29.4 billion in 2010 to $55.4 billion in 2019 as investors seek subsidized profits. An increase in renewable generation has been predicted. In 2014, renewable electricity generation totaled 279,242 gigawatt hours, just 6.8% of all electricity generated. Last year, renewable generation increased by 135% to 653,663 gigawatt hours. This equates to 15.6% of the total generation. Meanwhile, generation from non-renewable sources fell by 7.6%.
Texas is also experiencing renewable takeovers. ERCOT, which manages about 90% of the Texas grid, estimates that renewable generation will add 58,654 megawatts until 2029 (wind 3,628 megawatts, solar 36,868 megawatts, and batteries, which also receive billions in subsidies, with 18,158 megawatts). Thermal resources, however, will only add 1,074 megawatts. Renewable energy is expected to make up 98.2% of new generation on the Texas grid over the next five years.
Ohio is another state undergoing an energy transition. The Solar Energy Industries Association reports that commercial solar facilities in Ohio have 2,822 megawatts installed, an increase of 1,300 megawatts from last year. Ohio ranks 15th in the country for installed solar generation, up from 32nd from 2023. And more advanced than Texas or Ohio is the renewable takeover in California. Wind and solar now make up 45.6% of the country’s generation, far ahead of thermal generation at 33.6%. Most of the rest comes from hydroelectric power plants.
Energy Transition Costs
The shift to renewable energy has been huge for America. In California, for example, wholesale electricity prices were the highest in the country last year at $67 per megawatt hour. California home prices were also the highest at 34.3 cents per kilowatt hour, more than double the national average of 16.4 cents. Texas is not far behind. Home prices are up 27% from 2021, although 14.7 cents are still behind California.
But wholesale prices are different. Last year’s wholesale price in California alone was $65. If Texas continues to rise, home price increases will follow. In Ohio, the cost of installing solar has reached $3.7 billion, a hefty price for a generation facility that is operational for less than half a day. Home prices in Ohio rose 40% over the last decade, to 16.6 cents. The cost of renewables is higher for all Americans. Renewable subsidies are projected to cost taxpayers $318 billion from 2010 to 2029 (see Picture 1). The average annual cost from 2023 to 2029 will be about $30 billion.
The rising cost of electricity is not limited to price increases and taxes. The reliability of the US network also took a hit. It is a well-known fact that the reliability value of renewable energy decreases as the network penetration increases. This should come as no surprise given the fact that renewables can only produce electricity when the sun shines or the wind blows. This “intermittent” renewable nature places a huge burden on network reliability. Texas, with its Winter Storm Uri blackouts, is the current poster child for what renewables can do grid reliability, but California is no stranger to this. Reliability costs, however, exceed the economic costs of blackouts (estimated between $80 billion to $130 billion in Texas for Uri). Over the past 10 years, Texas politicians and regulators have forced consumers and taxpayers to shell out an average of $5.8 billion a year for trying to incentivize new natural gas generation to come online when renewables fail. And the reliability problem caused by the dependence on renewables is responsible for sky high electricity prices in California.
Conclusion
When politicians take over the market, bad things happen. Costs rise, consumer choice is thwarted, and well-connected businesses get rich off taxpayers. We see all of these happening in the US energy transition from fossil fuels to renewables. The only way to eliminate these harms and more is to let the market work and eliminate all energy subsidies—federal and state—in America.
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Bill Peacock is Alliance Energy’s policy director. The Energy Alliance (www.theenergyalliance.com) is a Texas Business Coalition project to raise awareness of the energy market issues most important to consumers: Reliability, Affordability, and Efficiency.
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