Why Do Federal Subsidies Make Renewable Energy So Costly?
On a total dollar basis, wind has received the greatest amount of federal subsidies. Solar is second. Wind and solar together get more than all other energy sources combined.
However, based on production (subsidies per kWh of electricity produced), solar energy, has gotten over ten times the subsidies of all other forms of energy sources combined, including wind (see figure).
According to the Energy Information Administration (EIA) and the University of Texas, from 2010 through 2013, federal renewable energy subsidies increased by 54%, from $8.6 billion to $13.2 billion, despite the fact that total federal energy subsidies declined by 23%, from $38 billion to $29 billion.
Subsidies then decreased dramatically from 2013 to 2016, because:
• tax incentives expired for biofuels,
• the American Recovery and Reinvestment Act (ARRA) stimulus funds were used up,
• energy assistance funds decreased,
• there was a 15% decrease in fossil fuel subsidies from $4.0 billion to $3.4 billion, and
• a 12% decrease in nuclear subsidies from $1.9 billion to $1.7 billion.
But the subsidies for nuclear and fossil fuels are indirect subsidies like decommissioning and insurance assistance, leasing of federal lands, and other externalities, unlike the subsidies for renewables which are directly for the production of electricity and directly affect cost and pricing.
Within the renewables, electricity-related subsidies increased more than 50% for wind and solar, whereas conservation, end-use, and biofuel subsidies deceased more than 50%. This is unfortunate since conservation and efficiency usually yield great results with little cost or infrastructure requirements.
The Institute for Energy Research and the University of Texas calculated the subsidies per unit of energy produced, or cents per kWh. This is a more relevant number for comparing different energy sources as it normalizes to the amount of energy produced (see figure above).
Between 2010 and 2016, subsidies for solar were between 10¢ and 88¢ per kWh and subsidies for wind were between 1.3¢ and 5.7¢ per kWh. Subsidies for coal, natural gas and nuclear are all between 0.05¢ and 0.2¢ per kWh over all years.
Much of the subsidies in 2010 and 2013 resulted from ARRA stimulus funding following the economic crash of 2008 and the end of ARRA is why the 2016 and 2019 numbers are so much lower.
Solar also gets the most state-funded subsidies, some of which greatly exceed the federal subsidies. In my own State of Washington, where electricity prices are 8¢/kWh, the State pays me 54¢ for every kWh generated by my rooftop solar array, whether I use it or not. This has made my total electricity costs -7¢/kWh over the past two years, and will for the foreseeable future.
Yes, that’s negative (-)7¢ per kWh. And this is on top of my 30% installation federal tax credit which came to about $6,000 for my 4 kW array.
There is no doubt that these subsidies incentivize renewables, but what do they do to the cost of the electricity generated by them?
They actually increase the cost. However, this cost is transferred from the ratepayer to the taxpayer, and so goes unnoticed by most Americans.
Using the per-kWh subsidy numbers from EIA and UT in the figure above, each kWh of solar produced in 2010 received 88¢, more than ten times the actual cost of any other energy source. These subsidies have to be added to the retail cost of that energy to determine total costs since that’s what was actually spent to produce it.
So in 2010 and 2011, solar cost about 100¢ per kWh, and in 2013 and 2014, solar cost about 80¢ per kWh. Even after the ARRA funds were depleted after 2013, the cost of solar is still double what is usually given as its cost.
For comparison, nuclear energy cost between 4¢ and 5¢ per kWh to produce over this time period. Remember, though, the cost to produce energy is not the same as the price charged for it. Price is set by the region and the market, and has add-ons for transmission, grid maintenance and other non-production costs. Subsidies decrease the price while increasing the cost.
Although wind received more total subsidies, wind received much less subsidies per kWh produced than solar as it produced much more energy. However, it is nonetheless significant for 2010 and 2013 and about 50 times that of nuclear and fossil fuels, allowing wholesale prices for wind and solar to become negative, unfairly undercutting nuclear, hydro and coal prices.
These subsidies for wind and solar will likely continue under the Trump Administration. Red States receive more of these subsidies than Blue States, so Congress is unlikely to kill them. In fact, in 2015 Congress extended the renewable tax credits to 2021.
Although nuclear energy gets very little federal subsidies, and almost no subsidies from the states, that may be changing. States like New York and Illinois are struggling with the closure of perfectly good low-cost nuclear plants because of subsidized renewables and low-cost natural gas, foiling their state’s emissions targets and laying off thousands of high-paid workers.
This is important since these subsidies have warped the wholesale electricity markets, causing negative pricing in some markets and threatening the closure of lone merchant nuclear power plants that don’t, but should, have similar subsidies to renewables. Especially since nuclear turns out to be as renewable as wind.
Exelon is discussing legislative solutions with stakeholders that could secure the future of its Three Mile Island nuclear plant in Pennsylvania, and some of their other plants in other states. The utility hopes that “anything and everything hopefully will be on the table for discussion,” said David Fein, vice president for state government affairs.
