The Next Solyndra
By now, everyone has read about Solyndra's bankruptcy which will cost U.S. taxpayers $535 million (the Obama Administration pushed the Department of Energy to provide Solyndra with loan guarantees that are now the the focus of much inquiry and investigation.)
But there is more to the issue of renewable subsidies, much more.
In August the U.S. Department of Energy's Energy Information Administration (EIA) responded to a 2010 request from Congressmen Roscoe Bartlett (MD), Marsha Blackburn (TN), and Jason Chaffetz (UT) which sought information and data on how much money has flowed to renewable energy subsidies.
The numbers that stagger us are the percentage increases - renewable subsidies have exploded.
This is how bubbles and fraud happen: a massive increase in funding overwhelms all the responsible opportunities, so the money begins seeking less and less responsible opportunities. Consider the U.S. housing crisis, the early 2000's saw massive global liquidity combined with U.S. government demands for more home ownership - the result was that all responsible investments got funded, but a lot of cash was left looking for deals, hence the subprime mortgages and mortgage-backed securities schemes arose as a way to provide that money with a deal.
But back to energy - according to the EIA, subsidies to wind energy projects increased ten-fold between 2007 and 2010, going from $476mm in 2007 to nearly $5bn in 2010. Solar subsidies saw a six-fold increase, leapig from $179mm in 2007 to $1.13bn in 2010. Energy conservation and end-use subsidies more than tripled from $4bn to $14.8bn. We are talking about a three-year period in which total subsidies went up by 1000%, 600%, and 300%. Either production and consumption soared, or money is going to ineffiicient and irresponsible projects.
The evidence supports the latter, renewable energy still only accounts for about 2.4% of America's electricity, but according to research from the Institute for Energy Research, renewables are consuming much more subsidies per MWh of production than any other energy source. Wind receives $56.75/MWh, Solar receives a staggering $775.64/MWh, and geothermal receives $12.85/MWh.
Renewables advocates argue that those subsidies are dwarfed by nuclear, coal, and natural gas subsidies, but the data disagrees. On a per MWh produced basis, nuclear receives $3.14, coal and natural gas each receive $0.64/MWh.
It won't take long at all to find more Solyndras - there is way too much money chasing way too little production for this to end well. The next likely area for a Solyndra is in the push for electric cars - the U.S. has put $5bn into the sector, China has put in $15b, and South Korea $12.5bn. According to David Pearson, writing in the Wall Street Journal, "the announced capacity investments will far exceed the projected demand from auto makers as production kicks in, and not every company is expected to survive the capacity glut... Overcapacity is expected to become most acute toward the middle of this decade as factories financed by the recent investment wave come on steam."
So in the electric sector, we have seen beyond exponential increases in funding in a very, very short time. We have seen three major solar manufacturers go bankrupt in one summer. Chinese manufacturers have pulled the costs of photovoltaic panels down over 90%, and the U.S. is providing a stunning $775 per MWh in subsidies to the sector.
We need to put $775 per MWh into perspective. First of all, at the depth of the Enron scandal was a scheme called "Death Star" under which Enron sold electricity at $1,200/MWh. Which led to lawsuits and jail.
$775 a megawatt-hour is extraordinarily high - the chart below shows generating costs per megawatt hour from Public Utilities Fortnightly. There is a theme here regarding solar... Solyndra mirrors the industry - it receives unprecedented political support which leads to extraordinary subsidies but it still fails to produce.
For more on this issue, be sure to check out the Institute for Energy Research: http://www.instituteforenergyresearch.org/2011/09/19/greengate-enron-yesterday-solyndra-today/
But there is more to the issue of renewable subsidies, much more.
In August the U.S. Department of Energy's Energy Information Administration (EIA) responded to a 2010 request from Congressmen Roscoe Bartlett (MD), Marsha Blackburn (TN), and Jason Chaffetz (UT) which sought information and data on how much money has flowed to renewable energy subsidies.
The numbers that stagger us are the percentage increases - renewable subsidies have exploded.
This is how bubbles and fraud happen: a massive increase in funding overwhelms all the responsible opportunities, so the money begins seeking less and less responsible opportunities. Consider the U.S. housing crisis, the early 2000's saw massive global liquidity combined with U.S. government demands for more home ownership - the result was that all responsible investments got funded, but a lot of cash was left looking for deals, hence the subprime mortgages and mortgage-backed securities schemes arose as a way to provide that money with a deal.
But back to energy - according to the EIA, subsidies to wind energy projects increased ten-fold between 2007 and 2010, going from $476mm in 2007 to nearly $5bn in 2010. Solar subsidies saw a six-fold increase, leapig from $179mm in 2007 to $1.13bn in 2010. Energy conservation and end-use subsidies more than tripled from $4bn to $14.8bn. We are talking about a three-year period in which total subsidies went up by 1000%, 600%, and 300%. Either production and consumption soared, or money is going to ineffiicient and irresponsible projects.
The evidence supports the latter, renewable energy still only accounts for about 2.4% of America's electricity, but according to research from the Institute for Energy Research, renewables are consuming much more subsidies per MWh of production than any other energy source. Wind receives $56.75/MWh, Solar receives a staggering $775.64/MWh, and geothermal receives $12.85/MWh.
Renewables advocates argue that those subsidies are dwarfed by nuclear, coal, and natural gas subsidies, but the data disagrees. On a per MWh produced basis, nuclear receives $3.14, coal and natural gas each receive $0.64/MWh.
It won't take long at all to find more Solyndras - there is way too much money chasing way too little production for this to end well. The next likely area for a Solyndra is in the push for electric cars - the U.S. has put $5bn into the sector, China has put in $15b, and South Korea $12.5bn. According to David Pearson, writing in the Wall Street Journal, "the announced capacity investments will far exceed the projected demand from auto makers as production kicks in, and not every company is expected to survive the capacity glut... Overcapacity is expected to become most acute toward the middle of this decade as factories financed by the recent investment wave come on steam."
So in the electric sector, we have seen beyond exponential increases in funding in a very, very short time. We have seen three major solar manufacturers go bankrupt in one summer. Chinese manufacturers have pulled the costs of photovoltaic panels down over 90%, and the U.S. is providing a stunning $775 per MWh in subsidies to the sector.
We need to put $775 per MWh into perspective. First of all, at the depth of the Enron scandal was a scheme called "Death Star" under which Enron sold electricity at $1,200/MWh. Which led to lawsuits and jail.
$775 a megawatt-hour is extraordinarily high - the chart below shows generating costs per megawatt hour from Public Utilities Fortnightly. There is a theme here regarding solar... Solyndra mirrors the industry - it receives unprecedented political support which leads to extraordinary subsidies but it still fails to produce.
For more on this issue, be sure to check out the Institute for Energy Research: http://www.instituteforenergyresearch.org/2011/09/19/greengate-enron-yesterday-solyndra-today/
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