It is difficult to fully itemize the subsidies provided for wind and solar energy. Many subsidies are hidden in the tax code or are an indirect consequence of the privileged treatment given these sources of electricity.
A fundamental difference between wind and solar and traditional energy sources is that wind and solar are intermittent and erratic. The weather affects both wind and cloud cover. The sun sets every night, turning off solar generation, often just when demand peaks. In winter, solar generation drops — dramatically in areas with heavy winter cloud cover. Wind and solar are dumb electricity.
It would be helpful if the erratic electricity flow could be smoothed out by means of electricity storage. But all methods of storing electricity are too limited or too expensive. Batteries are flexible but wildly expensive for anything beyond very short term storage. Pumped storage is the most realistic method of storing electricity. Pumped storage requires reservoirs and reversible hydroelectric plants, rendering it impracticable except where natural reservoirs and abundant water are present. Even under the best conditions, pumped storage would greatly increase cost of the wind or solar electricity.
The reality of wind or solar is that the existing grid has to accommodate the erratic flow of electricity by modulating the output of traditional generating plants higher and lower to keep the supply of electricity matching demand. The more wind and solar the greater the burden on the rest of the grid to adjust its output to compensate for erratic wind or solar. In most cases, it is natural gas plants that are used to back up wind and solar. These plants can modulate their output fairly rapidly.
Building a new wind or solar generating plant does not result in the retirement or replacement of other generating plants in the electrical grid. The rest of the grid still has to be present to provide electricity when wind and solar are not generating. Even the massive and diverse Texas wind energy complex frequently experiences spells of very low output of less than 5% of capacity.
The consequence of all this is that wind or solar, rather than being an essential part of the electrical system, is an appendage. When wind or solar is generating electricity, the backup plants are throttled down, and when wind or solar output is low, the backup plants are throttled up. So, what is the economic contribution of wind or solar? Building wind or solar does not reduce capital investment in the rest of the grid. It may even increase capital investment to create the “smart grid” needed to accommodate increasing amounts of dumb wind and solar. The economic contribution of wind or solar is to save some fuel in the fossil fuel backup plants. For natural gas plants the fuel saving amounts to about two cents for each kilowatt hour of electricity generated by wind or solar.
If you take away all the subsidies, generating a kilowatt hour of wind or solar electricity, under near ideal circumstances, costs about seven cents per kilowatt hour. The cost is currently nearly the same for wind or photovoltaic solar. If the wind or sun resource is poor, the cost will be higher. The main explicit subsidies are a 30% tax credit for the construction cost or a 2.4 cents per kilowatt hour tax credit for 10 years. An important subsidy is tax equity financing, a system of tax tricks, condoned by the government, that enables profitable companies to reduce their taxes by investing in wind or solar projects. The companies actually make a substantial profit on the transaction, that profit coming from reduced corporate tax. These transactions have no purpose except to extract money from the federal treasury. They are tax shelters without real business purpose. Another subsidy is the existence of state renewable portfolio standards that require the purchase of wind or solar energy. The renewable portfolio standards aid wind and solar developers to get long-term purchase agreements with favorable terms. The utility is generally required to accept all the wind or solar electricity offered and pay a premium price.
Trying to evaluate the economic cost of all the subsidies and mandates that benefit wind or solar energy is extremely complex. A simpler computational solution exists. A kilowatt hour of wind or solar costs seven cents to generate, but its economic value is two cents for the fuel saved in the backup plants. So five cents per kilowatt hour is the subsidy that society pays for generating electricity in this fashion. This subsidy comes from the government or consumers of electricity. It is sometimes explicit and sometimes hidden by accounting tricks or different bookkeeping items.
As a fair approximation, seventy-five percent of the cost of wind or solar electricity is subsidized. Additional ancillary costs to improve the grid agility increase the amount of subsidy.
The subsidy for rooftop solar is much larger since the cost of generating rooftop solar is approximately 25 cents per kilowatt hour. The cost is high due to the inefficiency of small installations customized for each house. Rooftop solar costs 25 cents to save two cents worth of fuel per kilowatt hour. Ironically, the homeowner may even save money by installing rooftop solar, due to the maze of subsidies and exorbitant electricity rate tiers in some places. The 23 cents per kilowatt hour subsidy for rooftop solar is provided by explicit subsidies and increased electrical bills for everyone else.
We are constantly treated to disinformation claiming that wind or solar is competitive with fossil fuels. How is it competitive when it can’t replace fossil fuels, but only serves as a supplemental source of power that reduces fuel consumption in the fossil-fuel plants? Since it costs far more to reduce the fuel consumed than it is worth, wind and solar make absolutely no sense. Neither is a cost-effective method of reducing CO2 emissions. If you justify the subsidy as an expense to reduce emissions, you find that it costs more than $100 per metric ton of CO2 emissions avoided. There are many ways to reduce emissions for far less than building windmills and solar farms. Many companies sell carbon offsets for around $10 a metric ton. Worry about global warming is fading for good reason. CO2 is very beneficial for agriculture and greens deserts, so why bother worrying about reducing CO2? If you insist on worrying, worry about Asian emissions that are large and increasing fast.
Norman Rogers writes often about energy issues. He has websitesDumbEnergy.com and ClimateViews.com.