Treasury: Few Renewable Energy Projects Deserve Funding

The Treasury Department has been blocking many requests for renewable energy project subsidies.  They are doing this because there are so few that are technically or financially viable in their opinion.  The DOE has been complaining that the Treasury Department should back off.  So the President’s requested that his advisors look into this.  On 10/25/10 a memo from Larry Summers, Carol Browner and Ron Klain was sent to the President with their take on this squabble.

The memo was summed up in The Wall Street Journal (WSJ) posting “Wind Jammers at the White House” on 11/12/10.

“The trio walks through an interagency dispute about Energy Department subsidies for wind, solar and other forms of “renewable” power, which DOE claimed were being held up by the joint Treasury and White House budget office (OMB) reviews.”

The WSJ notes that the DOE has a lot of moneys it wants to spread around.

“Recall that the stimulus transformed the government into the world’s largest private equity firm. The many tools now at DOE’s disposal include $6 billion to guarantee loans and another dispensation so that the department can convert an energy investment tax credit equal to 30% of a project’s cost into a direct cash grant to green developers.

The Summers memo notes that these two provisions alone reduce “the cost of a new wind farm by about 55% and solar technologies by about half relative to a no-subsidy case.” So taxpayers are more than majority partners in these private projects, except they get no upside.”

The last sentence is the kicker here,  “So taxpayers are more than majority partners in these projects, except they get no upside.”

The taxpayers not only get the downside because they pay  the capital cost but they then have to pay for the higher cost of electricity.  Now that’s a double whammy if I have ever heard of one.

The memo says that there are few viable projects to fund.   They said they found severe problems with “the economic integrity of government support for renewables.”  The WSJ continues with an example of the problem according to the  memo:

“Treasury and OMB singled out an 845-megawatt wind farm that the Energy Department had guaranteed in Oregon called Shepherds Flat, a $1.9 billion installation of 338 General Electric turbines. Combining the stimulus and other federal and state subsidies, the total taxpayer cost is about $1.2 billion, while sponsors GE and Caithness Energy LLC had invested equity of merely about 11%. The memo also notes the wind farm could sell power at “above-market rates” because of Oregon’s renewable portfolio standard mandate, which requires utilities to buy a certain annual amount of wind, solar, etc.”

“But then GE said it was considering “going to the private market for financing out of frustration with the review process.” Anything but that. The memo dryly observes that “the alternative of private financing would not make the project financially non-viable.”

“Oh, and while Shepherds Flat might result in about 18 million fewer tons of carbon through 2033, “reductions would have to be valued at nearly $130 per ton CO2 for the climate benefits to equal the subsidies (more than 6 times the primary estimate used by the government in evaluating rules).”

“So here we have the government already paying for 65% of a project that doesn’t even meet its normal cost-benefit test, and then the White House has to referee when one of the largest corporations in the world (GE) importunes the Administration to move faster by threatening to find a private financial substitute like any other business. Remind us again why taxpayers should pay for this kind of corporate welfare?”

Any questions?

cbdakota