Posted on February 11, 2014
Says subsidizing wind undercuts reliable electricity, could close 25 percent of nuclear power plants
“The surest path toward cheap, clean, reliable energy is to end Washington’s obsession with wasteful energy subsidies and rely instead on free enterprise and government-sponsored research. The right first step on that path is to not renew the massive wind production tax credit. Or, we can take the path of Germany, subsidizing domestic wind and solar and buying energy from other countries as part of a costly cap-and-trade scheme that drives up the cost of electricity and chases away jobs.” – Lamar Alexander
WASHINGTON, Feb. 11– U.S. Senator Lamar Alexander (R-Tenn.) told energy regulators today that not renewing the wind production tax credit “would help to produce new jobs because subsidizing wind drives up costs, undercuts reliable electricity and chases away jobs.”
In an address to the National Association of Regulatory Utility Commissioners, Alexander said, “We are at a fork in the road that will determine whether our country can compete for good jobs in a 21st-century economy. The surest path toward cheap, clean, reliable energy is to end Washington’s obsession with wasteful energy subsidies and rely instead on free enterprise and government-sponsored research.
“The right first step on that path is to not renew the massive wind production tax credit. Or, we can take the path of Germany, subsidizing domestic wind and solar and buying energy from other countries as part of a costly cap-and-trade scheme that drives up the cost of electricity and chases away jobs.”
Alexander said that U.S. wind subsides are so generous that in some markets wind producers can give their power away and still make money. This undercuts more reliable and affordable forms of energy, such as nuclear and coal plants.
The senator cited a study by the Center for Strategic and International Studies, which found that such “negative pricing” tied to wind subsidies could close as much as 25 percent of the nation’s nuclear plants by 2020.
“Nuclear power today is 60 percent of our clean, cheap reliable electricity. Think of what could happen with blackouts and lost jobs if as much as 25 percent of nuclear power disappeared within six years.
“The United States uses 20 percent of all the electricity in the world. We need reliable, cheap power and lots of it, not expensive power that only is available when the sun shines and the wind blows.”
To continue down the path toward cheap and reliable electricity, Alexander cited four grand principles to guide America’s energy future: 1) cheaper, not more expensive, energy; 2) clean, not just renewable, energy; 3) research and development, not government mandates; and 4) free market, not government picking “winners and losers.”
The senator’s prepared remarks are below:
Five years ago, all the talk in the United States was about a cap-and-trade program and deliberately raising the price of energy as a way of achieving clean energy independence. Two years ago, I visited Germany – a country that has adopted such a policy – and what I found was an energy mess.
The Germans are subsidizing wind and solar, and closing their nuclear plants—but because they are a big manufacturing country they still need nuclear, coal and natural gas for reliable electricity. So to meet those needs, the Germans are buying nuclear power from France, and gas from an unreliable partner, Russia. They’re even building their own new coal plants in order to have enough reliable electricity.
The end result of this bizarre policy is that Germany has among the highest household electricity prices in the European Union. When I asked an economic minister what he would say to a manufacturer concerned about energy costs in Germany, he said, “I would suggest he go somewhere else.”
This concern in Germany is spreading across Europe. A recent headline in the New York Times reads “Europe, Facing Economic Pain, May Ease Climate Rules.” The accompanying article stated that “the European Union proposed an end to binding national targets for renewable energy production after 2020.”
Europeans may end some of their climate targets to avoid throwing a big, wet regulatory blanket over their economies. The point is: in a competitive world, energy policies have a lot to do with a country’s economic well-being.
When you compare our country’s energy needs with the example of Germany, you can see that we are at a fork in the road on our national energy policy. Which path we take will help determine how well the United States competes in a 21st-century economy.
The surest path toward cheap, clean, reliable energy is to end Washington’s obsession with wasteful energy subsidies and to instead rely on free enterprise and government-sponsored research.
Or, we can take the path of Germany, which is where we are headed if we continue to waste tax dollars on subsidies that prop up one type of energy over another.
In the United States today, production of electricity from natural gas has grown to 28 percent of total production. This is at the expense of coal, which is down to 39 percent. Nuclear power holds relatively steady at 19 percent. Hydro is 7 percent. Wind, solar, biomass and geothermal make up only 6 percent, of which 4 percent is wind.
In Washington and in state capitols, there are debates about whether to push this 6 percent of electricity by renewables to a much higher number by forcing a so-called national renewable energy standard, or by further subsidizing an energy source because it’s deemed “clean,” or by implementing carbon regulations even though Congress has never approved carbon regulations.
To avoid the path of Germany and maintain our competiveness, I suggest four grand principles for the United States’ energy future: 1) cheaper, not more expensive, energy; 2) clean, not just renewable, energy; 3) research and development, not government mandates; and 4) free market, not government picking “winners and losers.”
The first step on the right path to our energy future – and a prime example of how to apply these principles – is to not extend the massive wind production tax credit that expired on January 1. I believe energy companies basically should enjoy the same tax benefits non-energy companies receive, which is largely the case today with traditional forms of energy.
I believe that through tax reform we should simplify the tax code and eliminate most preferences for specific types of energy production. This would save a lot of money, which could be better spent on doubling energy research and reducing the federal debt.
The worst culprit for wasteful energy subsidies is Big Wind. Under current law, the wind production tax credit will have provided an estimated $22 billion to wind producers between 1992 and 2022, according to the Congressional Research Service. And that doesn’t include the $12.9 billion that wind received from President Obama’s federal stimulus bill.
I’ve been fighting against this subsidy for years because I think it is a bad deal for American taxpayers, a bad deal for rate payers, and a bad deal for U.S. competitiveness. And if we want to see what the result of those policies would be let’s look again at Germany, and other parts of Europe.
Just last week energy expert Daniel Yergin wrote that one of the biggest themes at this year’s World Economic Forum in Davos was “competitiveness.” “This particular rivalry [competitiveness] pits the United States head-on against Europe,” he said.
Yergin says that energy is one way to measure competitiveness, and that was the focus at Davos.
He went on to say, “European industrial electricity prices are twice as high as those in some countries and are much higher than those in the United States. To a significant degree, this is the result of a pell-mell push toward high-cost renewable electricity (wind and solar), which is imposing heavy costs on consumers and generating large fiscal burdens for governments.”
A January 2014 New York Times article entitled “German Energy Official Sounds a Warning” reports that, “The minister, Sigmar Gabriel, in his first major policy speech, said at an annual energy conference organized by the publication Handelsblatt in Berlin that annual consumer costs for renewables of about 24 billion euros, or about $32.5 billion, were already pushing the limits of what the German economy, Europe’s most powerful, could handle.”
In a BBC News article, “Can Germany afford its ‘energy bender’ shift to green power?” a minister for economics in Germany says that Germany’s “law on renewable energy will not only lead to increased electricity prices, but it is also a non-market, planned system that endangers the industrial base of” the German economy.
This doesn’t sound like the path down which America should go to build a 21st-century economy. And yet, forces in Congress are preparing to renew the expired wind subsidy and continue to take us down the path that’s currently causing problems in Germany.
The problem here is not being “for or against renewable” energy or just wasting taxpayers’ tax dollars. The problem is that these huge subsidies are propping up renewable energy at the expense of reliable energy. In the case of wind, this increases the occurrence of ‘negative pricing.’
Government subsidies are so generous that in some markets wind developers can give away electricity and still make a profit. Such ‘negative pricing’ rewards expensive, unreliable power like wind and undercuts and punishes cheap, reliable power from nuclear and coal plants.
This is a growing problem in the U.S. The more wind we subsidize and the more we build, the bigger the problem becomes. For a snapshot of where we are going, let’s take another look at Europe.
A Wall Street Journal opinion piece by Rupert Darwall entitled “Europe’s Stark Renewables Lesson” reports that “the European Commission acknowledges that, because member states over-incentivized investment in renewables, they compounded the challenges” posed by non-dispatchable electricity generation like wind.
The same threat applies to some markets here in the U.S., according to the Center for Strategic and International Studies. ‘Negative pricing’ caused by wind power tied to energy subsidies undercuts the operation of nuclear plants and could contribute to closing as many as 25 percent of our nuclear plants by 2020.
So, these subsidies are putting at risk our largest source of clean, cheap, reliable electricity – nuclear – and more importantly, putting at risk energy diversity.
This audience understands more than most the importance of energy diversity to help reduce price spikes and have a more reliable grid.
The recent polar vortex cold wave reminded us of the importance of diversity. When natural gas prices spiked, and demand was unusually high, nuclear and coal generations saved the day.
You can’t put a price on diversity, but when you need the lights to come on and the heater to kick in, diversity can be lifesaving, and wind subsidies are threatening that.
We need to go down a path to cheap, clean, reliable electricity.
That path would provide a pro-growth, pro-jobs energy policy that puts us more firmly on the path toward a competitive future and protects households and business across the country, especially during extreme conditions.
To start, the best way to achieve cheap, clean, reliable energy is through market-driven solutions. Some will say, well what about oil and gas, what about nuclear subsidies? The president in his State of the Union address called for an end to tax policy that gives “$4 billion a year to fossil fuel industries.” To begin with, fossil fuels contribute 67 percent of our electricity. “Big Wind” received $1.4 billion through the wind production tax credit last year but only produces 4 percent of America’s electricity.
The president often likes to cite the billions of dollars in subsidies for the oil and gas industry. But here’s the catch: many of these “Big Oil” subsidies the president likes to highlight are the same or similar to tax provisions that benefit other industries.
For example, Xerox, Microsoft and Caterpillar all benefit from tax provisions like the manufacturing tax credit, amortization, or depreciation of used equipment that the president is counting as “Big Oil” subsidies. And, of course, wind energy companies also benefit from many similar tax provisions—but the production tax credit for wind is in addition to regular tax code provisions that benefit many companies.
We should end wasteful, long-term special tax breaks, both for “Big Oil” and “Big Wind.”
We should use the money we save from ending wasteful subsidies to reduce the federal debt and double energy research. Then we can let the free market determine the course forward, rather than the government picking “winners and losers.”
In addition to supporting research, I believe it is appropriate for the government to jumpstart new technologies to allow time for the free enterprise system to take the reins, but these should be narrowly defined and temporary.
For example: Unconventional gas benefited from government research and a temporary tax credit—that expired in 1992. The full tax credit for plug-in electric cars was capped at 200,000 vehicles per manufacturer. The government provided research and licensing support for small modular reactors—but that ends after five years. There is a production tax credit for nuclear power plants but it’s limited to 6,000 megawatts.
On the other hand, we have the temporary wind production tax credit that was enacted in 1992 to jumpstart an industry, and according to the Congressional Research Service will cost taxpayers a total of $22 billion from 1992 through 2022. The most recent one-year extension – which gives wind developers 10 years of subsidies – would cost $12 billion over 10 years, according to the Joint Committee on Taxation. This is for what President Obama’s former energy secretary called a “mature technology” that produces only 4 percent of our electricity and only works when the wind blows.
President Reagan used to say “the nearest thing to eternal life we’ll ever see on this Earth is a government program” and that’s too often the case with energy subsidies. The most glaring example is the more than 20-year-old subsidy for wind power, a technology that has matured.
The United States uses 20 percent of all the electricity produced in the world for our computers, our businesses, our homes and our national defense. To rely on unreliable wind power when nuclear, coal and natural gas are available is the energy equivalent of going to war in sailboats.
Those who oppose the path I am suggesting like to say that nuclear and coal aren’t clean forms of electricity.
While this path isn’t without its challenges, I’ll take that argument on. Nuclear power is our largest source of air-pollution-free electricity, 60 percent. Then people opposing nuclear power will say, “what about the waste?” This is an issue of great concern to many of you.
To address this challenge, I have cosponsored legislation with Senators Wyden, Murkowski and Feinstein that would implement the recommendations of the Blue Ribbon Commission on America’s Nuclear Future.
The bill would create a new federal agency to oversee the nuclear waste program, and ensure that progress on consolidated storage sites and repositories moves along parallel tracks.
The federal government should not be collecting fees without keeping its promise to dispose of the nuclear waste now sitting in your states. The D.C. Court of Appeals opinion in your case has made this point clear.
The Senate Energy and Natural Resources Committee has held two hearings on the legislation, and we are working toward having the committee hold a markup and favorably report the bill so it can move to the Senate floor.
We know how to control mercury, smog and soot, and many utilities are leading the way in installing these technologies, including the Tennessee Valley Authority.
So in order to burn coal in a clean way, the only remaining obstacle is carbon emissions from coal plants. The best way to solve that problem is not through a cap-and-trade system, which would raise prices, but instead through research and development, which could lower them. Finding a way to capture carbon from coal plants and turn it into a product that can be sold is the Holy Grail of energy research–and we are working on solutions that will do just that.
ARPA-E, a small energy research agency, is working with private companies to take the carbon from coal plants and feed it to microbes that with electricity can produce liquid transportation fuels. Such a solution might even make coal cheaper than it is today.
When you think about it that way, this crossroads I’m talking about – this fork in the road between clean, cheap, reliable energy and the mess of Germany and other European countries – is not just a challenge, but an opportunity.
It’s true that our energy needs are great, and that there are obstacles to meeting them. But we also have an opportunity to get Washington out of the way and to liberate our free enterprise system.
If we do, the path toward cheap, clean, reliable energy is full of possibility.
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