Arguments
Wind Energy: What About Those Subsidies?
Posted on 24 July 2018 by greenman3610
This is a re-post from Climate Denial Crock of the Week
I really enjoyed interviewing Wind Developer Marty Lagina. Marty came from an Oil and Gas background, he’s an engineer – but he has seen the opportunity in wind, and lately, solar development, around Michigan.
I asked him to address a common bugaboo that windbaggers bring up about renewable energy – the existence of subsidies.
My take is that just about every thing that we identify as part of modern America, starting with the Erie Canal in 1821, got a boost from a public/private partnership.
And, Marty correctly notes that fossil fuels still receive enormous amounts of government funds.
The study found that the world’s seven major industrial democracies spent at least $100 billion (£70 billion) a year to prop up oil, gas and coal consumption at home and abroad in 2015 and 2016 despite their pledge to end fossil fuel subsidies by 2025.
While France topped the overall ranking, the UK scored the fourth lowest score out of seven and the US was last. The data analysed does not cover the Trump administration.
Shelah Whitley, head of the climate and energy programme at the Overseas Development Institute (ODI) and lead author of the report, told DeSmog UK the research found that all G7 countries had increased their support for fossil fuel exploration since countries committed to limit global temperature rise “well below” two degrees under the Paris Agreement in 2015.
Describing the finding as “shocking”, she added: “Increased support for fossil fuel exploration is one of the most egregious activities that countries can be doing and directly counters their pledges under the Paris Agreement. Yet, they are still doing it.”
Scientists have previously warned that more than 80% of global coal reserves, half of all gas reserves and more than a third of the world’s oil reserves had to stay in the ground to prevent dangerous global warming of more than two degrees.
Co-author Ivetta Gerasimchuk, from the International Institute for Sustainable Development, said: “G7 governments committed to phase-out fossil fuel subsidies back in 2009, but since then have made very little progress.
Below, Marty points out Wind’s key advantage over Natural Gas.
Wind power subsidies are a great idea that has worked. I think subsidies make sense to help new businesses get started, if they are stuggling to get finance, and have a clear and substantial public good like wind power. Of course there should be time limits on subsidies written into them.
The internet was developed by universities out of taxes and government grant money. Where would we be if the libertarian ideological free market purists had shut that down?
Marty Lagina? I know that name. Clearly a successful businessman - has enough money, along with his brother Rick and their partners, to be spending a lot of it searching for Treasure on Oak Island:
https://en.wikipedia.org/wiki/The_Curse_of_Oak_Island
Subsidy is a bad word for many, unless it is for their own industry. Then they'll call it something else and say it is good.
@nijelj
Wind farms are not the Internet.
Some projects are worth doing, some are not. Here (USA, NYC) we had a subway station rennovated at a cost of several billion - that's billion with a B - US dollars. The subway system you ride to get to that fancy station is exactly the same as ever, execpt less reliable. Politicians demanded and got that taj mahal station, as it was a photo op for them and round-trip vote buying and payoffs for the many contractors, developers, third cousins and cronies involved. The net useful value of the designer station, topped with something called "The Occulus" (an odd looking spiky thing) is more than zero but certainly far less than its cost.
Unfortunately, public money is considered "someone else's money, therefore free". Thus the massive amounts of time, talent, materials and labor sunk into that hole are considered "free". The same resources could have been put into tracks, signals, switches and train yards, but politicians and activists don't give a warm spit about those, unless equal or greater graft and photo ops can be had. (The system in question is known as PATH, operated by the Port Authority of NY/NJ, for the morbidly curious).
By contrast, the original NYC subway system was constructed by issuing a public bond and contracting with a private builder. The result was cost-effective and quickly created far more benefit than it cost to build. It was intended to maximize the value of land in NYC and relieve massive congestion at the surface level. The value of goods, services and housing newly within reach of work created by building the subway was greater (many times greater) than the cost of buliding it.
Subsidies are more attractive to bad projects than good; good (productive) projects have other options, bad projects depend on subsidies and politics to exist at all. What, when, exactly how, how much and to what extent are essential when deciding to subsidize the building of something. We in the USA have not done an Erie Canal project since the Internet, which started in the late '60s. Now it's cronyism and burning cash.
DrivingBy @3
"Wind farms are not the Internet."
So? Same principle of subsidies, same emerging and pomising technologies.
"Politicians demanded and got that taj mahal station....The net useful value of the designer station, topped with something called "The Occulus" (an odd looking spiky thing) is more than zero but certainly far less than its cost. "
This sort of thing annoys me as well (a lot), but your example of failed, money wasting project and cronyism doesn't invalidate the principle of subsidies. No doubt there are failed projects, but I can think of vast numbers of successes. It just shows bad execution, and applying it to the wrong things. Is pork barrelling the right term? There appears to be a lot of this pork in America!
I think the answer is to restrict subsidies to certain classes of projects such as technology. I think the case for subsidising buildings and farming is mostly very weak. And let technocrats decide, not politicians.
"Subsidies are more attractive to bad projects than good; "
You don't provide any real evidence for this.
"good (productive) projects have other options, bad projects depend on subsidies and politics to exist at all."
But wind power has obvious technical and climate change benefits, but were of no interest to generators because they were priced too high when first introduced. Just what specific alternative finance options would have overcome that? I would think they tried, and this is why subsidies were used.
I don't mean to be too criticial. We are on the same wavelength on plenty of things.
I would note that while people have argued that wind power get "subsidied" by free backup, NZ windfarms do not receive subsidies. The alternative to subsidies (which to my mind is government picking winners with tax payer money and is horribly prone to corruption/distortion), is to tax the undesirable (FF) at a level which reflects the externalities that FF generators are not currently paying. This helps not just wind but any other alternative energy competitor.
Nigelj@4
“they were priced too high when first introduced. Just what specific finance options would have overcome that?”
I agree they probably tried and there weren’t any, or else they wouldn’t have needed the subsidies. With hindsight we can be thankful for these particular subsidies (for wind power).
Notwithstanding, I’d still say the principle of subsidies in general is bad because it involves politicians giving away other people’s money for projects that have not been able to convince lenders they are worth the risk. Since some of the tax-payers would be on low income (we still pay a fair chunk of tax) and the benefits would go to entrepreneurs who are likely wealthier than low income people, it could also be a reverse Robin Hood.
Then, how else can we get projects and technologies off the ground that appear to have future promise and, in any case, climate benefits?
One alternative is regulation. I don’t like that either in general because again it gives too much power to government. However, for particularly difficult problems like how to get the transportation sector off fossil fuels I’d support it. For example, I don’t think it’s an unreasonable imposition on auto makers to require a greatly increased average fleet efficiency – they are still left a lot of flexibility on how to do it. Ditto for all kinds of other mobile equipment (trucks, busses, trains, planes, ships, mining, agriculture, construction and forestry.)
I’d go with regulation of efficiency in the transportation sector partly because my favourite policy - carbon pricing - is challenged to make a big difference quickly simply because gasoline and diesel are such great fuels (except for their environmental impacts) and so cheap. For example, the scheduled 2022 carbon price in Canada of $50/tonne will increase the price of gasoline by less than 12 cents/litre, which is less than what we’ve seen from the natural volatility of world crude. Not only does it make little marginal impact, I.e. how much people drive (because they just have to get to work and back somehow) but also it has little impact on the capital decisions if low and zero emission vehicles cost a lot more than gas guzzlers.
But then even here a constantly rising carbon price locked in so that over 20 years it would be over $200/tonne and still rising will surely have an impact even today on decision makers who have a longer planning horizon, like those who decide what type of cars to make in future. Sweden is at about 200 Canadian $/tonne and Volvo has announced it will make no more gasoline cars.
I know of a certain district heating project that would have a present value several tens of millions of dollars more if the Canada’s carbon price kept rising 10$/tonne per year.
In the video, the Wind Developer pointed to the advantage that wind could offer a fixed price for 20 years because the cost is mostly capital. He contrasted that with gas where no-one can know its future cost exactly.
In like manner, a carbon price rising predictably even at only 10$/tonne/year should make investors think twice even about gas power generation because the carbon price alone would be going up every 5 years by more than the current rate for gas quoted by one of the major distributors in Ontario (9.7 cents/litre versus 9.2 cents) – this carbon price would be on top of whatever the delivered gas costs.
The prices paid to all other forms of generation and hence their finance-ability would be enhanced by the higher cost of what is today, perhaps their next best alternative – natural gas.
OK, that was not the situation when wind was in its early years, but by lobbying for carbon fee and dividend we can create this situation for the future.
And the same principle applies across all sectors, not just power generation. And this is a better way to give new technologies a leg up than either subsidies or regulation.
The first windfarm in New zealand was buit in about 2005 by Meridian Energy, and without government subsidies. It was a great success.
The Labour government had been talking about a carbon tax for several years before then, and I recall reading opinion was that Meridian built the scheme because they could see a carbon tax coming anyway. In reality that legislation was never passed and a the next government introduced an emissions trading scheme around 2008. More windfarms were subsequently built.
It looks like these various mechanisms including a carbon tax and ETS have helped promote wind farms, although our very windy climate is obviously a significant factor giving them good economic viability, so its hard to know what the main reasons were.
Clearly the bottom line is we need a price on carbon by way of a carbon tax or cap and trade, and if this is sufficient to incentivise renewable energy in a 'timely' way this would be great. If not you will need subsidies as well, or some form of regulatory control. And I suspect you will need something like this.
Correction. The first wind farm in New Zealand was built by Genesis Energy in 1997. It was relatively small, and I had forgotten about it.
I don't recall any specific government climate change policies from that period, but it must have been a result of emerging climate change concerns, because we have coal and gas reserves.
@nigelj
I agree that wind is worth subsidizing, up to some point in time. Wind is no longer a new technology so in my humble opinion that point in time is now. Subsidies should not be cut all at once, but they should start diminishing today. They should also be in aready industrial or noisy areas, as they make a contant background noise the ruins the silence of otherwise quiet areas, where ppl who need silence go to get away from constant noise.
nigelj, I dont think wind power developed because of climate change policy. Looks to be a purely economic, market-based decision. FF doesnt get much of a subsidy here so cost per MWh is comparitively expensive especially compared to hydro. The advantage for coal/gas was always minimal dependence on weather/season (well Huntly was limited in summer generation by the extent they could heat the river).
I think more of case that electricity demand increased and hydro options got scant. Wind power was demonstrated (Brooklyn) as a technology that could compete in the NZ market. It might be intermittent but the wind still blows in dry years. However, it has done it tough since 2013 against new geothermal.
Scaddenp @10, you are probably right that economics is the driver of wind power in NZ. I would just add there were growing environmental concerns about new dam projects as well as cost concerns.
I just had a look at the Te Apati wind farm by Meridian Energy, the first large wind farm, and it did get given carbon credits under the new cap and trade scheme as an incentive, but this was after construction had already started. So it looks like the basic decision to build was economic.
The ETS may have helped encourage later projects, who knows. I get the sense the effect would have been minimal.
Driving By @9, yes in many places subsidies on wind power have probably served their purpose and should be phased out. The cost of generation is now low enough that new projects won't need subsidies. However it will vary from place to place.
I think the vast majority of subsidies generally should have time limits built in so industries don't become dependent. The Australian car industry had subsidies for decades and never became truly competitive. Subsidies should be help to get started, then companies have to stand or fall on market conditions. Creative destruction and all that.
I think the newer wind farms are not so noisy. Most are away in rural areas in New Zealand.
Drivingby,
As pointed out in the video, currently fossil fuels receive much more in subsidies than wind does. Why do you think new technologies like wind should have to work without any subsidies when established industries like coal, gas, oil and nuclear don't?
It seems to me that everyone says they don't like subsidies. In the real world fossil fuels receive huge subsidies. Those will not end. To level the playing field new technologies need to receive a comparable subsidy or it makes it too hard to crack into the market.
nigelj @12, the Australian car industry was subsidised and not competitive, but only in the way that the army is subsidised and not competitive. Having a manufacturing capability is an important part of any country's national security, and especialy an isolated island nation's.
Similarly, freeing ourselves from imported fossil fuels should be seen as just as worthy of subsidy as maintaining the military is. Russia has a strong hold over Europe because they buy its gas. The Middle East has a strong hold over US policy because of oil.
Until we are energy-independent, we should subsidise the shift to a sustainable electrified economy. That may or may not involve subsidising wind directly, but certainly will involve subsidising energy storage, which is an indirect subsidy to wind.
Lachlan @14, I believe in subsides in general principle, but you have to be careful that you dont get political conyism to buy votes, tax payer funds are limited, and its impossible for countries to be self sufficient in everything, and you don't want to distort free markets and free trade excessively. So subsides need to be limited to things that really make sense, and mostly have time limits applied.
I'm not sure Australias car industry makes sense because Australia is just too small to maintain a viable car industry. Poor countries subsidising food doesn't make much sense for example, and it would be better just to give people financial assistance. Subsidising millionaire farmers doesn't make much sense and is cronyism.
Subsidising renewable energy development makes sense, to help get it established. Subsidising new pharmaceutical drugs makes sense, as industry is reluctant to develop drugs for rare conditions and to develop new antibiotics.
I'm a free trade advocate, But I do agree about the problems of relying on imported energy. Opec has been an ongoing headache, so renewable energy would free us from this although please note countries in Europe already trade in renewable energy surpluses!
And nobody would want to be reliant on imported water for example. And some economic diversity is a good thing, so that countries aren't reliant totally on exporting just a couple of products.
Funny ... read a few books on the Oak Island mystery when I was a kid & retained a lifetime's curiousity. Sometime before 1800, somone dug elaborate tunnels on Oak Island, Nova Scotia, with passages connected to the sea, possibly to hide pirate treasure (one theory). Generations of explorers have ripped up and added new layers of confusion to the whole elaborate network. Lovers of a mystery will love Oak Island.
The Laginas (Marty and Rick) returned to the island a few years ago, as the latest generation of explorers. Cannily they made their exploration a Reality TV show, so their research and drilling at least partially pays for itself. The show is watchable & (I think) fun, with a lot of red herrings and cliffhangers (some fake, imho). Personally, their favoured theory of a treasure buried by pre-Columbian Templars is wacko (again, imho).
In the UK, there are repeats on Sky, and I believe a new series in the offing, the 6th. The Laginas, by the way, come across as pretty hard-headed and practical, not starry eyed romantics.
Just enjoy suddenly finding out Marty Lagina is a renewable energy guy. I had wondered where he made his money.