Energy subsidies fan the flames but all sectors share in the federal pie

The production tax credit given to the wind energy industry may run out of gas and not get renewed before year-end. But the subsidy is now fanning the flames on all government largess and specifically which industries are the most worthy of getting the added incentives.

Just how taxpayer money gets doled out is mired in so much intricacy that is difficult to follow. The United States will certainly expand its economy and as such, it will require newer and cleaner fuel sources, as well as the traditional fossil fuels that have met the preponderance of the country’s energy needs. The various fuels are, no doubt, competing for a limited share of the federal pie, which for better or worse, has always fed the American energy sector.

At issue right now is the 2.3 cent per kilowatt hour production tax credit awarded to wind developers. If they tee off this year but the construction continues into next, they still qualify — for 10 years. Altogether, according to the U.S. Energy Information Administration’s latest analysis is that about $37 billion got awarded to fuels of all stripes in 2010. It says that the wind sector received $4.2 billion of that from the stimulus plan enacted in 2009.

The wind energy sector is arguing that it is money well-spent. Wind-related components have grown from roughly a quarter of the nation’s manufacturing base to more than half of it, says the American Wind Energy Association. That is coming from 559 factories that have created 85,000 jobs.

Moreover, the trade group says that utilities are supplementing their electric generation with wind power because it is economical and because it can kick in when electricity is most needed. Power companies have signed agreements to buy 5,670 megawatts of new power this year while 2,300 megawatts are getting built. About 60,000 megawatts of wind power now exist.

American Electric AEP +1.33% Power has said that it has decided to triple its initial wind requests because of “extraordinary pricing opportunities” that will cut customers’ bills. Xcel Energy XEL +1.43%, meantime, is pitching its customers on the idea, saying that “wind energy can save you money” — and help it reduce carbon emissions.

Production costs are, indeed, falling fast. But this necessitates more federal help, not less, wind enthusiasts say. The Energy Information Agency does say that development would continue if the tax credits are extended.

While the wind association does not bash other fuel forms, some of its supporters often do and have gone after everything from major infrastructure projects such as they Keystone XL Pipeline to the shale gas drilling process to the pushing for tougher regulations on existing coal-fired power plants.

In the short run, renewables may have gotten more federal subsidies, they admit. But over the last decade, and longer, the fossil fuels have run up a tab that far exceeds that of the greener fuels, they add.

President Obama has publicly touted the elimination of tax breaks given to oil and gas developers that add up to $4 billion a year. Interestingly, conservative organizations such as the Heartland Institute and Taxpayers for Common Sense say that these federal payouts should be reconsidered.

“Government should generally steer clear of picking and choosing technologies for the market,” says Ken Green, with the free market-oriented Fraser Institute. “Government has a decent record (and legitimate role in) basic research and development, but it has a very bad track record at picking technologies that succeed. The only thing that can tell us what works best in energy markets are consumer choices made in a functioning, and minimally-distorted market.”

But the American Energy Alliance, which represents fossil fuel interests, counters that thinking by saying that oil, natural gas and coal power far more of the economy than green energy. For electric generation, coal and natural gas provide about 70 percent of the fuels while the renewable sector, including hydro, is around 10 percent — but it got 55 percent of the federal assistance.

Right now, the group’s target is the elimination of the production tax credit. In a letter to U.S. lawmakers, it references the U.S. Department of Energy and says that wind power had comprised 43 percent of all newly constructed generation in 2012. That’s more than natural gas and has come at a time when the demand for energy has been flat. It says that wind is straining the transmission grid and hampering reliability.

“The growth in wind is driven not by market demand, but by a combination of state renewable portfolio standards and a tax credit that is now more valuable than the price of the electricity that the plants actually generate,” says its letter.

The oil and gas companies add that they support 9.2 million jobs, which is the “biggest stimulus” that this country has going. 

Exelon EXC +2.27% Corp., which relies on nuclear energy, supports the American Energy Alliance’s position. It has said that wind energy requires huge subsidies that are encouraging its development while also hurting the ability of other fuels to fairly compete, distorting markets.

Determining who gets what is a subjective undertaking and the outcome depends largely on politics and philosophy. And while the United States government must watch what it spends, it has to continually invest in promising technologies — ideas that could increase energy independence in a cleaner fashion.

http://www.forbes.com/sites/kensilverstein/2013/12/06/energy-subsidies-fan-the-flames-but-all-sectors-share-in-the-federal-pie/?ss=businessenergy