Hit & Run

Getting a Lead Balloon Aloft is Hard Even With Billions in Federal Subsidies

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A government bureaucracy's notion of a pre-commercial balloon

Yesterday, the Washington Post reported that Beacon Power, a company that received one of the first federal loan guarantees being shoveled out the door of the Department of Energy under the Obama administration, is now bankrupt. Beacon Power manufactured and operated large flywheels with the goal of storing excess power. Its bankruptcy leaves the taxpayers on the hook for about $40 million. What's delightfully ironic is that Beacon's CEO Bill Capp explained to the Post why government subsidies are necessary to support "green" energy companies like his. From the Post

In an interview Sept. 14, Capp said his company would not have been able to construct its Stephentown [flywheel energy storage] plant without federal assistance.

"We absolutely couldn't have done it without support from the government, because no one else was willing to do it," he said, adding that it was challenging to find venture capital firms willing to finance a plant."The projects are so huge, that's the problem. If you demonstrate an energy technology on a grid scale, that's $100 million."

Capp added that he didn't understand the political furor surrounding Solyndra's collapse.

"I don't get it. The whole point of the loan guarantee program is it was designed to help companies that weren't quite ready to get a commercial loan," he said.

And here's a bonus quotation:

Nicole Lederer, co-founder of Environmental Entrepreneurs…said that federal support was important. "This country is not doing nearly enough to help this industry get off the runway and into the air," she said.

Getting a lead balloon aloft is difficult even with billions in federal subsidies.

As it happens, Bernard Weinstein, the associate director of the Maguire Energy Institute at the Cox School of Business at Southern Methodist University has a letter to the editor of the New York Times today that seems particularly relevant

…the renewable power industry has become addicted to federal subsidies and probably can't stand on its own without them. Last year alone, these tax breaks cost the Treasury $7 billion. For every megawatt of electricity produced by solar, the subsidy amounted to $776. For wind, it was $56.

At present, about 76 percent of all energy tax breaks go to renewables, even though they account for less than 5 percent of electric power generation, excluding hydropower. Green energy advocates justify these large and growing subsidies by making comparisons with current and past tax breaks for oil and gas. But they fail to mention that the tax incentives for fossil fuels amount to a mere 64 cents per megawatt.

Renewables have their place, and perhaps at some time in the future they'll be able to stand the market test. But they don't obviate the need for reliable, uninterruptible power. If the Obama administration is serious about energy security, it should approve the Keystone XL pipeline, open up more federal lands — including the outer continental shelf — for exploration and production, and embrace the shale gas revolution and its potential for providing a clean and relatively inexpensive fuel source for power generation. These actions will require no new subsidies.

For additional backgound, take a look at more insightful (but depressing) Reason commentary on the federal loan guarantees extended Solyndra which is just the first of many government subsidized green companies that will soon go bust. See also my feature article on the failed history of federal energy subsidies here and here