Science & Technology

Renewable Energy Goes Bust in Europe - Lessons for Obama?

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Nein on subsidies

President Barack Obama in his State of the Union speech last week declared:

Four years ago, other countries dominated the clean energy market and the jobs that came with it.  And we've begun to change that.  Last year, wind energy added nearly half of all new power capacity in America.  So let's generate even more.  Solar energy gets cheaper by the year -- let's drive down costs even further. As long as countries like China keep going all in on clean energy, so must we.

Must we really? According to news reports, fiscal pressures in Spain and Germany are causing them to renege on their expensive promises to subsidize solar and wind power. Reuters is reporting:

The Spanish Parliament approved a law on Thursday that cuts subsidies for alternative energy technologies, backtracking on its push for green power.

That measure, along with other recent laws including a tax on power generation that hit green energy investments especially hard, will virtually wipe out profits for photovoltaic, solar thermal and wind plants, sector lobbyists say…

Spain's Industry Minister Jose Manuel Soria defended the law in Parliament on Thursday, saying that the measures were necessary to eliminate the accumulated 28 billion euro ($37.4 billion) tariff deficit in the electricity system…

That deficit, built up through years of the government holding down electricity prices at a level that would not cover regulated costs including renewables premiums, is at the heart of Spain's energy sector woes…

The problem was that the cost of the subsidies were not passed on fully to consumers because that would have pushed prices to unprecedented highs.

The Wall Street Journal notes that the German government is also cutting back on subsidies as it experiences renewable energy fiscal woes:

Germany subsidizes producers of renewable energy such as solar and wind power in part by imposing a surcharge on household electricity bills. As the industry has grown, demand for the subsidy increased, driving the surcharge higher. In January, the surcharge, which amounts to about 14% of electricity prices, nearly doubled to 5.28 euro cents per kilowatt hour. Large energy-intensive industries are exempted.

That means ordinary consumers shoulder the lion's share of the costs for what the German government calls its "energy revolution."

Fearing a voter backlash from anger over the lopsided financing of green energy, Ms. Merkel's government on Thursday proposed putting a cap on the green-energy surcharge until the end of 2014 and then restricting any rise in the surcharge after that to no more than 2.5% a year. The government also plans to tighten exemptions, which would force more companies to pay, and achieve a cut in green subsidies of €1.8 billion ($2.42 billion). The plan is a quick fix pending comprehensive reform after the election, government officials said.

On the other hand, one Motley Fool financial analyst is gung-ho and thinks that "2013 Is the Year of Solar." Why? Because the price of solar panels has fallen steeply in the past three years. Analyst Travis Holum asserts:

Today, highly subsidized markets are giving way to unsubsidized (or less subsidized) markets where solar can compete on its own with traditional energy sources. The cost to produce a module has fallen 54% in the past three years, and the cost to produce solar energy is now less than it cost to buy it from the grid in some places. Going green isn't just a political game anymore -- it's economic reality.

I doubt it, but no subsidies, then no problems. However, the 2017 levelized cost estimates (takes into account fuel costs) for various power sources by the Energy Information Admnistration finds that solar photovoltaic will still be much more expensive than coal (even with carbon capture), natural gas, nuclear, and wind.