Wednesday, September 12, 2012

The Renewable Energy (Actually All Energy Sources) Subsidy Topic

Today, in many locations in the United States and around the world, PV (photovoltaic) solar systems already deliver cost-competitive electricity to  consumers. In some locations, various forms of subsidies help PV solar to achieve this cost-competitive position today. However, if the cost reduction trends in PV solar systems continue, in a very few years they will be cost competitive without any ongoing subsidies.

The issue of subsidies for renewable energy is a concern to me as well as to most people, so I have begun to research this topic in more detail. Although the message we frequently hear is that renewable energy sources are receiving too much in subsidies, what I have found in various studies is that when taken in the context of a longer period of history, all energy sources have benefited from significant and long-term subsidies. 

One of these studies is a September 2011 report, titled  "What Would Jefferson Do? The Historical Role of Federal Subsidies in Shaping America’s Energy Future", by DBL Investors. (See a link to this report and others on the Plano Solar Advocates "Resources" page in the section titled "The Subsidy Topic".) 

The research reported in this paper states that through the end of 2009, the energy sector receiving the largest subsidies over time has been the oil and gas industry, with a cumulative amount of $447B over the period of 1918-2009. This averages approximately $4.9B per year for 90 YEARS!  It is no surprise that the technological revolution allowing for the cost-effective extraction of natural gas from shale occurred thanks to more than three decades of government subsidies for research, demonstration, and production. (See “New Investigation Finds Decades of Government Funding Behind Shale Revolution”, December 20, 2011,

The DBL Investors report states that renewable energy sources, including wind and solar combined, have received a cumulative of just $6B during the period of 1994-2009, which equates to an average of $370M per year over 15 years.    

We usually don't hear this historical context when subsidies for renewables are being questioned and debated.   Subsidies for newer energy sources appear to be much more “visible” to us.   Subsidies for existing energy sources appear to be “invisible” to most of us because they are included in existing tax regulations and permanently on the books, not up for review on a regular basis.

So, if we think we must phase out subsidies on renewable energy sources any time soon, shouldn't we first make sure that subsides for other more mature energy sources are phased out first?  

I will be continuing to research this topic to learn more.  I think one of the good ideas that has been studied is to take a long term view, with a subsidy ramp down over a period of time (e.g. over 5 years) whether than ending abruptly at the end of a given year.  This approach would give business and industry a planning horizon that incentivizes further process improvements and cost reductions. The current renewable energy subsidy approach does not do this.

Please share your views and any research that you may find on this topic by providing comments to this blog posting.

Best Regards,
A Plano Solar Energy Advocate (LH)