The Truth About Renewable Subsidies

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The headlines will tell you that subsidies for renewable energy are outrageously high and like throwing money down the drain. But outside of some poor decisions (ahem, Solyndra), subsidies for renewable energy have been effective at lowering costs and require very little money from the government.

When you compare renewable subsidies to the growth stages of oil and gas, coal, nuclear energy, and biofuels, it becomes apparent that we're nowhere near the support we gave to those energy sources. In a study done by Nancy Pfund and Ben Healey for DBL Investors (link opens PDF), some interesting statistics emerge.

  • In its first 15 years, "nuclear subsidies accounted for more than 1% of the federal budget."
  • Over the same time frame, oil and gas subsidies accounted for half a percent of the budget.
  • Renewable energy currently gets about one-tenth of one percent in subsidies from the federal government.

This relatively paltry amount of funding has helped create an industry that now employs more than 93,500 workers and is growing at 66%. China's government has also provided a boost to renewables by giving cheap loans to manufacturers such as LDK Solar (NYSE: LDK  ) , Trina Solar (NYSE: TSL  ) , and JA Solar (Nasdaq: JASO  ) . Those companies have pushed costs lower and helped make solar cost-competitive with other new sources of energy.

So when you hear about First Solar (Nasdaq: FSLR  ) or SunPower (Nasdaq: SPWRA  ) getting billions of dollars in loan guarantees, remember to keep those numbers in perspective. The federal government is helping push a nascent industry to a point where it can be cost competitive on its own with established sources of energy. It's been done with oil and gas, coal, and nuclear energy before, so we're not entering uncharted territory.

Level the playing field
None of this is to say that renewable energy should get more subsidies. Only to point out that the small amount of subsidies currently given to wind, solar, and other renewable sources are a drop in the bucket compared to energy sources we now take for granted.

One of government's responsibilities is to direct energy investment to the source that is in our best long-term interest. With costs falling rapidly, domestic jobs growing, and environmental impact minimal, why wouldn't the government help push renewable energy along?

Agree or disagree? Sound off in the comments section below.

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Fool contributor Travis Hoium owns shares of First Solar and SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (10) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 06, 2011, at 4:33 PM, jsmunson wrote:

    One of government's responsibilities is to direct energy investment to the source that is in our best long-term interest

  • Report this Comment On October 06, 2011, at 4:34 PM, jsmunson wrote:

    I do not agree. One or our governments responsibilities is not to direct the economy in any particular direction. It is the responsibility of the private enconomy to find the best means of producing the energy we need.

  • Report this Comment On October 06, 2011, at 5:36 PM, Whiplashed wrote:

    You seem to have a split personality jsmunson.

    The private economy has FAILED to produce

    energy in our long-term interest. That is because

    costs of energy production (for example, deaths from

    pollution from coal) are not reflected in the

    price of the energy. We need long-term incentives

    do deal with problems like global climate change

    that the short-term private interests ignore.

  • Report this Comment On October 07, 2011, at 7:31 AM, JJ2011 wrote:

    well...Everybody talks about Solyndra...this is the "New Fashion"...oki...Why no talking about ENRON??? The biggest BK in the USA History?...well...after that the subsidies for the coal Energy continued... The Coal Fuel got 100 times more subsidies than the renewable energy and if you consider the few money that the Clean Energy got...they made some enormous steps to get close to the parity grid (around 2015 - In Italy 2013!!)

    A lot of Subsidies for the Dirty Energy Coal and Nuke...Look what's going on in Japan...and what about the last disaster of British Petroleum??...and all the time some big boats crashes in the oceans and tons of oil drop in the water....and they continue to get billion and billion subsidies!!!

    Dear OIL and NUKE lobbies...we are tired of you....we want a different and a CLEAN world...stop to lie cause we don't trust you anymore...(all the time the oil companies want more money they say that the oil is going to finish but...the Coal Fuel companies still have the plans of the new oil plants till 2035!)....

    We want the INDEPENDENCE from the oil...we want our own energy!

  • Report this Comment On October 07, 2011, at 12:02 PM, IBJAMMIN wrote:

    I think the problem Alternative Energy companies have in getting subsidies equivalent to what nuclear, coal, oil and gas got in their early years of development, and still get, is simple. They don't have a big wealthy lobby to dole out campaign contributions to greedy congressmen. The lobbies favor republicans, but both parties are guilty. Once again we see that we have the best congress money can buy!

    BTW - Solyndra was one out of about 50 companies that the government helped. I'm sure most CEOs would be more than delighted to have 98% of their R & D projects pan out.

    Good article Travis, thanks for writing and submitting it.

  • Report this Comment On October 07, 2011, at 2:14 PM, Brettze wrote:

    Travis, it is all in the math... Most people are not very adept in conversions and statistics .. They dont know how many barrels, tons, cubic feet, kilowatts, therms, BTUs etc we produce everyday and they dont care... All they care is jobs, jobs, jobs no matter how inferior the product is... There is a need for someone with knowledge to come up with comparisons among various energy subsidies and what we get out of them for every buck in subisidies.. I am not saying that we should halt green energy subsidies but I would disagree that we should hand out far more to green energy in subsidies as long as they are not willing to come up with far better and powerful green energy initiatives already developed in the laboratories.. Take solar thermal that comes in so many different designs for different purposes . Solar thermal generally uses glass and aluminium not silicon based photovoltaics which is still dominant in solar subisides. Photovoltaics is not very efficient and cost too much for every dollar of subsidiy because they cannot displace as much oil, natural gas or coal as solar thermal can for every dollar in subsidies.. You have to bone up on stats and conversions to better understand the values of green energy . I support green energy at minimum levels until those green energy people wise up and start moving up the food chain and start learning to use aluminium instead of silicon or thin film stuff photovoltiacs .. People have very peculiar loath toward aluminium because of the huge amount of electricity required to make new aluminium. People stop there and ignore to find out if it is still worthwhile the energy required to make new aluminium which will pay huge divideneds in further energy savings.. Aluminium is the most verstalie metal and it can and will play a very huge role in future green energy.. We still stock aluminium in warehouses , all 4 millon tons of them without knowing what to do with them.... Aluminium prices are falling. We dont care but we know better than to avoid usage of aluminium that can help us reduce oil, natural gas , coal, nuclear, hydro needs in a big way , and way more than the electricity required to make new aluminium by a factor of ten or a thousand , I dont have the facts but it is so apparent to me that aluminium will be very vital to the future of solar energy not silicon or thin film solar stuff.. no way! Aluminium and glass will dominate the future of solar energy!!! We cannot afford to make ineffective rheotric about the need of subisidies to provide jobs that make inefficient silicon or thin film solar energy forever.. Our economy is already choking on tight energy supplies yet we whines about lack of subisdies for the very wrong type of solar energy known as photovoltaics that wont make much dent on our demands on fossil fuel or nuclear or hydro at all. We should use subisides to use more aluminium and glass instead of silicon and thin film junk science!!

  • Report this Comment On October 07, 2011, at 2:30 PM, Brettze wrote:

    Photovolltaics has its own purposes like remote power sources where you cannot string along a power line to the remote locations or even up in the orbit space... We can still have solar porch lights or battery chargers for our smart phones. Photovoltiacs are very weak sources of energy measuring in small fractions of the normal electicity flow we use daily.. It is just a trickle flow of electricity.. The best way to capture solar energy is by direct solar heat and concentrate it for so many useful applications. Aluminium is the cheapest material for reflecting sunlight . Aluminium can also be used to reduce weight in cars, buses, trains, trucks, bicycles, carts, anything that rolls or fly... Aluminium can also be used to block sunlight to reduce air conditioning requirements.. People just do not get it... They run away from aluminium because environmentalists scream out all the wrong facts about aluminium... Enviromentalists owes us an apology for their misinformed claiims against aluminium. Environmentalists can continue to battle aluminim companies over where they can build more new smelters for all I care.. I dont care where new aluminmium is made as long as enviormentalists is happy about the ideal locations.. What I really care about is we need to use more aluminium to bolster solar energy far more than photovoltacis canb for the same amount of money in subisidies.. it is that simple... We need to grow solar energy fast like could in a very short time... Stop whining about solar subisidies because we dont need that kind of wrong solar device known as photovoltaics that will not help reduce oil, nautral gas, or coal as much as aluminium and glass can... I know that some people have very funny concepts of trying to maximize dollars for every new job created... This is no time to play games with subisidies. Time is now to create as much energy as we can cleanly. Aluminium may not be clean but it will clean far more from oil, natural gas, coal, nuclear ,etc than we make pollution with new aluminium.. The factor in savings is way high with aluminiujm and it well worth making far more aluminmium.. Photovoltaics doesnt deserve muchmore subidies because they still dont prouduce efficient electicity high enough to be worth it unless efficieny improves greatly from 15% to 50% or better . This may never happen because it is the way silicon is Silcon is not very good at caputuring solar photons , similiarly to batting averages of baseball players.. Nobody wants any ball player to average .150 in hits as yo know ... We love ball players that average better than .300 , right?? So photovolatics is like .150 hitters.. They are not very good players in solar energy.. Aluminium is more like .600 or better in hitting averages... for the same money.. you see what I am tryhing to say???? huh????????????????????? please no more hogwash about solar subsidies... If you use aluminmium then I am all for more subisides to soalr enegy.. If not, I will be against solar subsidies for photovoltaics..

  • Report this Comment On October 07, 2011, at 7:14 PM, DonSolar wrote:

    Good article. In true costs, solar is probably already cheaper than fossil fuels. What are the costs when Manhattan is under water due to a minor (category 2) hurricane? What will be the economic costs of weather that is less predictable and will be subject to more drought and more huge rainstorms (as the earth heats up more water evaporates having less water in the soil and more clouds) which will cause more flooding and erosion. If I dispose of my raw sewage in the street I am sure I would be fined, but coal plants and other fossil fuels continue to spew out waste products with impunity.

    Solar is already less than the grid in Hawaii and if you are using time of use in 2/3 of California Arizona, New Mexico about ½ of Texas. A lot of this was due to the German Feed in Tariff which bootstrapped the industry. In 2015 solar is expected to be cheaper than the grid in ½ of the United States. Solar is already growing at 66% per year. I expect to hit an inflection point in the second half of 2013 where the majority of new energy plans will be solar because by the time you could install a coal plant the solar would already be cheaper and it can be installed faster. This happened for nuclear plants in late 2010. Currently the US is fifth in production of solar panels, but is a net exporter of solar production equipment. By 2013 to 2014 the big player will be set. If the US doesn’t get on the ball, most will be Chinese. What the US has for it are the higher efficiency cells including the record multi-junction solar cell at 43.5% and record single junction cell at 29.1%. With other architectures (e.g. the Rainbow Concentrator by Sol Solution these efficiencies will go higher.

  • Report this Comment On October 08, 2011, at 1:19 AM, cornerboard wrote:

    I totally agree that governments throughout the world always have and always will provide direction for their economies through the laws and tax policies they create.

    I believe the US should invest much more in renewable energy as those sources of power are our future.

    For example, with every passing day, the efficiency of solar panels improves and the costs to purchase those panels declines. Even at today's prices and efficiency, installing photovoltaic panels on building roofs is a reasonable investment, and the numbers just keep getting better.

    I live in New Haven and have a neighbor who just installed a large system this year. The panels will produce 90% of their electricity, over the course of the year, and they project the system will pay for itself in about 15 years, depending on the future cost of conventional power. That, to me, seems to be a reasonable allocation of resources when you also consider: this is a nascent industry which will keep doubling in size every few years for the next 40 years or so, so purchasing panels today is aiding that development, there are no hidden external cost of the panels - like Navy aircraft carriers keeping shipping lanes open around the world for the unimpeded transport of oil, no contribution to global warming, etc.

    Thanks to the continued support of the German people for photovoltaics, photo cells are now on their way to one day becoming one of the world's primary sources for generating electricity.

    The other truly beautiful thing about renewable power is the huge diversity of sources, technologies and applications. Just looking at photo cell technology, for example, there is a bewildering array of technologies being developed - it is really mind boggling! The creative opportunities are simply enormous.

    I also think much more money earmarked for scientific research should be directed towards renewable energies. We should be funding a Nasa like moonshot program for renewables. The opposition which will likely keep this from happening is all the entrenched energy businesses who are afraid of competing technologies which will take away their business. Most of these companies are near monopolies.

    For example, what alternatives do people have for buying gasoline to power their cars? Almost none, until the plug-in Prius arrives in a few months.

    If you couple a plug-in Prius, or Ford Volt with photo cells on your house roof, now you have an alternative! and I predict this will be a significant market in the US and abroad. As these markets grow, the cycle of improved efficiencies and lowered costs will keep spinning, just like Moore's Law for computer chips, which predicted exponential improvement in computer chip performance over time.

  • Report this Comment On October 08, 2011, at 1:28 AM, cornerboard wrote:

    Who will benefit by inexpensive and efficient photo cells? Americans will. Instead of buying gasoline from Arab countries - many of whom don't even like us- we will power our cars with sunshine, and, most importantly - keep our dollars in our local economies. We will all have greater wealth because our money will stay in our communities and circulate back to ourselves, not be shipped overseas to people who funnel our money to terrorists like Al Queda.

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