Why Shouldn't We Subsidize Solar Power?
You don't have to be an energy policy wonk to know that the past few months have been unkind to solar companies, as they struggle to compete against mature energy entities, cheap imports and one another. Since the infamous bankruptcy of Solyndra last summer, going down with over a half-billion dollars in government loan guarantees in its maw, solar has been characterized by many as unworthy of subsidies. If solar can't make it on its own, the thinking goes, then let it fail. But why should solar be left to twist in the wind when other energy industries have enjoyed robust subsidization, even to this day?
Industry subsidies are as American as apple pie
We all know that certain industries, as a matter of public policy, have been given a leg up via U.S. government intervention. For example, the railroads were given the land upon which train tracks were laid, and tax money built the highways and byways that allowed the automobile industry to market their products. Energy is no different. A report from the Texas State Comptroller's office lists some of the biggies: tax incentives for the oil industry dating back to 1916, government financing for hydroelectric dams in the 1930s, and many subsidies for nuclear power, beginning in the 1950s.
A pie chart in the report shows that, in 2006, the federal government allocated $13.6 billion in subsidy money in the following percentages to these specific energy industries: 25.7% to oil and gas, 20.2% for coal, a whopping 34.6% for ethanol, 8.7% to nuclear, and a pittance to solar -- 2.8%. According to the U.S. Energy Information Administration, the percentages attributed to each energy source used that year were 62.2% oil and gas; 22.6% coal; 8.2% nuclear energy; and 6.8% total renewables, from which solar was not teased out.
This is not the end of the story, either. The conventional wisdom goes that subsidies should be the greatest during the first 15 years of an industry's life, when the need is the greatest. However, research shows that government support of nuclear, oil, and gas per year was much higher during those industries' lifetimes than it ever was for renewables' first 15 years: $4.86 billion for oil and gas and $3.50 billion for nuclear, compared with $0.37 billion for renewable energy.
What about the loan guarantees?
Now that we are clear on the subsidy issue, it's time to take a look at the loan guarantee program, the same one that guaranteed the Solyndra loan. The reason for the program's existence is simple enough: to help nurse new, innovative businesses through the difficult first few years so that they can survive and contribute to society. For energy companies, the compelling reasons to encourage and nurture any new source of power are clear. For renewable energy, whereby power may be obtained or harnessed without drilling and fracking, the support of the program seems a virtual no-brainer.
So, has this fund been depleted due to bad loans made to the likes of Solyndra? To the contrary, a report released earlier this year by a team of independent investigators led by John McCain's former finance chairman found that the fund will actually cost less than originally thought -- $2 billion less, in fact. This is because the auditors looked at the fund in its entirety, not just specific loans. Overall, the loan portfolio was managed so well that the Solyndra loan had little impact on the health of the fund itself.
Tax breaks are subsidies, too
The tax breaks and deductions that the fossil fuel industry enjoy are a form of subsidy, as well. Last spring, a bill to close these loopholes for the oil and gas industries failed to pass Congress; if it had, it would have netted the federal government an additional $21 billion in tax revenue over 10 years. To illustrate how well these subsidies work, I took a gander at the website of Bernie Sanders, U.S. Senator from Vermont. According to Sanders' well-documented findings, ExxonMobil (NYS: XOM) paid nothing in federal income taxes on $19 billion in income from 2009, plus received a $156 million rebate. For Exxon, which has the distinction of being the second-largest domestic company listed on the stock market, this kind of public support hardly seems necessary. Similarly, Chevron (NYS: CVX) received a check from Uncle Sam for $19 million after making $10 billion in 2009. Chevron is the fifth-largest company on the exchange, and the third on the list of the Fortune 500.
On the nuclear side of things, Southern Company (NYS: SO) was recently awarded a federal loan guarantee to the tune of $8.33 billion for the construction of two new nuclear reactors in Georgia. As MarketWatch.com states, private investment was nil due to the expense and risk inherent in the project. Kind of makes Solyndra's $500 million look insignificant, doesn't it?
Meanwhile, First Solar (NAS: FSLR) , once the darling of solar investors, has lost 85% of its stock value over the past year, the victim of expiring subsidies here at home and in Europe -- as well as of the falling price of silicon, against which its thin-film product can no longer compete. The company recently announced a restructuring and the layoff of 2,000 workers as well as the closing of a plant in Germany. I can't help but wonder whether this situation could have been avoided if it, and other solar companies like it, had access to the same levels of subsidies bestowed upon the more mature energy sectors.
Unfortunately, a new study from the Brookings Institution notes that clean tech subsidies, which include solar, are on the decline -- and may nearly disappear within two years if the government doesn't step in. Though Congress obviously does not have the stomach to end or reduce subsidies to entrenched energy sectors, it seems unwilling to sponsor and support new ideas in the same manner. If this mind-set fails to change, chances are slim that solar will shine as it did just a few short years ago.
Get the scoop on some of the biggest players in the energy, retail, and tech fields before earnings become public later this month by grabbing our free report here.
At the time this article was published