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April 10, 2007

What is the Percentage of Federal Subsidies Allotted for Wind Power?

"I understand that the federal government in various ways subsidizes energy industries. In the most recent year for which there is data, what percentage of total federal subsidies went to develop solar, wind, geothermal, and new hydro energy sources?" -- Glenn Andersen, Orange County, CA

You raise a good question, for it's one that touches on a subject often misunderstood by the general public. You are correct that the federal government subsidizes the various industries within the energy sector, but that those subsidies don't just include the renewable sources you list (i.e., solar, geothermal, hydro, and wind). Federal subsidies go to both the nuclear and fossil fuel industries as well. For purposes of this discussion, I'm going to stick to wind energy and leave the other renewable energy sources to the appropriate experts. It may be somewhat natural for people outside the energy industry to assume that because wind and other renewable technologies are newer than those of fossil fuels, they are "subsidized" to help them develop, while fossil fuel and perhaps nuclear technologies have matured to the extent that they can thrive in an unassisted, "free-market" environment, simultaneously serving society and churning out a profit without any financial incentive from government. That assumption could hardly be further from reality. In fact, the truth is practically the exact opposite. In 2003 alone, total federal energy subsidies ranged from $37 billion to $64 billion, according to a study prepared for the National Commission on Energy Policy. Wind energy accounted for less than 1% of that total. Wind power's primary federal-based incentive is the production tax credit (PTC) -- that is, a credit for each kilowatt-hour that a wind energy facility produces for the first 10 years of the facility's life. As with other energy sources, wind also receives funding for research and development (R&D) to help further advance the technology. Subsidizing fossil fuels is nothing new, to say the least. Energy sources such as oil and natural gas, for example, have received subsidies during the last 75 or so years for such fundamental parts of their business as exploration and extraction. Examples of these include intangible drilling costs and percent depletion allowance, which existed as early as 1916 and are permanent in the tax code. One might also assume that because the fossil fuel industries have been around for over a century, the federal government no longer provides financial assistance for R&D, or at least very little compared to emerging energy sources. One might further guess that wind energy and other renewables, because they are much newer technologies with huge societal benefits, would receive comparatively significant funding. Again, not so. In fiscal year (FY) 2006, fossil fuels got $580 million in R&D funds from the federal government. Nuclear, meanwhile, received $221 million in federal R&D money. The FY 2008 budget calls for nuclear R&D funding of $547 million. Wind energy's FY 2006 R&D funding: $38.3 million. While the primary federal incentive mechanism for wind power is the PTC, it's actually quite difficult to get at all of the financial incentives that the fossil fuel industries receive because many of their subsidies are provided in indirect ways that are spread across the stages of production, from resource exploration and extraction, to transportation of fuel, to pollution clean-up, to risk and safety. Again, wind eliminates the need for many of these incentives since it does not require such elements of production. The last point to make is that while many of these fossil fuel incentives have been around for as much as 75 or 80 years -- allowing for the respective industries to rely on and plan around them -- wind power and other renewables have had to operate in an uncertain business environment, having to sweat out one- and two-year extensions of the PTC. On that level, it's somewhat remarkable that the industry has grown as much as it has. With all the rhetoric out there about government subsidies -- a term that has negative connotations in itself -- sometimes the federal assistance that older industries receive is forgotten. It's easy for the general public to assume that emerging and rapidly improving technologies are receiving some type of federal help, but often forgotten is that with energy being so crucial to society; virtually all segments of the sector are getting some form of subsidies from the federal government. Wind power, meanwhile, is thriving on comparatively little.
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Reader Comments (9)
 
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April 10, 2007
This comment peice from AWEA completely dodges the question.

The PTC, which is the wind industry's major subsidy, covers by some estimates between 30%-50% of a wind project, over the 10 year payout. For example, with last year's installations reaching 2500 MW, at a conservative estimate of $1.5 million per installed MW, multiplied then divided by half, that's 1.8 billion paid out over 10 years just for the projects put in the ground last year.

I've got no problem with this, I'm actually a big fan of wind since it's the most affordable, commercial-scale renewable, but let's be honest with the public: wind may be getting very little R&D money, but it's doing very well under the PTC.
Comment 1 of 9
No image available
April 11, 2007
Terry Tamminen wrote a book titled Lives Per Gallon about the oil industry. (I haven't read it but have heard his excellent comments on this on NPR interveiws. Nancy Pelosi recently cut the subsidies to fossil fuels by $14 billion (alhtough I don't know what happened to that bill, apologies) - out of a total of $32 billion, according to Pelosi. TAmminen says the number is actually much higher -- more like $100 billion. Lester Brown, long-time energy expert, says in his book Plan B that the fossil fuel industry worldwide gets $700 BILLION in subsidies.
Comment 2 of 9
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April 11, 2007
What about the other part of Glenn's question? How much (in percentage) do other renewable technologies (solar, geothermal, incremental hydro) receive?

The clever ruse of fedederal R&D funding is that it is justified as an allotment of current capacity. So mature technologies that already dominate the electricity fuels mix argue that renewables receive far more R&D per MWh produced than fossil or nuclear. It would be nice to see a discussion of the inanity of this line of reasoning.
Comment 3 of 9
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April 11, 2007
The most promising and reliable source of renewable power is geothermal yet the Bush budget has reduced the research budget to ZERO. This is in spite of the exciting potential of hot rocks technology described in this MIT reeport:
http://geothermal.inel.gov/publications/future_of_geothermal_energy.pdf
http://pangea.stanford.edu/ERE/pdf/IGAstandard/SGW/2007/erdlac.pdf
It seems that federal research policy has a primary purpose of keeping coal and oil alive.
Comment 4 of 9
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April 12, 2007
This article implies it, as do all of your comments, but let's just say it. There is only one reason that a company that had higher profits that any other company in the history of the world would still be getting govt subsidies. Corruption.

(http://money.cnn.com/2006/01/30/news/companies/exxon_earns/)
Comment 5 of 9
No image available
April 12, 2007
Thank you Mr. Levesque!
Comment 6 of 9
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April 14, 2007
Dear Carl,
Here is a situation.. if an incorporated city, like Petaluma CA, wanted to look at wind power technology to help increase it's revenue, is there any Federal money that could contribute to the building and infrustructure costs of such a project. My thinking is that if the city built say, a dozen or so of these windmills on the edge of town that it could generate power which in turn could be sold to generate income for the city.

If you have any info regarding this it would be a great help!
thanks, Paul Francis Petaluma, CA
Comment 7 of 9
No image available
May 23, 2007
What I need to know is what it costs to produce a kwh of electricity using solar, wind, natural gas, fuel oil, coal, and geothermal.

Is there a graph I can look at?

Here in Nevada we have lots of wind and NO windmill farms. The governor wants to build coal-fired steam generating plants, we have no coal. He also wants to convert coal to diesel, we have no coal, and according to a cnbc guest, this is the snake oil of fuels.

Ethanol, we have no corn, just raises our food prices!!

Larry Jeppesen
Henderson, nv
Comment 8 of 9
No image available
July 21, 2008
Here is a link to a DOE report on subsidies: http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/execsum.pdf. See Table 5. On a per unit basis of energy produced, wind and solar have a higher subsidy than anything except refined coal. I'm not a big fan of subsidies except for R&D or other barriers that are easily and temporarily removed. If we are going to give subsidies for things other than basic R&D, I believe programs should be geared toward achieving independence from foreign oil and reducing traditional pollution. IMHO, we should be pushing hybrid and hydrogen vehicles, better conservation technology, low interest loans and credits for homeowners and developers that use geothermal, and small wind generators that would help the environment and would reduce costs to consumers without impacting habitats and rural/wild environments and without requiring massive investment in new infrastructure.
Comment 9 of 9
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