By Joe Desmond, SVP of Government Affairs and Communications, BrightSource Energy
September 24, 2012
On September 21, the LA Times ran a story about large-scale solar projects titled, "Taxpayers, ratepayers will fund California solar plants," with the subhead: A new breed of prospectors -- banks, insurers, utility companies -- are receiving billions in subsidies while taxpayer and ratepayers are paying most of the costs. Critics say it's a rip-off.
BrightSource is mentioned as one of the companies that will be delivering clean, renewable energy to Southern California Edison and PG&E from our Ivanpah Project. As this goes to print, Ivanpah is now nearly 60 percent complete and on track to deliver its power next year. When completed, it will be the largest solar thermal project in the world.
As with many stories, what’s not included is just as important as what’s reported. So in the interest of fostering informed discussion, here’s our list of 15 important points we wish had been included in the story, in no particular order.
- Ratepayers have always funded power plants – whether coal, nuclear, natural gas, hydro, biomass, wind or solar.
- Earlier this year, the California Public Utilities Commission issued a report highlighting how the falling cost of renewable energy is leading to cost-competitive prices for utilities, with costs not only having been significantly reduced to date, but with the “prospect that prices in future years will be lower still.” The study found that:
(a) In 2020, the total statewide electricity expenditures of achieving a 33% RPS is projected to be 10.2% higher compared to an all-gas scenario.
(b) Even if California makes no further investments in renewable energy, this analysis projects that average electricity costs per kilowatt-hour will rise by 16.7% in 2020 compared to 2008 in real terms.
- Government has always employed a variety of incentives to encourage the development of all domestic energy resources at the state and federal level. These incentives are varied, but include direct subsidies, tax breaks, market support (for example, U.S. government policy is to provide ports and inland waterways as free public highways, and in ports that handle relatively large ships, the needs of oil tankers represent the primary reason for deepening channels. They are usually the deepest draft vessels that use the port and a larger than?proportional amount of total dredging costs are attributable to them), technology demonstration programs, research and development (R&D) programs, procurement mandates, information generation and dissemination, technology transfer, directed purchases, and government?funded regulations.
- Subsidies reduce the cost to build a power plant, which in turn lowers the cost of electricity that must be charged to pay for it. In California, that’s because renewable energy is procured through a competitive process, and subsidies are reflected in the bid prices. They do not line the pockets of banks, insurers and utility companies.
- Lower interest rates (as a result of available loan guarantees) translate to lower energy rates in the same way a low-interest mortgage reduces a homeowner’s monthly payment.
- Government-backed loans are paid back with interest to taxpayers, making the loans an investment, not a subsidy.
- Insurance and performance guarantees are required for all power plants to protect ratepayers if something goes wrong. Without those protections, a power plant - renewable or fossil - could not be financed and constructed.
- Not surprisingly, tax-based policy incentives are not particularly effective when tax burdens have been shrinking or non-existent. The 1603 Treasury Grant Program (referred to as the “cash grant” in the LA Times story) was enacted to address challenges in the tax equity markets following the 2008 financial collapse. It has proven to be an efficient finance mechanism that allowed taxpayers and small businesses to maximize the return and value of current tax policy by enabling access to additional sources of lower cost private capital. In turn, these savings can help lower the cost of renewable energy for consumers by as much as $20/mwh.
- Contrary to how it was reported, the 1603 grant program built upon on and was designed to enhance existing policy – the bipartisan Investment Tax Credit (ITC). The ITC was enacted as part of the Energy Policy Act of 2005 and then, in 2008, was extended by President George W. Bush to run through 2016. Under Section 48 of the Internal Revenue Code, qualified commercial energy projects – solar, fuel cells, and small wind projects, as well as geothermal, microturbines, and combined heat and power projects – are eligible for a credit equal to 30% of the project’s qualifying costs. The 1603 program simply allowed these same projects to elect a cash grant of equivalent value.
- In the case of Ivanpah, the vast majority of the cash grant will be used to repay a portion of the guaranteed loan with interest. The remainder of the cash grant will fund reserves required by the terms of our loan guarantee.
- California utilities don’t earn profits on fuel costs, such as natural gas. Instead, they are passed through to ratepayers without a markup. Natural gas is a commodity, its price is volatile and it is projected to increase over time. In contrast, once a solar plant is constructed, the fuel – sun - is free as long as the plant operates. Imagine buying a car that, with proper maintenance, would run 30 to 50 years and the gasoline was always free. (You get the idea.)
- The returns earned on renewable project investments are comparable to the returns earned on other large infrastructure projects of similar size with a similar risk profiles. No more, no less.
- Renewable power technologies are inherently capital-intensive, often (but not always) with relatively high construction costs and low operating costs. For this reason, renewable power technologies are typically more sensitive to the availability and cost of financing than are natural gas power plants, for example.
- When considering impacts associated with exploration, extraction, processing, transportation and conversion of fossil fuels used to power most electrical power plants, utility-scale solar is one of the most land-efficient resources available today. The federal government has dedicated nearly 2,000 times more acreage to oil and gas leases than to solar development. In 2010 the Bureau of Land Management approved nine large-scale solar projects, with a total generating capacity of 3,682 megawatts, representing approximately 40,000 acres. In contrast, in 2010, the Bureau of Land Management processed more than 5,200 applications gas and oil leases, and issued 1,308 leases, for a total of 3.2 million acres. Currently, 38.2 million acres of onshore public lands and an additional 36.9 million acres of offshore exploration in the Gulf of Mexico are under lease for oil and gas development, exploration and production.
- Utility-scale solar has proven to drive job growth, innovation and competitiveness in our state. The renewable energy sector is growing and benefiting thousands of companies and tens of thousands of workers in California. Utility-scale solar energy projects are also driving tens of billions of dollars in direct investment into California, and providing tax revenues to the state and to local communities. Ivanpah alone is a $2.2 billion project with an estimated $300 million in tax revenues over its 30 year life. These projects’ supply chains also result in billions of dollars in indirect economic benefits. At Ivanpah, the majority of the supplies are from domestic vendors across 17 states.
Lead image: Reality sign via Shutterstock