Comparing energy subsidies isn’t easy

This was originally written as a comment on another comment (!) in VT Digger:


Gerry Silverstein compares the cost of 40-year old nuclear power to the cost of brand new renewables.  It’s simply not an apples to apples comparison.


Part of the problem is the very term ‘subsidies:’ defining what constitutes a ‘subsidy’ and what one is worth is not always straightforward. Take the instance with which I’m most familiar: nuclear power.


The industry was created by the federal government out of whole cloth: there was no nuclear power industry before the Manhattan Project and the subsequent development of nuclear reactors for submarines.  How does one count THAT subsidy on a price per kwh basis?


There could also be no nuclear power industry without the 1956 passage of the Price Anderson Act, which indemnifies plant owners against catastrophic accidents.  On paper, there’s no cost and therefore no subsidy: the government effectively waives what would be the insurance premiums (there is no fund set aside for such accidents).  Does that mean there’s no subsidy?  Of course not.  How DOES one measure such a subsidy, especially on a price per kilowatt basis? (Does the EIA even try?) Surely, after Fukushima and Chernobyl, no one can rationally assert that catastrophic nuclear accidents do not carry huge economic risks.


Then there are the annual R&D subsidies, such as the $500 million the administration is proposing for next year’s budget for the development of modular nuclear reactors.  How do we apply that to VY?


Then, there are the tax subsidies that have been available to build, fund, and depreciate nuclear plants over their lifetimes built into the tax code, not to mention the socialization of the cost of spent fuel disposal. The utilities pay 1 mill per kwh for the privilege, a fee set in the mid 1980s to meet what were expected to be the costs of developing the Yucca Mountain facility and never adjusted for inflation.   For better or worse, Yucca Mountain failed, after spending billions, and the funds currently available will surely be inadequate to the task at hand. Since no one knows how or where to put this stuff, how do we incorporate all that into our price?


Finally, VY was built on a cost plus basis: all costs (as long as they were ‘prudent’) were borne by ratepayers plus a rate of return for the utility shareholders. Around the time of the sale to Entergy, the plant’s costs were clearly above market, and when Vermont considered de-regulation, VY was ALWAYS included as a ‘stranded cost.’


Despite all of these largely invisible subsidies, here’s the fact that jumps out: the price of new nuclear power is rising sharply around the world, in compensation for which the US is offering ‘loan guarantees’ in the billions of dollars.


What I’m calling renewable energy is really a group of industries in their infancy, forced to compete with mature industries like coal, nuclear, natural gas on what we have just seen is a completely unlevel playing field. Subsidies, to renewables companies, by contrast to those just discussed, have mostly been quite direct, and highly visible.  Obama has added more of them in three years than in the entire preceding history of the industry.   No one is making a secret of ANY of the available subsidies.  Mr. Silverstein was able to easily list them.


Now despite all of this, in the name of so-called ‘free’ markets, we COULD nonetheless choose to maintain the status quo by granting mostly invisible subsidies to mature industries with well-paid lobbyists able to insert favorable conditions out of sight (and largely out of mind), while at the same time cutting off every penny for new industries fighting to get off the ground as some are suggesting.


The only real consequence would be that the development of renewables would be slowed in the US, while other countries continue ramping up their capabilities.  The US would effectively give up its competitive lead to countries with less engrained ideology and more foresight like Germany, Denmark, China, and now Japan.  And when, thanks to the inevitable efficiencies of mass production, renewables prices came down, the US could then import all of the gear needed.  At a time when, for both structural AND cyclical reasons our economy is in dire need of jobs and new industries, this seems like a remarkably dumb option, not to put too fine a point on it. And for good measure, while we were shooting ourselves in the economic foot, we could also continue to ‘enjoy’ all of the externalized costs of conventional power production: air and water pollution and the ensuing health costs, risk of catastrophic nuclear accident, etc. Not to mention global warming. All in the name of lowered costs for ratepayers.


If the planning horizon is more than a year or two, it doesn’t take a rocket scientist to understand that subsidies for renewables MAY add slightly to current costs (we really don’t know, since we have no way of making real comparisons given the myriad problems with the ways conventional fuels are subsidized), but their rapid implementation is highly likely to lower societal costs going forward. Remember, virtually all of the costs of a renewables project occur up-front, unlike fossil fuels and to a lesser extent, nuclear power.


The issue Mr. Silverstein is raising is perfectly legitimate, but put baldly, his discussion of it is not.

March 28, 2012

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