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Townhall
Finance...
A Stupid Energy Policy
By Amy Oliver and Michael Sandoval
If lawmakers really cared about consumers, they would ditch expensive
renewable energy mandates that require a subsidized market for
resources that are not practical on a large scale. It’s a classic
case of putting the cart before the horse; policy came before practical
application.
The Department of Energy (DOE) reports that 24 states and the district
of Columbia have renewable energy mandates ranging from Maine’s high of
40 percent to Pennsylvania’s low of 8 percent. Also known as a
“Renewable Portfolio Standard” (RPS), these policies require that
energy providers ignore practicality and price in order to obtain a
minimum amount of electricity by a specific date from sources that
environmental zealots consider “renewable,” such as solar and wind.
Five other states, North Dakota, South Dakota, Utah, Virginia, and
Vermont, placate special interest groups while remaining more realistic
with “non-binding goals” rather than an RPS.
Does it matter if the resources don’t exist to fulfill the RPS? No.
Government will subsidize the manufacturing of those resources. Does it
matter if those resources are little more than science projects? No.
Government still will subsidize them.
The U.S. doesn’t have a corner on the market of misguided energy
policy. Europe is also a major contributor to the myth of enlightened
energy policies.
These mandates are rooted in a clean, green fantasy, and a market must
be invented to fulfill it. If that isn’t ridiculous enough, government
then cannibalizes the market it created by subsidizing companies where
the market is already saturated.
Colorado, with its 30 percent RPS, is a perfect case study of an energy
absurdity. In particular, its highly subsidized solar panel
industry likely is contributing to a global decline in the market that
threatens the very fantasy it is trying to fulfill.
General economics of the solar industry
To say the taxpayer-supported solar panel industry is struggling is an
understatement. The Economist explains that subsidized manufacturing
and purchasing distorted the market. Prices declined but
subsidies didn’t. As a result, global “demand for solar panels doubled
last year driven by soaring growth in Germany and Italy.”
American manufacturing, much of it subsidized with taxpayer guaranteed
loans, ramped up in response to European demand as well as the push to
meet U.S. state renewable energy mandates.
What a difference a year makes. Facing a massive debt crisis and the
enormous cost of the subsidies to European electricity consumers,
governments greatly reduced their subsidies and demand for solar panels
plummeted.
The Economist concludes that the market is grossly oversaturated. “In
expectation of more roaring growth, the world’s panel-making capacity
was tripled over two years, 2010-11...Much of the excess capacity is
being shut down, yet there are already plenty of unwanted panels out
there. To avoid being stuck with old stock—a ruinous prospect when
prices are falling rapidly—panel-makers are now slashing margins.”
This is a disaster for U.S. solar panel manufacturers, even low-cost
ones. With a saturated market and cuts in European subsidies,
manufacturers are stuck with panels they can’t sell at cost.
First Solar
Tempe-based First Solar, manufacturer of one of the world’s cheapest
thin-filmed panel, is in a world of hurt. Its stock price has
crashed from a 52 week high of $175.45 to under $50.
Just recently, First Solar CEO Rob Gillette was fired and replace with
co-founder Michael Ahern. Not even Ahern has complete faith in the
company he started. He sold off “notable quantities of First Solar
stock over the years, including about $150 million worth in March and
August of this year, and $142 million in February 2010.”
Reuters reports a “massive oversupply of solar panels and the
plummeting costs of polysilicon panels are putting pressure on First
Solar’s core business. The firm’s thin-film panels are among the
industry’s cheapest, but Chinese-made polysilicon panels are still
cheaper—and increasingly so.”
“It has become a familiar story in the solar industry—and a key reason
why Solyndra, another thin-film solar panel maker, fell apart.
Government subsidy cutbacks have reduced demand, while cheaper panel
prices have given an edge to Chinese manufacturers.”
If the largest producer of the least expensive, thin-filmed panels is
struggling under the weight of too much supply (including cheap Chinese
panels), not enough demand, and not enough taxpayer money, why would we
subsidize more solar panel manufacturers and further distort the
market? Good question.
Colorado, with help from the federal government, has done just that.
Narrowly Avoiding a Colorado ‘Solyndra’
In early 2009, then newly appointed U.S. Senator Michael Bennet
(D-Colo.) touted the prospects of Ascent Solar, a Colorado solar panel
manufacturer, and the plans for a new facility to add as many as 200
new jobs for the state’s “New Energy Economy.” Then-Governor Bill
Ritter and U.S. Senator Mark Udall, joined their fellow Democrat in
offering pleasant platitudes about the “green energy” panacea.
Ritter was effusive with his praise and optimistic about Ascent’s
future. “The New Energy Economy is leading Colorado forward and will be
one of the keys to bringing us out of this recession. Colorado and
Ascent Solar’s success are a model for how America can and must re-tool
our entire economy,” declared Ritter. Even the local media couldn’t
help but promote such rosy projections.
Fast-forward less than two years. Ascent, perhaps recognizing the
fragility of the market, or at the very least, an unprofitable business
model, conducted a “market pivot” and a change in business strategy.
That switch meant cutting staff—instead of growth of nearly 200 jobs
Ascent pared its staff back by half, mostly in production.
All of this occurred while Ascent had reached the ‘due diligence’ phase
of the infamous DOE loan guarantee program, with the firm asking for
$275 million in taxpayer assistance. But the change in business plans
forced Ascent to reconsider its application and the request was quietly
pulled—receiving almost no media coverage months after the announcement
of DOE consideration.
The decision elicited just a few lines in its 10-Q filing for the first
six months of 2011. “On February 23, 2011, the DOE informed us that our
submission was selected for due diligence review by the DOE. Timing and
funding requirements under the loan guarantee program did not correlate
with our revised business plan and consequently, in April 2011, we
informed the DOE that we were withdrawing our submission from further
consideration under the program,” said Ascent.
Or perhaps it also had something to do with the $85 million write-down
that Ascent would incur in altering its business plan, on top of the
nearly $90 million in losses it had already accumulated in just five
years. Measured against just a little more than $8.6 million in sales
over the same time frame, Ascent was nowhere near profitability.
The DOE, however, saw fit to advance the company’s application to the
‘due diligence’ phase. But it would not be American taxpayers on the
hook this time, as Asian investors made a $437 million last-minute
bailout of the company.
But the consolidation of companies isn’t an indicator of the health of
the industry, according to the San Francisco Chronicle. A worldwide
price plunge in solar manufacturing has forced weaker (read: not
viable) companies to merge or close.
So, without government subsidies there would be almost no supply of
solar modules, but without government subsidies there is almost no
demand. Artificial markets are doomed to failure. At this juncture,
only low-cost Chinese manufacturers may stay afloat with more limited
competition, while that country maintains a near-monopoly on the
precious, non-green rare earth minerals critical to solar manufacture.
Oh boy.
Despite Ascent’s retraction, Colorado is home to DOE recipients,
including Goldman-Sachs subsidiary Cogentrix and its $90.6 million
loan, and the darling of local Democratic donor Pat Stryker’s Abound
Solar, which received a $400 million guarantee.
GE plans to build the country’s biggest solar plant in Colorado, a $300
million project. Their source for inspiration? First Solar. Both make
the more harmful Cadmium telluride panels. And who does GE put directly
at risk in the fragile solar market? According to the New York Times,
it’s Abound Solar.
All while GE itself stands to receive more than $1.5 billion in
government loans and grants for a windmill project in Oregon, despite
being a company with $170 billion market cap and paying virtually no
federal income taxes in 2010.
Considering that almost any DOE or any government subsidy these days is
charged to the country’s credit card as debt financing, these
government subsidies are actually turning into the dollars that China
uses to subsidize its own solar firms. Financing not only your company
but also that of your competition is sheer government malfeasance and
economic suicide.
Conclusion
To say that both national and state energy policies on renewables –
especially solar – are absurd is unfair to the word absurd. The fantasy
of “green energy” as policy requires that government mandate, create,
and, then, subsidize an economically impractical source of energy. It
makes no sense. Just look at Ascent, Abound, Solyndra, First Solar,
and, of course, consumers .
The Independence Institute’s environmental policy center estimates that
Colorado’s RPS will cost Xcel Energy (our primary electricity supplier)
ratepayers more than $100 million in 2011 alone. That’s just one
year in one state.
In its most recent compliance plan, Xcel admits what many “green”
energy zealots won’t, that without massive taxpayer subsidies,
renewable energy isn’t economically viable.
Europe is also realizing how expensive it is and is slashing subsidies.
A recent report predicts electricity prices will go up 100 percent by
2050.
At least one elected official in the U.S. has come to his senses. Maine
Governor Paul LePage recently stated that his state must get rid of its
job-killing 40 percent RPS because it raises energy costs putting the
state at an economic disadvantage.
It is time for more common sense such as Gov. LePage demonstrated.
Government must stop enabling the fantasies of green energy zealots
with renewable energy mandates and massive taxpayer subsidies for
failed companies and their science projects.
Read this and other columns at Townhall Finance
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