The Renewable Debate Moves to the State Level
In this week’s State of the Union, President Obama renewed the administration’s support for wind and solar power. The move was hardly unanticipated. But in so doing, Obama intensified the debate. This is a policy approach that will have decisive political ramifications.
And that policy fracas is now having its primary impact on state legislatures, not inside the Beltway.
The two essential reasons have been intensifying for the past year.
First, renewable energy has a very limited initial market without government subsidy. Today, they are simply not competitive against traditional sources.
Yes, there may be environmental and residual cost savings considerations. But with further extensions of the federal wind power stimulus recently renewed, there is now a possible hiatus in further Congressionally sponsored renewable development.
Some earlier solar and wind generation tax advantages survive. Yet any national push for new projects is on hold pending further action (if any) by Congress.
On the other hand, the same situation does not exist on the state level.
That is the second reason for the intensifying debate. Here, a drawn out competition has emerged among energy types for state-level support and sometimes increasingly bitter cross-border battles to attract generating capacity.
On the state level, the amount of investment in wind and solar (along with a much smaller foothold for geothermal generation in selected western areas) has a more immediate impact on employment, tax base, and power generation levels.
The first two have direct political consequences for officials seeking reelection, while the third is a basic consideration in local economic development and expansion.
And as a result, one source of renewable energy is poised to do far better at the expense of its “green” rival.
High Drama in the Wind Belt
The dramas currently playing out in states like Texas, Kansas, Oklahoma, and Nebraska testifies to the intense legislative differences emerging. In all of this, especially in these four states known as the “wind belt” because of the significant volume of wind generation built, there is a genuine concern that failure to introduce or retain tax incentives will result projects moving to those adjoining states where such inducements remain.
In all of this, wind power has benefitted more than (some would say at the expense of) solar energy.
Wind generation is cheaper to construct, although both wind and solar have significant efficiency problems when it comes to transmitting (or inverting) power from harvesting to the grid. Both harvest electricity DC but must translate into AC for movement over power lines.
Advocates of solar power have been lobbying in a number of states, especially Texas, for the introduction of “non-wind” mandates in the overall power generation network. These folks are of the opinion that wind has now grown to such a volume that it no longer deserves to receive additional support, while competing renewable (like solar) or alternative (new biofuel and algae-based product flows) do.
Now regardless of the energy matrix to which they are applied, these subsidies are a net reduction in state revenues. That is because, aside from reduced water or other service fees, about the only thing states can provide is a reduction in taxes. Forbearance in income and sale taxes are certainly on this list, although the main tax advantage relied upon is actually local in nature – concessions on property taxes.
Yet in this age of the austerity-minded Tea Party and renewed demands for budget cuts, the continuing availability of such subsidies is becoming problematic.
The budget crunch is usually felt more quickly on the state level because running a deficit there is either more difficult or (usually) constitutionally prohibited. Money is printed in the building next to the White House, not in some office complex next to the governor’s residence.
The Best Investment in Renewable Energy
Then there is the other energy wildcard changing the discussion surrounding renewables.
As more extractable shale gas is discovered, and the price of the unconventional gas resulting remains low, an alternative is presented.
As alternatives go in a budget strapped environment, this is a strong one.
Unlike wind or solar, shale gas does not require tax incentives or other subsidies. While fracking and the accompanying horizontal drilling have newly accelerated on the scene (essentially over the past seven years), they are not the kind of technologies requiring government subsidy.
Neither are the companies employing them.
The resulting revolution of rising self-sufficiency in gas, at least for the next several generations, coupled with low prices has ushered in a new threat for renewables. A number of legislators now openly question why public subsidies for new power generation approaches are needed if “older” more established sourcing can provide required energy.
As the political debate intensifies at the state level over the future of subsidies, the real threat to wind and solar power may not be budget cutters, environmentalists or Mother Nature.
It will come from the other largess we recently discovered.