Archive for the ‘Subsidies’ Category

The Challenges to Offshore Wind

Photo by Rob Farrow, some rights reserved.

Mother Jones has a succinct piece on the challenges facing offshore wind projects, challenges that explain why the U.S. still doesn’t have a single offshore wind turbine. The UK has 870, and Germany has 416, for comparison. Now that has Congress extended the wind Production Tax Credit (after a long battle detailed here and here) and outgoing Interior Secretary Ken Salazar said he is optimistic that the Cape Wind project in Nantucket Sound will begin construction in 2013, it is a good time to look at the roadblocks that remain.

Though offshore projects benefit from the Production Tax Credit, worth $1 billion a year, and the Incentive Tax Credit, which pays 30% of wind projects’ constructions, higher construction and transmission costs make electricity from offshore turbines twice the price of electricity from more traditional sources. While in the U.S., states and utilities are understandably hesitant to embrace it, Germany, for example, fully subsidizes the offshore wind system.

The opponents of offshore wind that have gotten the most press are “stakeholders” in areas near potential projects, those who organize groups like the Alliance for Nantucket Sound in opposition to the Cape Wind project, which to date has fought a dozen lawsuits over the turbines’ effect on interfering with boat traffic, desecrating sacred sites, and harming avian and marine life (the GM has covered this here and here). Not surprisingly, these wildlife worries have been hijacked by waterfront homeowners; meanwhile, the National Wildlife Federation, Greenpeace, and the Sierra Club are all in favor of the project.

The strangest problem offshore wind is facing is a 1920 law requiring ships sailing between ports in the U.S. to be U.S.-flagged. This is apparently a problem because the small fleet of ships capable of installing a 400-foot turbine in the ocean floor is based mostly in Europe – and once one of those ships installs the foundation for a turbine, it qualifies as a ‘port,’ and cannot proceed to dock in the U.S. A shipbuilder in New Jersey is building a turbine-installation ship, but until its completion at earliest in 2014, the cost of bringing in ships from abroad can be prohibitive.

Finally, our beloved federal system of government means that states award utility contracts, while the Interior Department manages the deep water where wind turbines can be built. Developers worry that even if they get a contract with a state to buy their power, Interior could award the ‘land’ rights to someone else.

Expiring Wind PTC: Who Stands Where?

Photo by Francesco Gola. Some rights reserved.

In the intensifying battle over the extension of the wind energy production tax credit, a new tactic has emerged. The main lobby for extension, the American Wind Energy Association, on Wednesday announced its support for a middle ground solution. AWEA recommends a one-year extension, followed by a five-year gradual decrease in the PTC until it goes away completely. If gradually reduced until 2019, according to industry analysis, the PTC could be eliminated and a minimally viable industry could exist and be able to continue achieving cost reductions.

Our friends at Grist worry that this tactic essentially admits that the PTC is not actually needed, and that other renewable energy sources whose production tax credits expire soon, like solar, are left in a weaker position.

The tax credit, originally passed in 1992, has been extended three times. But now 17 days remain until its expiration, and the stakes are high for both sides.

Conservative groups argued in a letter to lawmakers Wednesday that the credit “essentially transfers taxpayer dollars from your constituents and subsidizes the states with such mandates.” The states without renewable electricity standards, mostly in the Southeast, Appalachia, and the Gulf Coast, generally have less installed wind power.

In addition, Republicans have pointed to the credit as a way to help close the deficit, as it will cost $12.1 billion over ten years. Not all Republicans are convinced, though. Joining many Democrats in voicing support for the extension are Republicans whose districts house more than 80% of wind installations.

Separately, the Department of Energy has offered some good news to the wind industry. DOE announced that seven projects will receive up to $4 million in grants to complete engineering, design, and permitting processes, and three of these will be selected to receive up to $47 million over four years with a target opening of 2017.

For readers to whom the above means anything, it is probably needless to say that DOE is optimistic about the energy potential from offshore wind generation. Data suggest that 4,000 GW of energy could be tapped in state and federal waters, which is four times the capacity of all existing US electric power plants.

National Flood Insurance and Jersey Shore Demographics

Photo by U.S. Fish & Wildlife Service, some rights reserved.

Back in 1968, Congress stepped into the flood insurance market to provide coverage where private insurers would not. Today, taxpayers back $527 billion of assets in coastal flood plains insured by the National Flood Insurance Program. Run by the Federal Emergency Agency, the program paid out $16 billion of claims for Katrina; Sandy-related claims could reach $12 billion. The program is already $18 billion in debt, as sum the government acknowledges will probably never be covered by higher premiums.

Besides the program’s cost, what is the issue? In New York alone, 200,000 people live less than four feet above the high tide level. Nationwide, the number of people living in flood-prone areas has been increasing, so each natural disaster damages more property and displaces more people than the last. An op-ed in Thursday’s New York Times opines that the time for the federal government to subsidize the insuring of homes and businesses in high-risk flood zones is long past. If property owners cannot find flood insurance on the private market, which in many cases they cannot, they should bear that risk instead of transferring it to the federal government.

One of the implications of changing federal flood insurance would be increased cost of living in coastal areas. Another Times article covers how Sandy and the coming National Flood Insurance Program rate hikes will make “seaside living, once and for all, a luxury only the wealthy can afford.” Building requirements for homes in newly mapped flood hazard zones could effect a demographic shift in the northeast, because much of the development encouraged by subsidized insurance would only be affordable to wealthy buyers.

The wisdom of subsidizing status quo demographics on the Jersey Shore to the tune of $18 billion aside, the point of reducing or eliminating federal flood insurance would be to end the cycle of natural disaster and expensive rebuilding without internalizing the risks of development in flood-prone coastal areas, which in light of recent events are certainly expanding. This is a step toward affordable environmental risk-management most people can back in good conscience.

Insurers Offer Coverage for Solar Developments

Photo by theregeneration. Some rights reserved.

Challenges to “green” energy developments abound. Compared to traditional companies even in the energy sector, means of financing projects are fast-changing, subsidies and tax credits are unpredictable, and data on projects’ returns are sparse. We wrote about trends in venture capital and IPOs for clean technology companies in February in a post recently linked to by The Atlantic, seeing energy storage and generation companies faring well in 2011. The wind industry is still waiting for Congress to vote on extending its production tax credit, and as we covered here, if it is not passed, the industry’s capacity might fall by three-quarters.

However, it is becoming easier for “green” developers to secure private financing in a functioning market. In January, we posted about a Deutsche Bank study aimed at providing data on the accuracy and reliability of energy audits associated with building retrofits, to encourage private investment in retrofits, the “low-hanging fruit” of carbon reduction. Now, insurers Assurant and GCube Insurance Services are offering an insurance product to help solar developers navigate the risks of mid-size projects, aiming to fill a gap in coverage that has often prevented developers from securing financing.

In particular, Assurant’s product uniquely bundles property and liability coverage with equipment warranty management, allowing developers to move beyond their skepticism and uncertainty toward warranty management frameworks. They offer $10 million of coverage per location – initially limited to photovoltaic projects in the US – ranging from 100kW to 3MW in capacity. Environmental Finance has a detailed description of the insurance product here.

As those behind the Deutsche Bank building-retrofit study did, we can hope Assurant’s product will lay the groundwork for further comprehensive coverage products in other clean technology sectors that might open the floodgates of private financing, maybe making debates like that over the wind PTC unnecessary.

We like cheap goods! No, wait, we hate cheap goods!

Photo by Dominic's pics. Some rights reserved.

SolarWorld Industries America Inc., represented by law firm Wiley Rein, has filed petitions with the U.S. Department of Commerce and the International Trade Commission (ITC), requesting antidumping and countervailing duty investigations into imports of solar cells from China.

Specifically, the petitions claim that Chinese manufacturers of solar products are “illegally dumping crystalline silicon solar cells into the U.S. market,” and “are receiving massive illegal subsidies from the Chinese government,” according to a news release from the Coalition for American Solar Manufacturing – a group made up of the seven U.S. producers of solar cells and panels that are behind the petition, led by SolarWorld (SolarWorld is the only manufacturer involved in the kerfuffle whose name has been released).

The news release goes on to claim that, “[a]s a result of the dumping and illegal subsidies, the U.S. industry is suffering severe harm to employment, pricing, production and shipment.”

Following the petition came a notice from the ITC, announcing the institution of antidumping and countervailing duty investigations to determine whether “there is a reasonable indication that an industry in the United States is materially injured or threatened with material injury, or the establishment of an industry in the United States is materially retarded, by reason of imports from China of crystalline silicon photovoltaic cells and modules, […] that are alleged to be sold in the United States at less than fair value and alleged to be subsidized by the Government of China.” The ITC must reach a preliminary determination in antidumping and countervailing duty investigations in 45 days. You can follow the ITC’s investigation here.

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