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.
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.
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.
Amy Oliver Cooke is the founder of Mothers Against Debt (www. Mothersagainstdebt.com). She is also the director of the Colorado Transparency Project for the Independence Institute and writes on energy policy. She can be reached at email@example.com. Michael Sandoval is the Managing Editor of People’s Press Collective and a former political reporter for National Review Online.