For Green Energy, Bankruptcy Is the Best-Case Scenario

In virtually every context, efficiency is assumed to be a good thing. Inefficiency wastes resources and makes us all poorer. There is one exception, however, to this blindingly obvious rule: energy. When it comes to energy, the Obama administration and other liberals deem inefficient “green” technologies superior to fossil fuels that produce vastly more energy at less cost. The result is a perverse set of government policies that drive up energy costs for everyone, thereby impoverishing all Americans.

At Watts Up With That? David Middleton reminds us that not too long ago, many mainstream news sources thought “green” technologies like solar energy were the wave of the future. Middleton quotes from a Telegraph article dated October 21, 2010, on the Cimarron Solar Facility in New Mexico, designed to be the largest in the U.S.:

Its 500,000 photovoltaic panels will generate 30 megawatts of electricity, enough, in the popular measurement, to power 9,000 homes. It is costing about $250 million to build, significantly less than a gas, coal or nuclear power station, which can easily exceed $1 billion. And it represents a sea-change in America’s energy business.

America has been notoriously devoted to hydrocarbon fuels. Big Oil, Big Coal and big Texan hats in the White House were seen by the rest of the world to be keeping it so, whatever the global interest. Oil barons funnelled money to scientists ready to pour doubt on the science of climate change, and conservative Republicans led the charge to pour scorn on those such as the former Democrat vice-president Al Gore who were urging Americans to rethink where their energy was coming from.

So Middleton does the math:

It is indeed true that most natural gas- and coal-fired power plants cost a lot more than $250 million to build. However, it’s also true that most natural gas- and coal-fired power plants have nameplate generating capacities a bit larger than 30 MW.

TVA to build natural gas power plant
By DUNCAN MANSFIELD, Associated Press
Posted June 4, 2009

KNOXVILLE — The Tennessee Valley Authority on Thursday decided to build an $820 million natural gas power plant in northeastern Tennessee to comply with a North Carolina lawsuit over air quality.

The 880-megawatt combined-cycle gas plant would be as large as the 1950s-era, coal-fired John Sevier plant in Rogersville that a federal judge has targeted for new pollution controls on North Carolina’s behalf.

* $820 million divided by 880 MW works out to $931,818 per MW.
* $250 million divided by 30 MW works out to $8,333,333 per MW.

Assuming that the gas-fired plant managed an 85% capacity factor and a 30-yr plant lifetime, the initial capital expenditure would work out to $0.004/kWh…A bit less than half-a-cent per kilowatt-hour. Assuming a 25% capacity factor and a 30-yr plant lifetime for the Cimarron Solar Facility, the initial capital expenditure works out to $0.127/kWh…Almost 13 cents per kilowatt-hour! The average residential electricity rate in the US is currently around 12 cents per kWh. That’s the retail price. As a consumer of electricity, I know which plan I would pick. I’m currently paying about 9 cents per kWh. I sure as heck wouldn’t seek out a provider who would have to raise my current rate by about 50% just to cover their plant construction costs.

No one would seek out such a provider of inefficient energy, but the problem is that we aren’t given the choice. How do inefficient “green” energy producers stay in business? By government fiat, at our expense:

In concert with his efforts to drive up the cost of coal- and natural gas-fired power plants, President Obama has aggressively pursued an agenda of financing expensive power plants with taxpayer dollars. Many of these taxpayer-guaranteed loans have gone to financially strapped companies, lacking the means to repay those loans. In most cases local utilities were coerced or enticed into signing long-term purchase agreements to buy electricity at nearly double the cost of coal- and natural gas-generated electricity. The sole justification for this “green” centralized industrial policy is the Lysenko-like junk science of catastrophic anthropogenic global warming.

The last point is the key one: government regulators have forced utilities to buy expensive “green” energy in order to keep inefficient producers like Cimarron in business. Those costs are simply passed on to the utilities’ ratepayers, most of whom have no idea that they are paying extra to subsidize Obama administration cronyism. This chart sums up what Middleton calls the “mind numbingly horrible” economics of green energy:

Most people seem to assume that a story like Solyndra is only a scandal because the company went broke and the taxpayers footed the bill. True, such bankruptcies cost the taxpayers billions. But in my view, the alternative is even worse: if government at various levels keeps “green” energy companies in business my mandating that utilities buy their output, no matter how inefficient it may be, consumers may sustain far greater losses without even realizing why their electricity bills are so high. This is the “skyrocketing” cost of electricity that Barack Obama promised us in 2008. At least when companies like Solyndra go belly up, taxpayers know their money is being wasted and they can try to do something about it.

Middleton concludes:

The capex for solar power plants averages between $6- and $7-million per MW of installed capacity. Coal-fired plants generally run less than $2-million per MW and natural gas plants currently run less than $1-million per MW. The average retail residential electricity rate in the U.S. is currently less than 12¢ per kWh. The levelized generation cost for the plants being financed by the Obama administration is more than 20¢ per kWh. His “green” centralized industrial policy will drive the wholesale cost of electricity to nearly double the current retail rate.

One need not literally seize the assets of businesses and install gov’t bureaucrats into management position to effectively nationalize those businesses. All it takes is to make them dependent on gov’t and/or direct their activities through regulatory constraints.