Subsidy or Investment: Arizona’s Energy Future

Kevin Hengehold October 2, 2013 0

The debate around energy subsidies rages on in Arizona, where our net metering policy is under attack.  For the uninitiated, net metering determines how rooftop solar customers are compensated for the power they provide to the grid.  Detractors, such as Prosper HQ, allege that solar installations are sopping up $1000 per year, or more than $20,000 over their lifetime.  With 18,000 solar installations in the APS’s territory alone, those numbers are staggering, if accurate.  On the other side, Crossborder Energy posits that rooftop solar subsidizes APS’s territory to the tune of $34 million annually.

A new study takes the historical long view, and asks: who cares?

Subsidies for renewables pale in comparison to the public financing provided for nuclear, coal, oil, and natural gas, according to a study released by Elliot D. Pollack & Company, prepared for the Alliance for Solar Choice.  Over a 25 year period, they’ve calculated Arizona’s utilities have received nearly $1billion in subsidies since 1985.

The study draws heavily from a 2010 analysis titled “What Would Jefferson Do?,” which analyzed the historical total of subsidies to the energy sector, going back to when wood was a primary fuel.  On average, Oil & Gas and Nuclear are subsidized at several times the value of renewable energies, and they’ve been sopping up public funds for generations.  Renewables have received less money, for less time, and during those years of government investment, biofuels have received the majority of the monies.

Moreover, the subsidies to nuclear and fossil fuels continue for up to 30 years, much longer than any investment made to date in the renewable world.

comparison of early federal subsidies to energy sectors

energy subsidies as a percentage of federal budget

The Arizona-specific subsidies to nonrenewable energy have been escalating every year:

arizona share of federal subsidies

Of these funds, over 90% have gone to the state’s nuclear generator, Palo Verde:

implicit subsidy to arziona utilities

On average, the benefits of the federal subsidies to Arizona utilities total $18.4 million each year (in 2010 dollars).

Ever since the advent of the federal income tax, subsidies for energy have primarily come through the tax code.  Arizona tax exemptions on equipment and machinery as well as corporate income tax credits paid on coal used to generate power total nearly $50 million annually and accounts for nearly three-fourths of the annual subsidies received for nonrenewable energy sources.

estimated annual subsidies to arizona utility companies

arizona tax expenditures for non-renewable energy

deductions on arizona state income taxes

Even the water used to cool Palo Verde came at a discounted rate.  Needing a prevalent source of coolant to maintain a stable nuclear reaction, the plant owners purchased the effluent from the 91st Ave wastewater treatment plant owned by the cities of Phoenix, Scottsdale, Mesa, Glendale, Tempe, and the town of Youngtown.  The effluent was purchased at a 40% discount from water otherwise available from the CAP, with no inflation escalator to account for the length of the deal.  The price has since been renegotiated to better account for the value Palo Verde has received, but from 1973 until 2009 our nuclear power generation was being significantly subsidized by the collection of cities who own the 91st Ave wastewater treatment plant.  The exact amount of water used isn’t quantified in the study, but assuming the plant operated at maximum capacity, it received a subsidy of $1.5 million annually through 2005.

So what then to make of this? The authors conclude that this study renders moot the argument of any energy source having to stand on its own in the “free market,” or that such a market has ever shaped our energy supply.  Indeed, without land grants for timber or coal, or substantial government investment in nuclear power through the Departments of Defense and Energy, these technologies would not have become viable energy production systems.  Even the “American oil boom” owes its cheap natural gas to decades of government subsidies.  Now, renewables are being asked to stand on their own in the market, and many are beating fossil fuels on price.  But even then, is that the only metric to be used in determining new power generation?  When you buy a new car, do you just go with the cheapest?  When you need a medical procedure, do you choose the bargain-basement doctor?

Past energy production has been determined by a blend of commercial as well as policy drivers – fueling development, arming the military, and transforming the transportation system were all critical factors determining which energy systems received state and federal support and were ultimately implemented.  Now, with the ever-intensifying warnings from the IPCC on the effects of climate change, as well as the geopolitical implications of continued fossil fuel exploitation, the policy drivers for increased renewable expansion are strong, justifying at the very least a similar duration and magnitude of government investment as the energy sources with which they now compete.