TOMATOES vs GRAPESWhile…

TOMATOES vs GRAPES

While a tomato is a fruit it really has nothing to do with deciding what are the best ingredients in a fruit salad. So also with Drs Gisser and Brown when writing about solar subsidies. Comparing old base producing coal plants with new technology is like evaluating old hothouse tomatoes against new green grapes. First Gisser writes about the low cost per KWh in an old coal plant versus new solar. He is comparing a base load plant with a new peak production operation. My rooftop solar, providing midday power to PNM, is replacing spot price purchases, diesel generators, and natural gas peakers. The cost of these peakers is, at best, equal to but probably much, much higher than my unsubsidized 12.9 cents per KWh (7.5 cents subsidized!). Second, Brown writes also about the cost per KWh of the subsidies but fails to describe how he calculated it. I think the big components of Brown’s renewables’ subsidies turn out to be Ethanol (an agriculture subsidy) and R&D. Remove those and things look decidedly different. Alternatively, on the basis of Subsidies to Operating Costs Oil & Coal are much higher than everyone else (I too can choose my reference). What are the economic reasons to subsidize? Two efficiency arguments come to mind: Pollution (Externalities for economic wonks) and Market Development (Infant Industries). Since Loose covered the first let me explain the second. New technologies are “subsidized” to allow them to Start Up, call it Initial Working Capital. It allows the company to locate and identify buyers, ultimately allowing for Economies of Scale as their market grows. It also enhances competition as new competitors with better technology enter the industry, driving down the production costs. So how is solar doing in this regard? It is now becoming accepted that solar without subsidies can compete favorably with NEW gas, coal, and nuclear. This is true in some parts of Europe and some say in Connecticut and Southern California. Also new solar production costs have been estimated to have fallen 21% last year as new technology is being developed. PNM, in their Distributed Energy Program, pays Renewable Energy Credits (REC’s) on this basis, that is the price they pay for REC’s goes down as more solar installations come on line, ostensibly because of lower production costs of solar. Finally I am in favor of limiting the time of subsidies (Sunset Laws) including solar since I am aware that some infants grow into adults but still poop in their pants (e.g., Ethanol). But also ask yourself why does a 70-year-old subsidy, Depletion Allowance, still exist? How is the average taxpayer being helped? I see no Efficiency Gains and clearly Equity is not the reason. So I guess I am in favor of eliminating some energy subsidies.

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About newmexicoreflections

Retired Economist
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