Recently the Institute for Energy Research explained how Paul Krugman either does not understand climate science and economics or is deliberately misleading his readers. In that piece, Robert Murphy explains that studies encapsulating the consensus science from the Intergovernmental Panel on Climate Change contradict Krugman’s claims. In that piece we wanted to focus on the climate claims, but in doing so we failed to debunk a claim about energy. In that piece, Krugman wrote, “Solar and wind power are getting cheaper each year, and growing quickly even without much in the way of incentives to switch away from fossil fuels.” Like many of Krugman’s claims, this too is ridiculously wrong.
Incentives for Wind
Robert Bryce recently wrote an article explaining that the wind industry gets $176 billion in subsidies. That might not be a lot of “incentives” in Krugman’s mind, but to the rest of America, $176 billion is a lot of incentives.
But Krugman doesn’t need to take our word, or Bryce’s word for the importance of incentives for wind, but he should listen to Warren Buffet. A couple years ago Buffet, whose MidAmerican Energy owns more wind that any other rate-regulated utility in the U.S., explained that the only reason to build wind turbines is for tax credits. As Buffet stated, “For example, on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”
The following chart shows what Buffet is talking about. This chart, from the American Wind Energy Association (AWEA), shows that wind installations fall when the tax credit expires.
The wind production tax credit was extended at the end of 2015. The Congressional Budget Office estimated that this extension would cost $14.5 billion. Again, to all Americans except Krugman, this is a lot of money and a lot in the way of incentives.
Incentives for Solar
As for solar, two of the major “incentives” for solar are the investment tax credit and net metering. The investment tax credit provides a 30 percent tax credit for solar installations. Apparently Krugman does not consider the federal government paying 30 percent of the cost of solar to be much of an “incentive,” but if 30 percent for the cost is not a major “incentive”, what is?
Besides the investment tax credit, another critical “incentive” for solar power is net metering. Net metering is where a utility provides a credit for home or business owners with solar panels on their roofs when the solar panels surpass the electricity needs of the home or business owner and provide excess electricity to the grid. The fact that net metering exists isn’t controversial. What is controversial is the rate utilities pay to the owner of the solar panels. When the net metering rate is the same as the retail rate for electricity, this amounts to a large subsidy. Paying solar panel owners the retail rate means they receive much more money for the electricity they producer than the wholesale electricity producers. Here an example from Arizona:
It isn’t at all clear why homeowners who have solar panels on their homes are paid the retail rate. After all the wholesale producers are much more reliable and their production is not dependent on the weather or where the sun is.
Earlier this year, Nevada revamped their net metering system and lowered the rates. As a result, SolarCity and other solar installers left the state. One Arizona utility is trying to reduce the rate they pay net metering customers from around 12.9 cents for kilowatt hour to 2.9 cents per kilowatt hour. According to an analyst from Credit Suisse, this would make rooftop solar “unequivocally uneconomical” in Arizona. The point is that net metering is a huge “incentive” for people to install solar panels on their homes.
Conclusion
When it comes to energy issues, Paul Krugman is at best ignorant of reality. As the data and the history show, wind and solar installations are driven by subsidies and special government favors.