Collapse Of The Green-Energy Bubble

Climate policy and energy policy are inextricably linked. Terence Corcoran
has been writing about both issues for a long time.

Terence Corcoran: Collapse Of The Green-Energy Bubble

Financial Post, 15 December 2011

German solar insolvency is latest sign of collapse of the green-energy bubble.

The parallel-energy universe known as renewables, a place where dollars and economic theory know no bounds and make no sense, looks increasingly like a bubble set to collapse. Or, as I wrote here back in March of 2010: “That eerie hissing you hear may well be the air beginning to seep out of the green energy bubble. The sound is similar to the pfffffft and sshhhhsssssp noises we heard in the early days of the dot-com bubble collapse or the subprime mortgage meltdown.”

News that the pioneer German solar power company Solon filed for creditor protection Tuesday suggests last year’s seep of air out of the jolly green subsidy giant has become a great vacuum blowout. The various corporate-welfare seekers that have been straddling the renewable sector will not give up easily or gracefully, but the hot-air balloon that is green-energy economics is rapidly losing the ga-ga popular support it has had for the past decade.

The loss of political backing, massive overexpansion under the subsidy push, plus the realization that renewable energy comes with bazillion-dollar costs to consumers and/or taxpayers, all spell trouble for solar, wind, biofuels and other green-energy sources.

Also at risk of taking a hit, internationally and in Canada, are some of the venture capitalists and financial heavyweights who have been riding the global climate-change scare for every dollar of subsidy they can get out of it. News reports note that Solon, which has been slashing costs and staff for months, faced a bank deadline and now needs creditor protection on a $375-million loan from Deutsche Bank AG, the global banking giant. Deutsche Bank in recent years promoted green energy as a hot product, launching an international campaign warning of pending climate catastrophe if governments didn’t provide feed-in tariffs and other subsidies and guarantees to renewable-energy firms, to which Deutsche Bank would lend money.

At this date, it’s almost impossible to keep track of all the solar companies in trouble or bankrupt or that obviously just wouldn’t be in business if they were not backed by taxpayers. Keeping track of the money is also a problem. The most famous pre-Solon solar burnout was Solyndra, the U.S. operation that crashed after receiving US$535-million in U.S. government support. Dozens of other failures and troubled enterprises exist.

In the state of Oregon, the notorious Shepherds Flat wind farm, the largest in the world, two weeks ago received a positive credit rating from Fitch, but with negative outlook, on $1.2-billion in loans. These loans were singled out in a memo from former presidential economic advisor Larry Summers last year. The Shepherds Flat project calls for $1.9-billion in General Electric turbines to be installed, with $1.2-billion in subsidies and loan guarantees. Fitch says the operation is “bankruptcy remote,” since the government guarantees the loans. But it attached a negative watch because the U.S. government is on negative watch.

Fitch didn’t say that the U.S. government is on negative watch because of spending on such things as wind and renewable energy. Since enaction as part of the 2009 Obama stimulus program, renewable power has cost $9.6-billion, which Time magazine says is three times what Congress had expected.

In Washington on Wednesday, renewable-energy lobbyists — wind, biofuels, solar — appeared before the Senate finance committee, pressing for an extension of subsidies to their industries. Biodiesel relies on a $1-per-gallon tax credit, which expires Dec. 31. With ethanol supports set to expire at the same time, it is expected biodiesel will face the same fate. A tax credit for wind, equal to 2.2¢ per kilowatt hour of electricity, is set to expire at the end of next year.

The subsidized industries are making the usual arguments that their operations create jobs and provide clean energy. The slow wind-down of Kyoto and the long outlook for Durban climate policy adds to the sense that being green is no longer easy.

The economic case for these jobs is undermined by numerous reports and studies that show the cost of the tax breaks and subsidies destroys at least as many jobs as are gained. A U.S. House of Representatives committee report (dominated by Republicans) warned that the United States “is sacrificing domestic carbon-based resources upon the altar of an ill-fated ‘green energy’ experiment” that misdirected billions toward industries destined for failure.

In Ontario, home of billion-dollar feed-in-tariff subsidies, the government appears set to reduce the value of those tariffs on future contracts. A recent report from the Auditor-General of the province painted a grim picture of a government frittering away billions of taxpayer and ratepayer dollars to produce electricity the province doesn’t need.

Cutbacks in subsidies are inevitable. Fearing such a move, the major beneficiaries of the tariffs — 13.5¢ a kWh on wind, up to 80¢ for solar — have mounted a campaign attacking their industrial opponents. Through their lobby organization, the Ontario Sustainable Energy Association, the renewable firms last week attacked nuclear power producers for their subsidies.

A great mud-slinging battle among subsidy-seeking corporations creates an unedifying vision. But that’s what you’ve got to do when your bubble’s bursting and you’re losing support and logic as an industry.

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