Want to See Green Tech Thrive?

Rethink how we fund it

Brian Isom
Oct 10 · 7 min read

In an interview with Bloomberg last month, Microsoft Corp. co-founder Bill Gates said it’s time to re-examine our current approach at subsidizing green energy. Speaking of wind and solar, Gates said,

“The tax benefits there should be shifted into things that are more limiting, like energy storage, offshore wind — which still has a huge premium price — lots of places we need to get the market going.”

Gates leads Breakthrough Energy Ventures, a $1 billion fund investing in innovations aimed at fighting climate change. So far, Breakthrough energy has invested in several various technologies like solar, geothermal, energy storage, and nuclear fusion. Why would someone who is heavily invested in renewable energy argue for new policies?

Gates’ call for a shift in support for wind and solar highlight the changing nature of energy technology in the US and the importance of avoiding technological tunnel vision. For years, policies aimed at reducing carbon emissions have focused heavily on promoting wind and solar technology. For example, some state renewable portfolio standards — which set mandatory baseline requirements for state power production from renewable technologies — ignore hydropower in favor of wind and solar technology. Even though hydropower is the second-largest source of renewable energy in the world (behind biofuels) and the largest source of renewable energy in the US.

However, as wind and solar reach broader levels of implementation, there is a realization that wind and solar alone won’t be enough to combat climate change. That will require more significant innovation in other areas of the energy sector. And now that wind and solar are beginning to stand on their own two feet, and it is time for regulators to broaden their vision for US energy production.

The Growth of Renewables

Broad financial support for wind and solar energy production over the past two to three decades has likely played a role in getting those technologies to a competitive place in the energy market. That support, combined with improvements in technology and growing public preference for carbon-free energy, has lowered the cost of solar and wind production so much that large installations are not being built primarily for climate reasons, but rather because they make more financial sense than other options. The cost of solar has dropped nearly 90 percent over the last decade, with wind not far behind, having decreased costs by about 70 percent over the same period. Figure 1 shows current and planned power plants in the US through 2025. Notice how many of those circles are blue, which represent current or planned renewable development.

Figure 1: Current and planned electricity generation in the US

Source: Bloomberg

In Colorado, Excel Energy has proposed a new plan to cut current carbon emissions by half and grow the size of Excel’s renewable portfolio to 55 percent. This will be accomplished by replacing coal generating capacity with a combination of wind, solar, battery storage, and flexible natural gas. They also estimate it will save customers $215 million.

Duke Energy, one of the largest power holding companies in the US, has managed to reduce carbon emissions by 31 percent since 2005. This reduction is significant, as they provide electricity for an estimated 24 million people. They have achieved this reduction thanks to cheap natural gas and falling prices for wind, solar, and battery storage. They have also set ambitious reduction goals, hoping to reduce their carbon emissions by 50 percent by 2030.

Utilities aren’t the only ones making the switch to renewable generation. Retail giants like Target, Walmart, and Amazon are moving more and more towards green energy to power their stores, warehouses, and servers. These companies are, in part, being driven by increased consumer demand for sustainable shopping options. As Mark Schindele, senior VP of properties at Target stated:

“We view this as one of the most important things we can do. The headline we are focused on is this: What’s most important to Target’s guests?”

All three retailers mentioned above have set goals to run entirely off of renewable energy in the coming years. Tech giants like Apple, Google, and Facebook have made similar promises. This is evidence of a growing demand for clean energy in the country, and corporations’ willingness to listen and provide consumers with that option.

It’s Time to Shift Focus

As the cost of wind and solar has fallen, so has the number of subsidies given to wind and solar. According to the US Energy Information Administration’s latest report on the issue, released last year, subsidies for solar fell 61 percent between 2013 and 2016, while subsidies for wind decreased by a whopping 80 percent. A massive reduction in direct federal subsidies accounts for most of that drop. The majority of subsidies now exist in the form of tax incentives for solar and wind, such as the Investment Tax Credit (ITC), which provides a 30 percent tax credit on personal and business installations of solar and small wind turbines (less than 100 kWh).

Both the Investment Tax Credit and the Production Tax Credit are set to expire at the end of this year. Both were slated to expire much earlier, but subsequent renewals have kept them alive to continue driving solar and wind into the market. Now that those technologies are about as cheap as they are expected to get, it makes sense to finally allow the subsidies meant to help them get off the ground to retire. Efforts should instead be focused on balancing support to bring other technologies to bear.

Battery technology has also benefited from subsidized wind and solar because increased intermittent renewable technology requires better and more efficient batteries to store energy for times when the sun isn’t shining, and the wind isn’t blowing. Still, battery storage must be improved if electric vehicles and intermittent renewable technology stand a chance to be viable and replace larger shares of traditional transportation and electricity generation.

Another low-emission tech like nuclear energy has been disadvantaged in competitive energy markets as it competes with heavily subsidized renewables yet has not seen the same cost reductions. In 2016, wind and solar received nearly ten times as many subsidies as nuclear despite producing just one-third as much energy as nuclear.

A breakthrough report from MIT Energy Initiative examined the costs of deep decarbonization in the US and found that nuclear may need to play a crucial role in US energy production as we move further away from base-load, carbon-intensive technology. The geographic constraints of solar and wind, combined with their intermittent nature, will require supplemental technology to balance their production. That may come in the form of cheaper nuclear, better batteries, natural gas with carbon capture, more efficient electricity transmission, or some mix of those and other options. The point is, we have plenty of great options at our disposal, so why elevate a few favored technologies at the cost of the rest?

An All-of-the-Above Approach

While it is clear that renewables will play a significant role in lowering our dependence on fossil fuels, it is unlikely that they will be able to take us all the way. Much of the transition we are currently seeing away from coal and towards renewables would not even have been possible without the growth in cheap natural gas. In speaking about Duke Energy’s future production portfolio, Lynn Good, Chairman, President, and CEO said:

“We are making a cleaner energy future a reality for our customers and communities. A diverse mix of renewables, nuclear, natural gas, hydro and energy efficiency are all part of this vision, and we’ll take advantage of economical solutions to continue that progress. In the longer-term, innovation and new technologies will be critical to a net-zero carbon future.”

Good’s belief in the need for a diverse set of energy technologies should be a focus of policymakers across the country. It’s the same point that Bill Gates made in his comments about current energy policy. Wind and solar are slowly providing more and cleaner energy around the world, but they aren’t our only solutions to solving climate change. So what would a more balanced approach to clean energy support look like? A start would be opening up public subsidies, if they can’t be ended, to allow all technologies that can lower the carbon that the US emits. An option at the state-level is shifting state renewable mandates to include clean energy tech like nuclear, hydro, and natural gas capture and storage. Improve permitting processes to expedite innovation in new technology like nuclear.

Above all, public policy should avoid playing favorites and choosing sides. There are no magic bullets for climate change, and the more options we give ourselves, the more hope we will have to adapt to changing needs in the future. Policies that cast a wide net are more likely to find promising solutions than those that favor only a few technologies.

The Benchmark

A publication by The Center for Growth and Opportunity at Utah State University

Brian Isom

Written by

Southern Gentleman. Gentle Southernman. Research Manager @cgousu

The Benchmark

A publication by The Center for Growth and Opportunity at Utah State University

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