TODAY’S STUDY: FEDERAL SOLAR SUBSIDIES = A QUARTER OF FEDS’ SUPPORT FOR NUCLEAR

Ask Saint Onofrio: Finding What Has Been Lost in A Tale of Two Energy Sources

Nancy E. Pfund and Noah W. Wallker, August 2013 (DBL Investors)

Executive Summart

This paper frames the ongoing debate about federal support for the solar sector in California by comparing subsidies that contributed to the recent growth in distributed solar power generation to those that contributed to nuclear technology’s early traction as a significant portion of California’s energy infrastructure over the last half century.

Using data culled from academic literature, government documents and NGO sources, we conclude that California-based nuclear energy received slightly higher levels of federal subsidies than distributed solar in their respective early days of generation, as seen in Chart 1.

Over its history as a significant California energy source, the nuclear power industry has received four times more subsidies than the California distributed solar industry and has had six times longer to mature with the assistance of such subsidies, as seen in Chart 2.

Significantly, the nuclear industry has benefited from unwavering support in the form of the Price-Anderson Act, which caps the liability of nuclear power producers in the event of an accident. The Price-Anderson Act was originally supposed to be authorized for only ten years, while nuclear developers sought to prove safety and reliability, but has been continuously reauthorized since its passage in 1957.

This study finds that, over the last half century, California’s nuclear power suppliers have received over $8.21 billion in federal support. By contrast, the federal solar investment tax credits are slated to revert from 30 percent to 10 percent of initial system costs in 2016. In the context of the recent closure of the San Onofre Nuclear Generating Station at the same time that distributed solar is beginning to comprise a significant portion of the installed generation capacity in California (as seen in Chart 3), it remains to be seen if distributed solar will continue to have the same support that nuclear has enjoyed since its inception more than a half century ago.

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Introduction

Over the centuries, Sicilian Catholics have prayed to Saint Onofrio (the Italian equivalent of San Onofre), a monk who roamed the Egyptian desert in the fourth century, for help recovering lost items.

In the wake of Southern California Edison’s recent decision to “permanently retire” the San Onofre Nuclear Generating Station, this Sicilian tradition has taken on new meaning. As Saint Onofrio helps people recover what is lost, so the San Onofre Nuclear Generating Station is a useful symbol for Californians looking to recover the little known history of incentives that continue to shape our energy landscape.

This report looks back at the federal energy subsidies vital to the traction of nuclear technology as a significant portion of California’s energy infrastructure since 1963, when the Humboldt Bay Nuclear Power Plant came online and the modern contours of California’s statewide generation profile emerged. The report also examines the federal subsidies that have been vital to the recent growth in distributed solar power generation during a period of rapid change in California’s energy landscape.

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In recent years, innovations and price declines in distributed solar and its financing have contributed to the rapid expansion of solar energy on residential, commercial and government rooftops, lawns and parking lots throughout California and across the country. Meanwhile the closure of San Onofre has reduced California’s nuclear generation capacity by almost 50 percent to roughly 10 percent of California’s total energy generation (based on the actual energy produced in state) and approximately 3 percent of California’s total megawatt capacity (based on the state’s total production assets).

In the context of these recent market developments, many observers lose sight of how important public support has been, and continues to be, in shaping our energy landscape. In fact, no energy technology in our country’s history has gained significant market traction without subsidies from the federal government.

Energy technologies in California are no exception. Federal subsidies were necessary to the early growth of the nuclear industry and have been vital to the more recent growth of the distributed solar industry. The difference is that, just like the monk in the desert who endures as a saint centuries later, the support for nuclear energy in California has stretched far beyond its early days. The implications of this analysis have repercussions for California’s future energy policy, from the beaches of San Onofre to the coastal range near Diablo Canyon, from the Golden State’s missions to its transmission lines, and everywhere in between…

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Distributed Solar Power Generation: Plenty of Sun at the Hotel California

We do not attempt to estimate the percentage of R&D investments that can be categorized as a direct subsidy to the distributed solar power sector in California. Instead, as with our analysis of the subsidies nuclear power has received, beginning with its California origins in 1963, we begin our quantitative analysis of subsidies to distributed solar in 2007, when the industry as we know it today began to emerge. Our quantitative analysis focuses on the most important federal subsidies that have supported a rapid increase in the installed base of distributed solar energy: the federal Investment Tax Credit (ITC) and the 1603 Treasury Grant Program (2009-2011).

The ITC was first passed as part of the Energy Policy Act of 2005. Since 2006, owners of solar generation facilities have been eligible for a tax credit of up to 30 percent of their system installation costs, although the credit for residential system owners was capped at $2,000 until 2009.23 The 1603 Treasury Grant Program became law as part of the American Recovery and Reinvestment Act in 2009. This temporary program authorized the federal government to provide solar and other renewables developers an upfront grant rather than a tax credit in the amount of the portion of their project that would have been eligible for the ITC.

The ITC’s impact on residential, commercial and utility scale solar across the country has been substantial. According to the Solar Energy Industry Association (SEIA), a national trade association that compiles solar statistics, the ITC has “helped solar installations grow nearly 3,000 percent since the ITC was implemented in 2006.”24 Similarly, the temporary Treasury Grant Program has been instrumental in accelerating the deployment of solar since 2009, with awards granted to over 23,000 PV projects that catalyzed over $30 billion in investment from private, regional, state, and federal sources as of November 2011(see Exhibit C).25

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The solar power industry emerged after significant direct and indirect research and development investment from the public and private sectors. Management Information Services, a Washington D.C.-based economic research and management consulting firm, estimates that from 1950 to 2006, NASA spent nearly $1 billion (in 2010 dollars) on R&D devoted to solar. As What Would Jefferson Do? explains, early government support for solar energy was critical to its commercialization, although on the whole it was a much smaller amount than the funding directed to conventional sources. Exhibit B shows the breakdown of Department of Energy (DOE) spending by energy source from FY2001 to FY2010. While DOE only distributes a small portion of the government’s overall energy R&D dollars, it is noteworthy that R&D spending for renewables remains significantly smaller than for nuclear and gas, despite the fact that by 2001 nuclear, oil and gas were mature power sources.

Exhibit D illustrates the ITC’s correlation with the growth of commercial and distributed solar installations in California.

Despite the ongoing impact of the ITC, today’s solar industry is nascent, starting from a small base, and still accounts for less than one percent of electricity generation in California each year.28 It is worth noting, however, that the young distributed solar industry already supports 11,000 jobs in California.

Against this backdrop we determined the size of the ITC subsidy to distributed PV solar in California by examining unit price and installed capacity data compiled by the California Solar Initiative for distributed installations within the customer base of the three investor-owned California utilities—Pacific Gas and Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E)—which together serve the majority of California’s energy users. The system cost totals captured by the data set make it possible to estimate each project’s ITC or 1603 grant eligibility. We then used data on the annual installed capacity (in MW) of distributed solar projects compiled by the Solar Energy Industry Association to expand our analysis to ratepayers throughout California.30

Our analysis reveals that over the life of the ITC and the 1603 Treasury Grant Program, projects in California accrued $2.17 billion in tax credits or direct payments from investment in distributed solar systems between 2007 and 2012…

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A Tale of Two Energy Sources

There are a number of ways to compare the subsidies that nuclear and solar energy in California have received over the last half century. The first is in cumulative terms, as depicted in Exhibit E.

As one would expect, the temporal scope of analysis has a significant effect on the cumulative total for each subsidy. Nuclear has had more years over which to accumulate subsidies and therefore solar has a long way to go before reaching nuclear’s cumulative total.

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Comparing Subsidies in the Early Days

When comparing the size of federal spending on energy technologies it is important to consider the stage of each industry’s progression as well as the policy goals driving such federal support. As is reflected in Exhibit E, comparing today’s nuclear power subsidies with subsidies for distributed solar is difficult, as the nuclear industry has been producing power in California for a half century while solar energy is just emerging. Thus Exhibit F compares the subsidies that flowed to the nuclear and distributed solar industries during their first five years as energy generators in California. As Exhibit F demonstrates, the nuclear industry enjoyed a level of subsidy (adjusted to 2012 dollars) in its infancy unmatched by distributed solar many decades later.

Exhibit F demonstrates the similar growth trajectory of subsidies for solar and nuclear energy generation in their respective first five years as significant energy technologies in California. The question remains whether the federal government’s support for distributed solar energy will continue to resemble its unwavering support for nuclear power.31 The ITC is currently set to be reduced from 30 percent of cost to 10 percent of cost in 2016 and it is unclear if it will be extended…

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Conclusion: Finding a Way Forward

This analysis puts into perspective the change we are seeing across California’s energy landscape and highlights the similarities and differences in how our federal policies treat and affect California’s nuclear power and distributed solar industries. The nuclear power industry has received four times more subsidies than the distributed solar industry and has had six times longer to mature. As explained in What Would Jefferson Do?, nuclear and solar (and oil and gas, for that matter) have all received significant energy subsidies during their early days. This pattern is reflected in California during the timeframe of this analysis within which nuclear energy and distributed solar received fairly comparable levels of subsidies in their respective early days.

Significantly, despite our continuing federal investments in nuclear power, no new nuclear reactors have been built in California since 1986. In contrast, the federal solar investment tax credit has been crucial to stimulating more than one gigawatt of solar generation (both distributed and utility scale) that was installed in California during 2012 alone—new capacity that comes without multibillion dollar decommissioning costs and with, as stated above, 11,000 new jobs.

Another important difference between nuclear and solar is that the Price-Anderson Act was originally only supposed to be authorized for ten years while nuclear developers sought to prove safety and reliability. The original Price-Anderson Act Senate report justifies the Act’s 10-year sunset provision saying that, by then, “. . . the problem of reactor safety will be to a great extent solved and the insurance people will have had an experience on which to base a sound program of their own.’’

And yet, perhaps due to the potential for massive public costs in the event of a disaster, such as the estimated $250 billion public cost for the cleanup after the accident at the Fukushima nuclear power plant in Japan,39 the Price-Anderson Act remains in place 56 years later and authorized through 2020. As cities and towns in the coastal regions near California’s nuclear installations become more populated, the subsidy associated with shifting liability away from the operator and on to the government has increased (and will continue to increase) over time. By contrast, the solar investment tax credit is slated to revert from 30 percent of initial system costs to 10 percent in 2016, and the policy environment in our nation’s capital makes its reauthorization highly uncertain.

As the San Onofre Nuclear Generating Station is retired, the federal government’s varying treatment of nuclear subsidies and solar subsidies would lead any Sicilian to ask Saint Onofrio a very pointed question: Acknowledging Saint Onofrio’s knack for finding things, Californians should ask the Saint why the closing of his namesake’s nuclear plant hasn’t helped us find a new focus on the rationale behind subsidizing mature and declining energy sources and why we have not sought to level the playing field for new, clean energy entrants.

In light of Governor Jerry Brown’s ambitious goal of 12 gigawatts of installed distributed energy generation capacity by 2020,42 it is important to remember that each dollar of subsidy for a traditional energy source effectively lowers the cost of generation for an entrenched industry. In the context of the federal government’s embedded subsidies for nuclear facilities and fossil fuel production, as well as potentially expiring federal renewable energy subsidies and very little consensus on energy policy in Washington, the responsibility rests heavily on California to support the Golden State’s transition to clean renewable power. California should take a cue from Saint Onofrio and find what has been lost in over half a century of energy subsidies: an appropriate balance between policies that support our energy sources of the future and past policies that linger and distort the true cost and benefits of current energy generation. Addressing these questions may at times be unpopular and fail to confer immediate sainthood on those who do, but future generations will be better off when our energy perspective which has been lost is found.

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