European Lessons on Renewable Energy Subsidies

Considering how important and ubiquitous energy is for virtually all of life’s activities, it should come as no surprise that energy policy often dominates the agendas in legislative chambers in each of the fifty states and on Capitol Hill.  Historically, most of the energy debate in many of these legislative bodies has centered almost exclusively on ensuring that citizens have ready access to affordable and reliable energy.

Unfortunately, over the past several years, the energy debate has shifted.  Instead of worrying about the cost and dependability of energy, many legislators are now focusing on ways in which certain politically preferred energy sources—most commonly wind and solar—can be deployed in favor of more conventional sources.  These policymakers and other environmental advocates will often point to Europe as models for how governments can best encourage the use of “green” energy sources.

It turns out, however, that these models are now proving to be powerful examples of what not to do.

As increased government debt continues to wreak havoc in Europe and elsewhere, the world is starting to cut back on taxpayer support for green energy sources that tend to be less efficient, less reliable, and more expensive.  In fact, during the first three months of 2013, green energy investment declined by 22 percent to its lowest level in four years.

Here is a quick snapshot of recent government action in Europe:

Bulgaria: Protests against high electricity bills and overloads on the electric grid from unreliable energy sources have led the Bulgarian Energy Minister to consider suspending as much as 40 percent of wind and solar power capacity to stem oversupply and stabilize electricity generation.

Czech Republic: In 2010, the Czech government cut subsidies to solar in half and provided limits or caps on other renewable energy subsidy schemes. This action was pushed because of the fear of a steep rise in electricity prices and future power grid instability.

Germany: In early 2013, the German government started a conversation about reducing subsidies to renewables in order to limit rising electricity costs for consumers. Philipp Rösler, Germany’s Minister of Economics and Technology, has called the country’s solar subsidies a “threat to the economy.”

Greece: Due to the ongoing debt crisis, the Greek Ministry of Environment, Energy and Climate Change announced that feed-in tariff rates would be reduced by 40 percent for solar projects across the country.

Italy: The Italian government has moved to reduce renewable energy subsidies. Industry Minister Corrado Passsera recently said “Italy has important goals to meet and even surpass…we need to do so without over-reliance on taxpayer resources.”

Poland:  Poland’s Deputy Economy Minister recently reported that the country has plans to cut renewable energy subsidies after an economic slump ballooned the budget deficit. Poland estimates that the cost of government support for renewables will rise to 10.8 billion zloty ($3.4 billion) in 2020 from 5.5 billion zloty in 2014. Anna Czajkowska, a London-based policy analyst for Bloomberg New Energy Finance, said “Poland should definitively learn the lessons from Spain or the Czech Republic examples, where support for large solar farms resulted in serious problems.”

Romania: The Romanian Minister-Delegate for Energy announced plans to scale back renewable power subsidies to limit electricity price increases for consumers by changing its incentive program as early as July 2013.  “We think the renewable energy producers should operate in a free market, with no state incentives,” said Marian Nastase, Chairman of Alro SA, a Romanian aluminum producer that is urging the government to cut incentives for renewable energy after its power costs surged.

Spain: Spain’s government halted subsidies for renewable energy projects to help curb its budget deficit and rein in power-system borrowings backed by the state that reached 24 billion euros ($31 billion) at the end of 2011. The government passed a decree stopping subsidies for new wind, solar, co-generation or waste incineration plants. Industry Minister Jose Manuel Soria said, “What is today an energy problem could become a financial problem.”

UK: The UK government cut the subsidy for onshore wind energy generation by 10% despite the Treasury’s favored plan of a larger cut of up to 25%.

Federal and state government officials in the U.S. would be well served to recognize the potential ramifications of overreliance on taxpayer support of green energy.  It is time to finally restore sanity to the energy debate and reject budget busting, unreliable policies, lest we follow Europe’s path.