The Whim and Caprice of Oregon’s Renewable Energy Policy

So Gov. Kulongoski is threatening to veto House Bill 2472 which terminates the current subsidies to producers of wind energy. Oregon’s liberal Democrat legislature wanted the additional $19.5 million the bill would save for other foolishness. The governor wanted to save his purported legacy as Oregon’s green governor.

In the end, neither side understood or cared about the actual importance of House Bill 2472. They were both too busy doing what liberals do best — using government to manipulate the economy and reward their friends.

Really, in the larger scheme of prolific spending by Oregon’s liberal establishment, HB 2472 is a mere blip on the radar – $19.5 Million as compared to the over $17 Billion general fund budget. In fact it is not nearly as big as the $32 Million in additional spending that the Democrats added in the closing hours of the legislature to enhance benefits for their friends in the public employee unions.

What is lost in this pillow fight between liberals is the distortion of the marketplace by such subsidies and the aftermath of changing government policy after private capital has already been expended.

Let’s start with the basics. Wind power is not price competitive in Oregon. Its viability is dependent on various subsidies from federal and state governments (tax credits and grants) and government mandates (requirements that public utilities use increasing percentages of “renewable” power). Because liberals detest energy generated from oil, gas, coal, hydro, and nuclear facilities, they have utilized their power in government to tilt the marketplace in favor of wind and solar power. (Given the adverse visual effect that massive wind and solar farms have on Oregon’s cherished pastoral settings the liberals’ love affair with these forms of renewable energy is waning but the lack of an available substitute keeps them hanging on.)

(And before the liberals bust a blood vessel decrying the “subsidies” to the carbon based fuels industries, I’m opposed to those as well — with the exception of rapid depreciation of capital assets and amortization of exploration costs.)

Be that as it may, those intent on using government to pick the winners and losers in the competitive marketplace prevailed and there was a significant infusion of investment capital in wind energy in Oregon. (Not so for solar power primarily because the sun only shines four months a year in the most populous portions of Oregon — the Willamette Valley — and even tax incentives cannot clear the clouds that cover from mid-October to mid-June.)

In essence, the tax incentives caused investors to make uneconomic choices — to invest in an enterprise that was not competitive without government interference. The capital that flowed to create these wind farms that are beginning to line the Columbia Gorge and spoil the skylines of Eastern Oregon would have gone elsewhere — to a viable, sustainable and competitive enterprise.

Now the government has changed its mind with the passage of House Bill 2472 — effectively pulling the rug out from under those who have invested in reliance on government policy. Lest you think this is much ado about nothing, listen to the words of Gov. Kulongoski and the effected industry:

Gov. Kulongoski is quoted in the Statesman Journal as saying, “A roll back in these tax credits would be detrimental to Oregon’s continued success in creating green jobs and new green technology.”

Suzanne Leta Liou, a senior policy advocate at the Renewable Northwest Project is quoted as saying, “The veto is “˜absolutely essential’ to preserve Oregon’s green energy future. The cumulative effective of (the two bills) will deteriorate the market for new renewable energy generation and encourage that renewable energy industry to go elsewhere.”

The Statesman Journal notes that the governor said he is concerned the bill would undercut the original intent Oregon’s renewable energy standard and business energy tax credits — the first recognition that using government to whipsaw investment decisions might not be a good idea.

Now, contrast that to an innovative program that Arizona Public Service Company (APS) is trialing in parts of Arizona. In essence, APS will supply the acquisition, installation, maintenance and upkeep of solar (photoelectric) panels on homes. In exchange for the use of a homeowner’s roof, the homeowner gets a guaranteed lower rate for energy consumption for twenty years.

This trial is being done in part to determine whether such a program can result in significant avoidable costs (i.e. the cost of building a new generation plant and accompanying transmission facilities) for APS. With over 330 days of sunshine the deployment of solar panels on exiting rooftops may prove to be a viable alternative. Add to that the vast number of “snowbirds” with homes in Arizona who leave for the summer months when demand for electricity (air conditioning) is at its highest but whose rooftops will continue to pump out power from solar panels and APS may have produced a winner.

The remarkable thing, however, is that the deployment of capital by APS is not induced by subsidies from Arizona state government. If the trial succeeds, the company and its shareholders will benefit by virtue of reduced or avoided costs. If the trial fails, the risk was borne solely by the shareholders and not the taxpayers.

But more importantly, the innovation that springs from private enterprise attempting to control its costs (current and future) must be contrasted with the waste that is created by government providing incentives today and withdrawing them tomorrow.

So Gov. Kulongoski, go ahead and veto House Bill 2742. Not because the legislature wasn’t right in eliminating subsidies that distort the marketplace, but rather having already distorted it, you shouldn’t put those who have invested in projects in development at risk from the whim and caprice of the legislature.