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News

A Gold Rush of Subsidies in Clean Energy Search
(NY Times November 11, 2011) WASHINGTON — Halfway between Los Angeles and San Francisco, on a former cattle ranch and gypsum mine, NRG Energy is building an engineering marvel: a compound of nearly a million solar panels that will produce enough electricity to power about 100,000 homes. The project is also a marvel in another, less obvious way: Taxpayers and ratepayers are providing subsidies worth almost as much as the entire $1.6 billion cost of the project. Similar subsidy packages have been given to 15 other solar- and wind-power electric plants since 2009. The government support — which includes loan guarantees, cash grants and contracts that require electric customers to pay higher rates — largely eliminated the risk to the private investors and almost guaranteed them large profits for years to come. The beneficiaries include financial firms like Goldman Sachs and Morgan Stanley, conglomerates like General Electric, utilities like Exelon and NRG — even Google. A great deal of attention has been focused on Solyndra, a start-up that received $528 million in federal loans to develop cutting-edge solar technology before it went bankrupt, but nearly 90 percent of the $16 billion in clean-energy loans guaranteed by the federal government since 2009 went to subsidize these lower-risk power plants, which in many cases were backed by big companies with vast resources. When the Obama administration and Congress expanded the clean-energy incentives in 2009, a gold-rush mentality took over. As NRG’s chief executive, David W. Crane, put it to Wall Street analysts early this year, the government’s largess was a once-in-a-generation opportunity, and “we intend to do as much of this business as we can get our hands on.” NRG, along with partners, ultimately secured $5.2 billion in federal loan guarantees plus hundreds of millions in other subsidies for four large solar projects. “I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects,” he said in a recent interview. “It is just filling the desert with panels.” From 2007 to 2010, federal subsidies jumped to $14.7 billion from $5.1 billion, according to a recent study. Most of the surge came from the economic stimulus bill, which was passed in 2009 and financed an Energy Department loan guarantee program and a separate Treasury Department grant program that were promoted as important in creating green jobs. States like California sweetened the pot by offering their own tax breaks and by approving long-term power-purchase contracts that, while promoting clean energy, will also require ratepayers to pay billions of dollars more for electricity for as long as two decades. The federal loan guarantee program expired on Sept. 30. The Treasury grant program is scheduled to expire at the end of December, although the energy industry is lobbying Congress to extend it. But other subsidies will remain. The windfall for the industry over the last three years raises questions of whether the Obama administration and state governments went too far in their support of solar and wind power projects, some of which would have been built anyway, according to the companies involved. Obama administration officials argue that the incentives, which began on a large scale late in the Bush administration but were expanded by the stimulus legislation, make economic and environmental sense. Beyond the short-term increase in construction hiring, they say, the cleaner air and lower carbon emissions will benefit the country for decades. “Subsidies and government support have been part of many key industries in U.S. history — railroads, oil, gas and coal, aviation,” said Damien LaVera, an Energy Department spokesman. A Case Study NRG’s California Valley Solar Ranch project is a case study in the banquet of government subsidies available to the owners of a renewable-energy plant. The first subsidy is for construction. The plant is expected to cost $1.6 billion to build, with key components made by SunPower at factories in California and Asia. In late September, the Energy Department agreed to guarantee a $1.2 billion construction loan, with the Treasury Department lending the money at an exceptionally low interest rate of about 3.5 percent, compared with the 7 percent that executives said they would otherwise have had to pay. That support alone is worth about $205 million to NRG over the life of the loan, according to an analysis performed for The New York Times by Booz & Company, a strategic consulting firm that regularly performs such studies for private investors. When construction is complete, NRG is eligible to receive a $430 million check from the Treasury Department — part of a change made in 2009 that allows clean-energy projects to receive 30 percent of their cost as a cash grant upfront instead of taking other tax breaks gradually over several years. Californians are also making a big contribution. Under a state law passed to encourage the construction of more solar projects, NRG will not have to pay property taxes to San Luis Obispo County on its solar panels, saving it an estimated $14 million a year. Assisted by another state law, which mandates that California utilities buy 33 percent of their power from clean-energy sources by 2020, the project’s developers struck lucrative contracts with the local utility, Pacific Gas & Electric, to buy the plant’s power for 25 years. P.G.& E., and ultimately its electric customers, will pay NRG $150 to $180 a megawatt-hour, according to a person familiar with the project, who asked not to be identified because the price information was confidential. At the time the contract was awarded, that was about 50 percent more than the expected market cost of electricity in California from a newly built gas-powered plant, state officials said. While neither state regulators nor the companies will divulge all the details, the extra cost to ratepayers amounts to a $462 million subsidy, according to Booz, which calculated the present value of the higher rates over the life of the contracts. Additional depreciation tax breaks for renewable energy plants could save the company an additional $110 million, according to Christopher Dann, the Booz analyst who examined the project. The total value of all those subsidies in today’s dollars is about $1.4 billion, leading to an expected rate of return of 25 percent for the project’s equity investors, according to Booz. Mr. Crane of NRG disputed the Booz estimate, saying that the company’s return on equity was “in the midteens.” NRG, which initially is investing about $400 million of its own money in the project, expects to get all of its equity back in two to five years, according to a statement it made in August to Wall Street analysts. By 2015, NRG expects to be earning at least $300 million a year in profits from all of its solar projects combined, making these investments some of the more lucrative pieces in its sprawling portfolio, which includes dozens of power plants fueled by coal, natural gas and oil. NRG is not the only company gobbling up subsidies. At least 10 of the 16 solar or wind electricity generation projects that secured Energy Department loan guarantees intend to also take the Treasury Department grant, and all but two of the projects have long-term agreements to sell almost all of their power, according to a survey of the companies by The Times. These projects, in almost all cases, benefit from legislation that has been passed in about 30 states that pushes local utility companies to buy a significant share of their power from renewable sources, like solar or wind power. These mandates often have resulted in contracts with above-market rates for the project developers, and a guarantee of a steady revenue stream. “It is like building a hotel, where you know in advance you are going to have 100 percent room occupancy for 25 years,” said Kevin Smith, chief executive of SolarReserve. His Nevada solar project has secured a 25-year power-purchase agreement with the state’s largest utility and a $737 million Energy Department loan guarantee and is on track to receive a $200 million Treasury grant. Because the purchase mandates can drive up electricity rates significantly, some states, including New Jersey and Colorado, are considering softening the requirements on utilities. Brookfield Asset Management, a giant Canadian investment firm, will receive so many subsidies for a New Hampshire wind farm that they are worth 46 percent to 80 percent of the $229 million price of the project, when measured in today’s dollars, according to analyses for The Times performed by Booz and two other two industry financial experts. (The wide range reflects a disagreement between the experts on the future price of electricity in New Hampshire.) Richard Legault, the chief executive of Brookfield Renewable Power, the division that oversees the Granite Reliable project in New Hampshire, declined to discuss his profit expectations in detail, but said the project might not have happened without government assistance. “When everything has come together, it is a good investment for Brookfield, it is no doubt,” Mr. Legault said. “We are quite happy with it.” (Brookfield is also the owner of the small park in Manhattan that is home to the Occupy Wall Street protesters.) Even companies whose business has little to do with energy or finance, like the Internet giant Google, benefit from the public subsidies. Google has invested in several renewable energy projects, including a giant solar plant in the California desert and a wind farm in Oregon, in part to get federal tax breaks that it can use to offset its profits from Web advertising. Industry executives and other supporters of the subsidies say that the public money was vital to the projects, in part because financing for renewable energy projects dried up during the recession. They also note that more traditional energy sectors, like oil and natural gas, get heavy subsidies of their own. For example, in the 2010 fiscal year, the oil and gas producers got federal tax breaks of $2.7 billion, according to an analysis by the Energy Information Administration. “These programs just level the playing field for what oil and gas and nuclear industries have enjoyed for the last 50 years,” said Rhone Resch, president of Solar Energy Industries Association. “Do you have to provide more policy support and funding initially? Absolutely. But the result is more energy security, clean energy and domestic jobs.” Michael E. Webber, associate director of the Center for International Energy and Environmental Policy at the University of Texas, Austin, said renewable energy subsidies were a worthy investment. “It is a form of corporate welfare that is consistent with other social goals like job creation, clean air and boosting a domestic source of energy,” he said. Overflowing Breaks Obama administration officials said the subsidies were intended to help renewable-energy plants that were jumbo-sized or used innovative technology, both potential obstacles to getting private financing. But even proponents of the subsidies say the administration may have gone overboard. Concerns that the government was being too generous reached all the way to President Obama. In an October 2010 memo prepared for the president, Lawrence H. Summers, then his top economic adviser; Carol M. Browner, then his adviser on energy matters; and Ronald A. Klain, then the vice president’s chief of staff, expressed discomfort with the “double dipping” that was starting to take place. They said investors had little “skin in the game.” Officials involved in reviewing the loan applications said that Treasury Department officials pressed the Energy Department to respond to these concerns. 1 2 3

Pennsylvania Hunting and Fracking Vie for State Lands
(NY Times) STATE GAME LAND 59, Pa. — For those who have ever stalked deer, turkey and bear here in “God’s Country” in north central Pennsylvania, this hunting season is like no other. For one thing, it is louder. The soundtrack of birds chirping, thorns scraping against a hunter’s brush pants and twigs crunching underfoot is now accompanied by the dull roar of compressor stations and the chugging of big trucks up these hills. Some of this state’s most prized game lands lie atop the Marcellus Shale, a vast reserve of natural gas. And now more and more drills are piercing the hunting grounds. Nine wells have cropped up on this one game land of roughly 7,000 wooded acres in Potter County, and permits have been issued for 19 more. An old dirt road that meanders up a ridge here has been widened and fortified. Acres of aspen, maple and cherry trees have been cut. In their place is an industrial encampment of rigs, pipes and water-storage ponds, all to support the extraction of natural gas through hydraulic fracturing, a process known as fracking. “Who wants to go into their deer stand in the predawn darkness and listen to a compressor station?” lamented Bob Volkmar, 63, an environmental scientist who went grouse hunting the other day through these noisy autumnal woods. “It kind of ruins the experience.” Like many hunters, Mr. Volkmar is upset that the State Game Commission is giving over more public land to the gas companies, which does not exactly fulfill the agency’s mission to enhance the hunting experience. The game lands, as he points out, were bought with the proceeds from licenses and fees paid by hunters and trappers. Carl Roe, the Game Commission’s executive director, acknowledges that drilling “does look ugly” but said that on most well sites, the agency had no control over drilling-related activities. Although the agency owns 1.4 million acres of game lands, it does not always own the mineral rights beneath them, so private owners can lease them out to the gas companies, as is the case with Game Land 59 here. Where the agency owns the mineral rights, it can and does restrict drilling and construction on certain days during hunting season. Mr. Roe also said the agency offsets the losses, which are temporary, by using money from the gas leases to purchase more game lands; it just bought a major tract of more than 9,000 acres. “In the long run,” he said, “this will be a net gain for hunters, not a net loss.” Still, the commission had to warn hunters in September to scout their favorite spots in part because a “dramatic increase in drilling” because of interest in the Marcellus Shale had disrupted traditional hunting and trapping areas. In 2008, the Game Commission received $556,000 in lease payments for Marcellus wells on game lands; by the end of this year, it expects to have received more than $18 million. About 50 Marcellus wells have been drilled on game lands across the state, with permits issued for 148 more. All this activity has put hunters and drillers in potential conflict. The Pennsylvania Independent Oil and Gas Association, representing the industry, and the Unified Sportsmen of Pennsylvania, which supports the drilling, plan to issue their own advisory. “We don’t want hunters to use our tanks for target practice or to sit on top of them,” said Louis D’Amico, president and executive director of the gas association, which issued a similar statement last year. “We want them to be especially careful during bear and deer season, because of the long reach of their rifles.” Sportsmen are just as divided as others over fracking; they are also divided over whether it should be allowed on game lands. Tony Winters, 59, a former conservation officer who had joined Mr. Volkmar on the grouse hunt, shrugged off the drilling here, saying that these lands had been cleared before by lumber companies and that clearing them now for wells will improve the hunting. Mr. Winters pointed out that clear-cutting of trees leads to forest regeneration. It also creates more “edge,” the open borders around the woods. Generally more edge attracts more animals like deer. As a compressor station hummed in the background, Mr. Winters said that he was not bothered by the noise and that animals would not perceive it as a threat. He said there was enough land to accommodate both hunters and drillers. Margaret Brittingham, a professor of wildlife resources at Penn State, said that the full effects of the wells on the flora and fauna were not yet clear and that she was beginning to study them. Dr. Brittingham expects that some wildlife populations, like deer, are expected to increase after the drillers leave, but that songbirds, salamanders and frogs and other amphibians that help maintain a forest’s ecological balance are likely to decline. “You can see these changes on a really local level now,” she said. “But it will take time to see changes in the larger populations.” She said she was skeptical that this new “edge” would be helpful, saying, “it’s more like a parking lot.” But she said such problems could be minimized if the lands were properly reseeded and reclaimed. Still, she said, “all the truck traffic is bad for wildlife.” Human traffic can be a problem, too. During hunting season, the commission has banned seismic surveying (a labor-intensive process that uses waves to find the right place to drill). “They have several crews going in several different directions, so a hunter can’t get out of the way,” said Michael DiMatteo, chief of environmental planning and habitat protection for the commission. Mr. Volkmar and Mr. Winters are also fishermen and members of Trout Unlimited, which started a coalition last year of a dozen outdoor recreation and wildlife groups called the Sportsmen Alliance for Marcellus Conservation. It is not opposed to drilling but seeks better regulations, including erosion-control measures and setback requirements. They take samples regularly from local streams to monitor water quality. They both say that fracking, which involves injecting millions of gallons of water, sand and treated chemicals deep into the gas bed, could lead to water pollution and fish kills. So far, no one has found water problems in this immediate area. But others have detected contamination, including fish kills, elsewhere in the state. The industry says that fracking itself is safe and that any problems have been caused by spills or leaks. The Environmental Protection Agency is set to begin a federal investigation into whether fracking is spoiling the drinking water in various drilling states, including Pennsylvania. As for spoiling the land, Bill Ragosta, a wildlife conservation officer for the Game Commission on Game Land 59, said that the amount of surface disturbance here was not typical. “Fortunately most of our game lands are not being bombarded like this,” Mr. Ragosta said. But even here, he promised, the drilling would soon end, and reseeding with alfalfa, chicory and clover would bring more deer. “It seems counterintuitive, especially to people who are opposed to drilling,” he said. “I don’t know if it’s better or worse for wildlife in the long run, but it’s not fair to say it’s all black or all white.”

France in fresh push to rebalance energy mix
(Financial Times) France will on Monday begin a big push on renewable energy that could signal a weakening in the traditional hold of nuclear power over a country that has long led the field in atomic energy.

Green Big Apple: Empire State of Mind
(Real Estate Bisnow) Welcome to Real Estate Bisnow New Yorks first-ever Green Big Apple, a special issue on the second Monday each month that ll focus on green and sustainability trends impacting the metro area.

How shale gas will transform the markets
(Financial Times) The past 100 days have been a dramatic time for energy markets, as a nuclear accident in Japan followed revolt across the Middle East,

US becomes net exporter of fuel as buyers struggle at the pump
(Financial Times) The US has become a net exporter of fuel for the first time for nearly 20 years as drivers struggle with high petrol prices.

Spotlight on ethics for new rankings
(Financial Times) It is the corporate equivalent of the star charts sometimes used to encourage young children by publicly recognising both good and bad behaviour. Today sees the launch of a set of ratings that builds on the FTSE4Good index series to give more detailed analysis of how companies round the world compare when it comes to their governance and social and environmental practices.

Danish pensions invest in giant offshore wind farm
(Financial Times) Two Danish pension funds have agreed to invest more than $1bn in a major offshore wind farm in Denmark, marking one of the biggest investments of its kind in the renewable energy sector.

Regulation Lax as Gas Wells Tainted Water Hits Rivers
(The New York Times) The American landscape is dotted with hundreds of thousands of new wells and drilling rigs, as the country scrambles to tap into this centurys gold rush for natural gas.

U.S. 4th-Quarter Growth Figure is Lowered, Dimming Hopes for Jobs
(The New york Times) Amid fears of an oil shock and a further slide in housing comes news that America’s economic recovery is weaker than previously thought. Growth in the fourth quarter of 2010 was slower than initially reported, at an annual pace of 2.8 percent rather than the previous estimate of 3.2 percent, according to data released on Friday by the Commerce Department. Economists had been predicting an upward revision, to about 3.3 percent.

Carbon trading Into thin air
(Financial Times) Just before lunch one Tuesday in mid-January, the public address system at Jiri Stastny’s office in Prague ordered all employees to evacuate: someone had called in a bomb threat. Police crawled over the building for more than three hours. Officers conducted sweep of the seventh-floor offices of OTe, the company of which mr. Stastny is director that manages the Czech Republics part of the European Unions greenhouse gas emissions trading system.

US regional banks set for consolidation
(Financial Times) The US regional bank sector looks set for consolidation in 2011, prompted by billions of dollars in sourced commercial real estate loans clogging balance sheets. So far, banks have avoided writing down these loans by extending their maturity dates. But with $1,500bn of commercial real estate loans coming due over the next four years - half with mortgages in excess of current property values - such evergreening may be reaching a tipping point, analysts say.