The New Solar Electricity Ripoff 
By John McClaughry

One of the most intense concerns of the enviro-laden majority party in recent legislatures has been to find some invisible way of subsidizing its favorite corporate welfare recipient, "renewable energy".

The 2005 legislature created a "Clean Energy Development Fund" to make grants and loans to qualified wind, solar, biomass, methane, small hydro and other renewable energy promoters. The solons funded it by socking Vermont Yankee to the tune of $28 million, in return for permitting the nuclear plant to store spent fuel rods in concrete casks on its own property.

But that wasn't enough. The follow-on idea is called SPEED. It requires electric utilities to purchase up to 50Mw of wind, solar and methane-generated electricity at shockingly high rates.

Vermont has already had a bad experience with this kind of corporate welfare game. A 1978 Federal law called PURPA, now mercifully expiring, required Vermont utilities to purchase power on long-term contracts from a dozen Independent Power Producers (small hydro plants and one big woodchip plant). The government calculated the purchase price in the belief that fossil fuel prices would soon reach $100/barrel of oil equivalent. (Even after two decades of dollar depreciation, oil is now around $80/bbl). That's why IPP power (8% of Vermont's consumption) has been the most expensive part of every utility's portfolio.

But never mind that experience. When the legislature can't tap some handy pot of money to promote this fetish, it forces the Public Service Board and the utilities to do its dirty work in the hope nobody will notice the increase in electricity rates.

The 2009 amendments to the SPEED program forced the utilities to purchase up to 50Mw of qualified renewable electricity through a "feed in tariff". Willem Post, an experienced mechanical engineer from Woodstock, has performed a detailed analysis of the economics of commercial solar photovoltaic electricity.

Post took as his model a one Mw rated system (83,333 sq. ft., roof- mounted on a big box store). He assumed, generously, that the system would have a 25-year service life and no component replacement. The system's installed cost at today's prices would be $6.5 million ($6500/kw). Thanks to the 30% federal tax credit, the amount to finance drops to $4.55 million.

Of course the sun doesn't shine all the time. Post assumed, realistically, that in Vermont the panels would receive peak sun 4.3 hours per day on average, at 80% conversion efficiency. That projects to 1,255,600 kwhr/year.

Under the SPEED program, the legislature decreed that utilities must purchase solar electricity at a rate of 30 cents/kwhr. This is about five times what the utilities are now paying for wholesale nuclear-generated electricity. Post assumed that the 30-cent "feed in tariff" would continue through 2029. For the remaining five years the utilities would pay the seller 2/3 of the prevailing rate.

Over the 25 years this Big Box PV system will produce $8.574 million in revenues. The financing cost for the system (at 6% interest) comes to $8.9 million. From this the big box owner can deduct 10-year depreciation and interest paid ($3.796 million) from its other income, leaving a net gain to the owner of $3.47 million.

From Post's spread sheet one can calculate that over the 25 years the utility's other ratepayers will pay an extra $2.19 million for the Big Box PV kilowatt hours, assuming a current wholesale retail market price of 12 cents/kwhr increasing by 4.7% a year to 37.8 cents/kwhr in 2034. (From 2029 to 2034 the PV electricity will be less expensive than the market rate - unless the PV producers can persuade a future PSB or legislature to increase their FIT rate to keep the subsidies coming.)

So here's the 25 year scorecard: utility rate payers - IBM, Killington, small businesses, town governments, farms, churches, and Grandma - will pay $2.19 million in higher electricity costs. Federal and state taxpayers will pay $1.95 million in up-front tax credit subsidy, plus $3.796 million to make up for the depreciation and interest deductions (at a combined Federal and state income tax bracket rate of 35%).

Big Box PV pockets $3.47 million after all expenses - for installing and operating less than one tenth of one percent of Vermont's electricity capacity. No wonder the Public Service Board received 200 Mw worth of feed in tariff proposals, four times the (current) 50Mw cap.

For whom is this a good deal, again?

John McClaughry is Vice President of the Ethan Allen Institute (www.ethanallen.org).