Guest Post by Willis Eschenbach
Sounds like a scam, huh? But it’s real. Let me explain how people (no, not you or me, don’t be foolish) can make a guaranteed 29% return on their investment. However, to make it clear, I’ll need to take a short digression. I ran across a National Geographic article on where the world gets its electricity. Here are their figures:
Figure 1. World electricity production by fuel type. Renewables (defined by AGW activists as solar-, geothermal-, wind-, and biomass-generated electricity, but not hydroelectricity) are 2.7% of the total electricity use. Data from National Geographic
You can see why the AGW supporters’ heads are exploding as the Durban climate party approaches. It is obvious from the chart that years and years of subsidies and tax breaks and IPCC reports and various urgings by well-meaning but clueless pundits and billions in wasted taxpayer dollars have not succeeded in getting renewables up to even 3% of the total electricity generated. Less than 3%. It must drive them round the twist to contemplate their stunning lack of success at making water flow uphill.
Despite that history, you know how they say on those TV commercials, “But wait! There’s even more!”? In this case, it’s “But wait! There’s even less!”
The reason that its even less is that Figure 1 just shows electricity. It doesn’t show total energy consumed, which is a much larger number. Total global energy consumption is shown in Figure 2.
Figure 2. World energy consumption by source. “Renewables” are solar, geothermal, wind, and biomass. Note that the traditional use of firewood for cooking is not included. Data from the BP Statistical Review
So although renewables have (finally) gotten to 2.7% of the electricity production, they still only represent 1.3% of the global energy consumption. And this is with heaps of subsidies.
And I don’t mean just a bit of money to get them over the hump. Huge subsidies. Because of the total failure of renewables to penetrate the market, the AGW supporters are desperately throwing money at renewable technologies. The New York Times showed a graphic for one such power plant in California. Their graphic is reproduced below as Figure 3.
Figure 3. Federal and State Subsidies for the California Valley Solar Ranch.
Unfortunately, the Times didn’t really discuss the business implications of this chart, so let me remedy that omission.
First, how much money did the investors have to put in? Since the project will start earning money once the key is turned and the market is guaranteed, the investors only had to put up the total capital outlay of $1.6 billion. Less, of course, the generous government grant of nearly half a billion dollars. Total invested, therefore, is $1,170 million dollars.
On that money, the investors stand to make a net present value of $334 million dollars … which means that due to the screwing of the taxpayers and ratepayers, a few very wealthy investors are GUARANTEED A RETURN OF 29% ON THEIR INVESTMENT!!!
How is this fair in any sane universe? AGW supporters talk about the 1% having too much money, and here the same folks are shoveling the money into the one percenters’ pockets. The 1% weren’t rich enough already, so I have to foot the bill for them to get a GUARANTEED 29% RETURN on their investment?
Note also that a huge part of the money, some $462 million dollars, is coming from the California electricity ratepayers, including yours truly, through increased charges for electricity. This means that these solar scam artists are being allowed to sell their power at 50% ABOVE MARKET PRICES!!! Not just a little bit above market. Fifty percent above the market price! Where is the California Public Utilities Commission whose job is to protect the consumer? Oh, I see … the are the ones who agreed to the 50% above market rate hike … for shame.
Pardon my screaming, but this insanity angrifies my blood mightily. Ripping off both the consumer and the taxpayer to allow millionaires to make a guaranteed 29% return on a not-ready-for-market technology, and charging ratepayers 50% above market for the electricity? That is reprehensible and indefensible. In particular, the rate hikes hit the poor much harder than the wealthy, so we are billing the poor to line the pockets of the 1% … and all this in the name of enlightened carbon fears.
A few last numbers to consider. Without the layers and layers of subsidies, the investors would have had to put in $1.6 billion, and they would have suffered a loss of $1.1 billion dollars. The investors wouldn’t lose just a little, they’d lose their shirts, their pants and their ties … and seventy percent of the money they put in. That’s how far this technology is from being marketable. Not just a little ways short of profitability. A long, long, long ways from being marketable, more than a billion dollars short of making a profit.
Finally, the total subsidies for this plant were $1,430 million dollars. So this single “successful” green project will cost the consumer three times what Solyndra cost. And in return … we get energy priced at 50% above the market. Thanks, Energy Department, glad to know you have my back.
You can see why I’m screaming … the inmates have taken over the asylum. Steven Chu, the Secretary of Energy, says we need more successful green projects in order to survive the depression … me, I fear we won’t survive Secretary Chu.
I know we won’t survive if we follow Chu’s brilliant plan for ‘successful green projects’ that do nothing but line the pockets of the 1% with billions in subsidies. That path is the poster child for the concept “unsustainable”, and Secretary Chu is the poster child for the brilliant idiot. He is undoubtedly a genius in his scientific field, but whoever unlocked his ivory tower and let him loose on the business world has some serious explaining to do.
Here is the problem with Energy Secretary Chu. His failures are bad enough. But his successes are lethal.
w.
Willis Eschenbach;
That’s a curious setup. SunPower must have the on-the-ground knowhow>>>
Well they do have a long history in solar cells, I believe they supplied NASA for some of the satellites. But it seems to me the real know how is that they “know how the system works”.
My understanding is that they hired a lobbyist by the name of George Miller IV to help them get the loans from the DOE. George Miller IV got his daddy to come for a tour of the plant. His daddy would be Senator George Miller (D). Of course Senator Miller dragged along his good friend Ken Salazar. Well, more correctly, Interior Secretary Ken Salazar.
Now if the DOE were to directly fund SunPower under those circumstances, somebody might cry fowl. So, one needs a layer of plausible deniability…
All this going on. It’s as if the Svensmark experiments at CERN never even happened. All that empirical evidence and then the confirming experimental proofs told us that “Clouds drive our climate and stars give our clouds their orders”, as one scientist put it. The magnetic fields protecting Earth from the cosmic rays that give us the low level clouds involved have been weakening. In 2009 NASA told us that more cosmic rays got through than at any time in the last 50 years. There is going to be a lot of death if humanity doesn’t start making practical adaptations fast.
On that money, the investors stand to make a net present value of $334 million dollars … which means that due to the screwing of the taxpayers and ratepayers, a few very wealthy investors are GUARANTEED A RETURN OF 29% ON THEIR INVESTMENT!!!
29% on an investment like this in the private market is less than borderline. The screwing of the taxpayers is the only thing that makes it even remotely attractive. Taking the NPV/investment is not the same as IRR, as I’m sure you know. When I did cash flow analysis, I used to advise against anything less than about 30% IRR, unless there was virtually no risk, and the time horizon was short. If it was easy and quick, great, do it. Longer term and difficult or risky, we have better places to put money.
In the private market, the cost of capital is easily 15% after tax, so getting 30% is really messing with pennies. In some industries, that’s almost OK (older, stable, predictable ones, with very predictable future cash flow). New ones or high risk ventures, I’d be looking for north of 40 or 50%. Really volatile or unpredictable (high risk), better than 100% per year.
No wonder only folks with unlimited free money (the government) ponders such foolish enterprises. I would love to see Chu’s supposed politically neutral cash flow analysis. The notion that Solyndra was worth investing in is preposterous under almost any private sector scenario.
Total credit market debt in the USA currently stands at about 350% of GDP after a three decade long debt fueled spending spree. Early on in this process each one dollar of debt resulted in 1.6 dollars of GDP growth. Immediately prior to the 2007 recession each one dollar of debt resulted in about 1.15 dollars of GDP growth due to the decreased marginal utility of that debt.
These green projects are spending one dollar to add (much) less than one dollar to GDP. We know this because they raise the price of power but do not increase its economic utility so they must be a net cost to the economy. We are destroying useful capitol in these projects………..this is basic economics. This is a bad idea at all times in any economic cycle but it will probably prove disastrous now.
So what will be the result? Hyperinflation to inflate away these debts, as has happened in other countries, or depression style asset deflation that will erase debt, and ruin lives, via default. This will not end well I think.
Which brings me to this:
http://www.blinkx.com/watch-video/funniest-movie-line-ever/mt_HJ2mH_qCA-OdRoYr2EA
This is what you get with command and control mechanisms. The State is in charge. They took over ostensibly to protect consumers from evil corporations. With their bait-and-switch, the game is now to protect the environment we consumers live in and not our pocketbooks. Yes, indeed, what is a healthy environment worth? Apparently, our jobs, our houses, our ability to buy food, and take care of our families. In short, we have to give up everything so the government can protect us.
Roger Knights probably has the right idea: Give them everything. When the consumers who fall for the con game finally realize it is a scam, maybe it won’t be too late to turn it all around. And if California can’t be saved, well, maybe that is what is required to save the nation. Idiots are in charge. Clearly, the propaganda is still working on voters.
There are many factors to blame, but a big one is term limits. Term limits eliminate the incentive for electeds to worry about the long-term consequences of their votes. They will be termed out first. They can give away lots of goodies paid for by tax payers, and leave much richer than they came. Elected office staff are often 20-somethings making decisions with no perspective at all. A few older staff run the operation, moving from official to official, completely unaccountable to the voters. Electeds have no idea what regulators are doing in practice. You barely come up to speed and then you leave office. State government is completely out of control. Until the voters understand the waste, it will just keep happening. Too many voters don’t have a direct connection to the costs of government so they buy the line that the “rich” don’t pay their fair share. The people who don’t pay taxes suffer by paying higher prices for goods and services, by losing jobs, and not being rehired due to high unemployment in economic conditions produced by government policy (and the folly of voters).
It all has to come crashing down to fix this mess. We hope there will be a chance to fix it.
Michael D Smith;
In the private market, the cost of capital is easily 15% after tax, so getting 30% is really messing with pennies.>>>
Really? Pennies?
There is capital, then there is venture capital, and then there is high risk venture capital. In all cases, there is some element of risk, I’ve listed from lowest to highest. In any investment scenario, you can lose some or all of your money. Most venture capital projects fail, and high risk venture capital projects nearly all fail. This is a high risk venture capital project…. with no risk.
Find me a no risk investment that pays more than bank interest rates. Pennies my *ss.
Grrrrr.. OCCUPY CHU’S OFFICE!
(for the 99%)
Subsidies that support groups favored by many Republicans or conservatives are evil and are responsible for the exploitation of man and the earth. Subsides that support groups favored by many Democrats or liberals are enlightened and necessary and are our only hope for a brighter tomorrow. That is part of the genius of the liberal indoctrination. They found a way to convince people that those who don’t believe or practice what they do are evil.
There’s one thing you haven’t mentioned. The electricity grid was built relying on a stable load and supply.
To modify the grid to cope with brown outs and surges is a significant cost factor that the grid owner also passes on to the consumer.
I believe it used to be called a ‘tragic moral choice.’ Do I do what’s good for me, or what’s good for the community? I shouldn’t have to make such a choice, but the politicians have set me up for it. In this case, I decided I’ve had enough; I’m paying taxes for these programs and I’m not going to make myself a further victim by refusing to take advantage of them. So I installed solar photovoltaic. My apologies to my neighbors who are I not in a position to do likewise, and who are subsidizing my power. If the politicians had any sense, they might have subsidized installations on public buildings (schools, libraries, clinics…) that would benefit everybody.
So how is it working for me? Better than anticipated. The panels (yeah, they’re Sunpower) are kicking out the rated power and have produced all of our electricity since turn-on last June 17. Plus about 300kwh extra. Azusa Light and Power paid about a third of the cost, and Uncle
Sam promises about a third of the remainder at tax time. My net outlay is somewhere between 8-9 thousand; estimated payback at present prices is 15-20 years. But that is savings–it is _tax free_.
And present prices are certain to go up, given the situation in CA. (So I claim self-defense on the moral question.)
There is a big difference between Solyndra and Sunpower. Sunpower produces real hardware that really works. And there is a big difference between rooftop installations that do not need two hundred mile long transmission lines and that do not flatten large areas of undeveloped countryside. As I drove down to Pick-a-Part to get a cheap junkyard tire for my car this morning
I saw the crew constructing S. Cal. Edison’s new Tehachapi transmission line. $2 billion, I think they are spending on it. And I share your anger.
The greens are walking contradictions. Useful idiots to the end. If that was an oil company subsidized to the same effect (by evil Reps no doubt) there would be no end to the “scandal” coverage by the MSM.
Disgusting.
Because of the weather, California energy bills are lower, so the political impact is small.
If they tried that in other states further north, I think they’d be in some trouble.
If oil companies are making profits of $40 billion per year, does it make sense to subsidize them $4 billion per year or is it also a big waste of money?
Will.
The scams never end even when the last dollar is stolen from the exhausted taxpayer, they will still won’t more.
In the midnight hour they want more ,more ,more.
Billy Idol.
Jim D says:
November 18, 2011 at 7:56 pm
“If oil companies are making profits of $40 billion per year, does it make sense to subsidize them $4 billion per year or is it also a big waste of money?”
Oil companies only get green energy subsidizes, some smaller oil companies get some subsidizes but mostly the same type that all small businesses get. If you remove the green energy subsidizes big oil would get zero money from the government… of course the green movement secrets loves giving money to big oil.
Here in Australia the article was followed by this advertisement.
A significant proportion of the biomass in the developed world is peat.
Peat is a fossil fuel, albeit a recent one. Yet they have classified it as renewable biomass and you can even get carbon credits for using it as a fuel.
http://www.peatresources.com/peat_fuel.htm
In some countries it used to generate electricity, Ireland for example. Making the electricity from biomass misleadingly high.
Exclude fossil fuel peat and the renewables electricity is likely under 2%.
@temp Can you support that claim? It flies in the face of just about every study on subsidies to energy companies, although you only mention oil and not coal.
In any case, seel link below for a study on US gov’t subsidies to energy companies from 2002-2008
http://www.elistore.org/Data/products/d19_07.pdf
In California, hydro is not considered a renewable energy. Our PUD uses hydro exclusively, and has to diversify to meet the new requirements for “green energy.” Ridiculous!
More on peat
It is particularly inefficient as a fuel and requires drying before burning. It produce more CO2 per unit of electricity than any other source of fuel.
Then you have to drain the peat bogs to get to it, which by itself is a major source of CO2 emissions.
From wikipedia,
Losing 5% of the 2.7m hectares of peatland in Britain, would equal UK’s annual carbon emissions and risk its climate targets (IUCN).
Nothing better illustrates the lunacy of ‘renewable energy’ than carbon credits for using peat as a fuel.
Rosco says:
November 18, 2011 at 6:34 pm
There’s one thing you haven’t mentioned. The electricity grid was built relying on a stable load and supply.
To modify the grid to cope with brown outs and surges is a significant cost factor that the grid owner also passes on to the consumer.
Autoresponse is the “solution” to handle variations in supply – by cutting demand. Smartgrid in homes and businesses will monitor devices. These devices will be turned off when they receive a command from the utility. The consumer will pay higher prices for power and will lose privacy. Smartgrid is a bidirectional communications system that has no limit on what it can report. Any data collected is fair game.
Smartgrid is also planned to be another source of broadband. That prospect has hooked the utilities, now expecting to profit one day on a new revenue stream. One by one, companies and smaller public agencies that might otherwise oppose a crazy scheme are bought off with promises of cash. When the cash fails to materialize, the government will still have its monitoring equipment in everyone’s home and in businesses. Everything that can have its own IPV6 address can potentially be a reporting device.
A water agency was just attacked via the internet by Russian hackers. Smartgrid will be the alternative of choice when the internet is deemed too risky to be allowed to operate as it does now. Then we will be using the more “secure” government provided powerline broadband. Our data sniffed and stored, our comments traced, and searches directed, we will be so much safer. All of our communications will be scoured for threats. What do we have to fear if we aren’t doing anything illegal? Why should our lives not be completely open for all to see? It just won’t be America anymore.
OT, but somewhat relevant.
Chu, as far as I know having never seen an oil well, made the call to stop the first attempt ( 3-4 weeks after initial expolsion, I think) to plug the Deepwater Horizon oil leak using a technique called ‘top kill’. After a few months of leaking oil the well was plugged using the very same technique called ‘top kill’. The precautionary principle caused a lot of oil to be dumped into the Gulf of Mexico at the US government’s hand and blamed on BP. Seems that if you hide under the umbrella of the government and make bad calls there will be no repercussions, just call it policy.
Incorrect. It was the BP engineers who abandoned the “top kill” after about 3 days without success. Chu said in an interview that it probably should have been tried earlier.
The second attempt at a top kill was only successful because TWO relief wells, one of which was started on May 2nd, had been drilled
ann r says:
November 18, 2011 at 8:50 pm
In California, hydro is not considered a renewable energy. Our PUD uses hydro exclusively, and has to diversify to meet the new requirements for “green energy.” Ridiculous!
The fear is if they counted large hydro (>30 MW), it would encourage developing more water impoundments.
Four small dams on the Klamath River, producing clean power, could be torn down. Is that really necessary to “save the salmon”? Are toxic algae behind these dams truly a serious concern? Cyanobacteria can be controlled by balancing nutrients (typically, nitrogen needs to be added) instead of adding agents like CuSO4. The dam tear-down is funded by yet another bogus “jobs” bill. The money for the projects, over $500 million, could be given to 10,000 people instead, which amounts to about $50,000 each. Our government in action. Brilliant.
http://www.energy.ca.gov/2010publications/CEC-300-2010-007/CEC-300-2010-007-CMF.PDF
http://legalplanet.wordpress.com/2011/11/15/klamath-dam-removal-bill-introduced-in-congress/
John Trigge mentions getting 19% return. In Oz there are various schemes which assists what one would call upper & upper middle class (including those leftish proverbial Doctors wives and environmentalists in Government paid jobs). The Government gives a subsidy for the first 1.5kW of PV panels. This works out to be about 40% of the capital cost. This only replaces some of your usage which in my area is $0.20/kWhr. Allowing for average sunlight hours and an efficiency factor. I get about 20% return on investment.
This is only available to a) house owners with roof space in the right orientation b) people who do not mind an untidy roof space or a roof which can not be seen (my panels can not be seen from ground level anywhere on the property) and b) people with some cash and intelligence to invest
In some areas there is a feed in tariff benefit for larger systems but no additional capital subsidy. In my area anyone putting in a 3kW system will get a return on investment only around 11% (including a small contribution from feed in tariff). Anyone putting in 10kW has to be stupid or a dyed-in-the-wool environmentalist who does not mind throwing money away. That is why there are plenty of 1.5kW systems in better off areas and very few larger systems.
The capital subsidy for PV panels is a waste of money for a token demonstration the the government is doing something.