Tax-payer funded subsidies that promote residential electricity generation via renewable sources i.e. wind, solar, has resulted in putting America’s public utilities in a position where they may shift undue rate burden on to lower income consumers in order to recover grid costs. Rather than allowing utilities to employ the lowest cost fuels for generating electricity, tax subsidies have created artificial downward pressure on residential generation. The irony is that more affluent ratepayers are able to use these subsidies to install solar or wind facilities at their residences at the expense of unrecovered grid costs and potentially higher rates for the poor.
What is overlooked in discussion as to how policy has brought regulators to this cost shifting dilemma is how government acts as a stakeholder. As I describe below, government, as regulator of market behavior and architect of fiscal policy, has created a renewable energy policy that, while apparently noble in intent, is regressive in terms of benefits and prices for low income consumers.
American government’s role in the economy has become a bit convoluted over the past 200 plus years. Having taken on a progressive bent regarding its role in the economy, the American State has taken itself off course on the economy and created further conflict between those that see government simply as a facilitator of returns on capital and those who see government’s role as a distributor of social welfare largesse.
Government, whether by use of its own resources or by outsourcing to non-government, private actors, manages the extraction, conversion, packaging, and distribution of natural resources for the purpose of creating taxable activity. Where government uses private actors to extract resources and convert those resources into product, it also relies on these actors to employ human resources and act as tax collector on these resources. These taxes include the payroll taxes paid by employees and the sales taxes paid by consumers.
Public utilities play these roles. In the case of a utility that generates electricity, it has to extract or pay for the extraction of source fuels, such as coal or natural gas. In the case of renewable sources that are used for electricity generation, it has to pay for the facilities, i.e. wind turbines, solar panels, necessary for capturing these resources. And while it may have, in certain instances, a natural monopoly, state regulators cap the returns earned on the assets used to provide electric service, in effect, capping the revenues and profits the utility may make.
As a tax seeker, the State has an incentive to invest in a utility’s initiative to expand its generation, transmission, or distribution capability. This tax seeking incentive is buttressed by the role electric service plays in a larger political package containing some twigs to entice the public interest. Electricity is touted as playing a crucial role in a society’s health, economic, and public safety needs. Ensuring sufficient capacity and grid reliability to meet these goals may require that ratepayers contribute to the construction of a plant with completion years in the making. The public interest benefits are compounded by the tax revenues public utilities generate for the State.
Returns to subsidies in the form of tax revenues for the State are not realized where subsidies are spent on residential roof top solar. Quite the opposite where the subsidies take the form of tax credits, where a residential electricity customer sees a reduction in their tax bill as a result of a tax subsidy that lessens the cost of installing rooftop solar. And while there is an argument that taxes are paid upon purchase of solar equipment used to generate electricity at a residence, that tax payment is a one-time event compared to the monthly taxes paid by a consumer who relies solely on electricity generated or provided by a utility.
Nor have Americans seen an increase in electricity generation for all the tax money spent on subsidizing solar and wind. A Human Events article citing a report conducted by the Taxpayer Protection Alliance in 2015 discussed how Americans paid $39 billion a year over five years to subsidize wind and solar electricity production. And the financial returns to ratepayers, particularly the poor? Almost nil. Solar energy’s contribution to national electricity generation was still under one percent in 2015. According to TPA, ratepayers were still seeing their electricity bills increase on average six percent per year. It is no wonder the renewable energy industry and renewable energy policy attracts much cynicism where subsidies appeared more beneficial to industry players versus the ratepayers.
Thinking of the State in so stark of terms, as a shark swimming through the sea solely concerned about its next tax revenue meal, is not a common approach of students of government. Some cynics of government regulation or intervention may find the approach amusing. Some conservatives or libertarians may find the description spot on. But given the current model of government, the State, by pursuing a renewable energy social policy that does not emphasize tax seeking but instead supports a shift in tax paying responsibility from the affluent roof top solar owner to the less affluent, runs the risk of presenting the electorate with an oppressive and inequitable tax system.