Why cutting incentives for renewables would help consumers

• Advocates for renewable energy wrongly warn that losing some of the Inflation Reduction Act’s (IRA) grants and incentives would be bad for the economy
• Shifting renewable facilities’ costs to people as taxpayers rather than as ratepayers hides their total cost from people
• Even though wind and solar facilities have “zero fuel costs,” those are not the only costs energy facilities face, and the combined totals are worse for new wind and solar facilities

The badly named Inflation Reduction Act of 2022 (IRA) flooded the economy with virtually unlimited incentives for “clean energy” projects. Advocates for the bill touted a figure of $369 billion over 10 years in grants and tax breaks. Months later, Wood MacKenzie would estimate that its costs could exceed $2.5 trillion with no end in sight.

At least some of those incentives face possible elimination under the also badly named Big Beautiful Bill currently under debate in Congress.

Costs don’t change just because the role of the payer does

Advocates for such projects warn that without the subsidies, bad economic results will follow. They argue that, thanks to all the subsidies, renewable energy sources like solar and wind save people money. But paying for something in your role as taxpayer so that it doesn’t cost you quite as much as a ratepayer doesn’t magically make its cost go away. If anything, shifting costs to government helps hide the costs.

For example, the Biden administration boasted that the IRA would “[s]ave American families up to $38 billion on electricity bills” by “promoting clean, cost-effective electricity,” “reducing electricity bills” on the simplistic notion that “wind and solar are cheaper to operate once they’re built; unlike gas and coal plants, there are no fuel costs.” (In other words, it would not save people $38 billion.)

Nevertheless, even the Biden administration expected the IRA would cost nearly 10 times how much it would supposedly save people ($369 billion vs. $38 billion). If spending reached $2.5 trillion, the costs would obliterate the “savings” 66 times over.

Incidentally, the North Carolina Utilities Commission’s initial Carbon Plan explicitly called for incentives’ effects to be considered in measuring Duke Energy’s costs of new electricity generating resources. The fact that those incentives may be eliminated this year — or could be eliminated in future legislation — underscores the risk of using them to discount costs.

Wind and especially solar get far, far more subsidies than other energy sources

Advocates for wind and solar point out that other energy sources get federal subsidies, too. The general impression people get, however, is that nuclear, oil, and gas receive far more federal money than renewables do. The truth — even before the IRA — is quite the opposite.

In August 2023, the U.S. Energy Information Administration released a report on “Federal Financial Interventions and Subsidies in Energy in Fiscal Years 2016–2022.” The report listed direct expenditures, tax expenditures, and spending on research and development from the federal government by energy source from 2016 to 2022.

This report showed that wind energy received $18.67 billion in federal subsidies in the period of 2016 to 2022. In contrast, coal received $15.26 billion; natural gas and petroleum liquids, $9.28 billion; and nuclear? Only $2.86 billion. In other words, wind energy received twice the amount in subsidies as natural gas and over six times the amount in subsidies as nuclear.

What about solar power? It received $36.48 billion in federal subsidies — nearly twice the amount even given to wind energy. Solar received more federal subsidies than nuclear, natural gas, and coal combined — and by a comfortable margin.

The report also gave the energy production from those sources in those years. This analysis yielded another vast disparity. Natural gas and petroleum liquids produced 79.3 billion megawatt-hours (MWh) of electricity. Meanwhile, coal produced 27.97 MWh and nuclear, 17.05 MWh. If you were to calculate how much government incentives went into producing each MWh of electricity, then for coal it was 55 cents; nuclear, 17 cents; and natural gas, 12 cents.

Meanwhile, wind produced only 5.63 billion MWh of electricity during that time, and solar produced only 2.23 billion MWh. So from 2016 to 2022, the federal government spent $3.31 for each MWh of wind energy — and $16.37 for each MWh of solar.

Federal subsidies and productivity by electricity generating resource, 2016–2022

Energy resource	Federal subsidies, 2016–22	Electricity production, 2016–22	Federal subsidy $/MWh
Coal	$15.26 billion	27.97 billion MWhs	$0.55
Natural gas and petroleum liquids	$9.28 billion	79.30 billion MWhs	$0.12
Nuclear	$2.86 billion	17.05 billion MWhs	$0.17
Solar	$36.48 billion	2.23 billion MWhs	$16.37
Wind	$18.67 billion	5.63 billion MWhs	$3.31

Source: U.S. Energy Information Administration and author’s calculations

In other words, wind received nearly 20 times more subsidies per unit of power generated than nuclear did, and solar received nearly 100 times more.

As a reminder, those data precede the massive influx of federal subsidies for renewables under the IRA.

Fuel costs aren’t the only costs that energy facilities face

Then there are fuel costs. As the Biden administration put it, “wind and solar are cheaper to operate once they’re built; unlike gas and coal plants, there are no fuel costs.” Only the last part is true, since nature provides the “fuel” (wind and sunshine) for free — that is, when nature provides them. But as the Locke Foundation’s Center for Food, Power, and Life showed in its report filed with the North Carolina Utilities Commission regarding the Carolinas Carbon Plan, there are many other costs involved in facilities providing electricity to the grid, including capital costs, operation and maintenance, transmission, property taxes, utility profits, load balancing, imposed costs during times when natural fuel provision is low, and curtailment.

The following graph from that report compares facilities (existing and new) according to all those costs:

More than fuel costs: The different costs facing electricity generating resources

Conclusion

Electricity policy in North Carolina has traditionally promoted least-cost and reliable service. Generating sources differ greatly not only in terms of cost, but also reliability, dispatchability, productivity, usage, land use, facility longevity, transmission needs, and backup generation needs (see discussions here, here, and here). Promoting unreliable generating sources by shifting some of their costs from people’s rates to people’s taxes is deceptive, however, and so is hiding their costs by treating fuel costs as the only cost.

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