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Imagine running a business where the state government mandates that your competitors automatically get a third of the market. On top of that, the federal government provides your competitors with generous tax credits. Even more frustrating, your product is more reliable. Rain or shine, you can meet customer demand, but if the weather is bad, both of your main competitors will undersupply the market.
Well, this is how today’s electricity markets function, in which heavily subsidized and mandated-by-government wind and solar plants get an advantage over more reliable coal and nuclear power plants.
From 2005 to 2015, the percentage of electricity generated in the United States by cheap and dependable coal declined from 50 percent to just 33 percent. During that same period, as fracking technology lowered the price of natural gas, its share of U.S. electricity generation rose from around 19 percent to nearly 33 percent. Wind went from less than 1 percent to just over 4 percent, while nuclear energy remained roughly constant, generating just under 20 percent of electricity — although recent plant closures have the industry concerned.
If all of these market changes occurred because innovation, such as fracking, and competition brought down prices and improved reliability for consumers, the country and the U.S. energy market would be much stronger. Unfortunately, not every change was driven by innovation or competition.
That’s why U.S. Department of Energy Secretary Rick Perry ordered a study to determine if federal policy is causing a decline in baseload sources of electricity, such as coal and nuclear — and what that means for the reliability of electric grid. This much-needed study was first announced in April and its findings will likely be published in the coming weeks.
But there can be little doubt that federal government energy subsidies stifle competition and tip the scales in favor of renewable energy sources. DOE data from 2013 showed that coal and natural gas received 0.05 cents in subsidies per kilowatt-hour of electricity, versus wind, which received 3.5 cents and solar which received 22 cents. The questions this study will answer is to what degree and how much do federal policies hurt consumers.
In a misguided effort to level the playing field, the owners of coal and nuclear power plants have recently tried to jump on the subsidy gravy train, lobbying state governments for their own handouts. Legislation creating subsidies for nuclear energy emerged in Illinois and New York last year, and Ohio’s legislature recently considered subsidies for two coal power plants. Similar bills have emerged across the country.
Clearly, the DOE’s study could not have come at a better time.
Government shouldn’t play favorites in the energy industry. The best way forward would be to end all energy subsidies and let different sources of energy truly compete on price, reliability, and impact.
After all, history has demonstrated that markets driven by innovation and consumer demand — not special interests and government bureaucrats — are ultimately best for the economy, the environment, and taxpayers.
Grant Kidwell is a senior policy analyst at Americans for Prosperity.
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