The Truth About Renewable Subsidies

The headlines will tell you that subsidies for renewable energy are outrageously high and like throwing money down the drain. But outside of some poor decisions (ahem, Solyndra), subsidies for renewable energy have been effective at lowering costs and require very little money from the government.

When you compare renewable subsidies to the growth stages of oil and gas, coal, nuclear energy, and biofuels, it becomes apparent that we're nowhere near the support we gave to those energy sources. In a study done by Nancy Pfund and Ben Healey for DBL Investors (link opens PDF), some interesting statistics emerge.

  • In its first 15 years, "nuclear subsidies accounted for more than 1% of the federal budget."
  • Over the same time frame, oil and gas subsidies accounted for half a percent of the budget.
  • Renewable energy currently gets about one-tenth of one percent in subsidies from the federal government.

This relatively paltry amount of funding has helped create an industry that now employs more than 93,500 workers and is growing at 66%. China's government has also provided a boost to renewables by giving cheap loans to manufacturers such as LDK Solar (NYS: LDK) , Trina Solar (NYS: TSL) , and JA Solar (NAS: JASO) . Those companies have pushed costs lower and helped make solar cost-competitive with other new sources of energy.

So when you hear about First Solar (NAS: FSLR) or SunPower (NAS: SPWRA) getting billions of dollars in loan guarantees, remember to keep those numbers in perspective. The federal government is helping push a nascent industry to a point where it can be cost competitive on its own with established sources of energy. It's been done with oil and gas, coal, and nuclear energy before, so we're not entering uncharted territory.

Level the playing field
None of this is to say that renewable energy should get more subsidies. Only to point out that the small amount of subsidies currently given to wind, solar, and other renewable sources are a drop in the bucket compared to energy sources we now take for granted.

One of government's responsibilities is to direct energy investment to the source that is in our best long-term interest. With costs falling rapidly, domestic jobs growing, and environmental impact minimal, why wouldn't the government help push renewable energy along?

Agree or disagree? Sound off in the comments section below.

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At the time this article was published Fool contributor Travis Hoium owns shares of First Solar and SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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