Obama Takes Credit for Fracking and Pushes for More Renewable Energy Spending
President Obama dedicated a substantial portion of his State of the Union address to the topic of energy, particularly renewable energy. Interestingly, he went to great lengths to point out the role of government investment in the technologies that lead to the present day natural gas fracking boom. He leveraged this point to push for continued government subsidies for renewable energy.
Ironically, the very success of these new drilling techniques has lead to the dramatic decline in natural gas prices and has made the economics of renewable energy more challenging. Many states generate a substantial portion of their electricity from the burning of natural gas. Electricity rates in Texas have been cut in half since 2008 much to the delight of Texas consumers. But the rock bottom price of natural gas will make it very difficult for wind to compete on cost for many years to come.
2011 was a dramatic year in American politics that saw little, if any, substantive accomplishments. Among many lingering questions is the future of wind energy subsidies. Federal subsidies for wind generated electricity have been around since 1992. However, these subsidies are set to expire at the end of 2012 leaving the industry facing uncertainty.
Along with the government subsidies that provide wind electricity producers 2.2cents per kWh, many states including Texas have passed renewable energy mandates which required that a certain amount of electricity come from renewable sources. All of this has allowed the wind industry and wind technology to thrive in recent years.
Wind is approaching so-called “cost parity” with more traditional methods of generating electricity. However, the difficult economic climate and the resulting budget crisis may spell the end, or at least a substantial reduction, of government subsidies for wind power. The question for the industry is whether or not the technology has come far enough so that electricity from wind can continue to be cost competitive. Wind is a renewable and clean source of energy. But free markets care more about cost than clean. As two decades of government subsidies come to an end wind energy will have to compete on cost if it is to survive.
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