NEW YORK (
) -- There's lots of talk about unfair, or at least excessive, support for the clean energy industry. According to the International Energy Agency (IEA), critics of clean energy are barking up the wrong tree.
Clean energy investors often express frustration over the criticism lodged against renewable energy companies for being reliant on government subsidies. It's rhetoric that often stems from a tried-and-true capitalist take: any business reliant on government handouts, as opposed to being able to stand on its own two feet -- and non subsidized balance sheet -- can't be taken seriously.
The frustration from clean energy investors often takes this form:
"Just how heavily subsidized is the traditional energy sector, including big oil and dirty coal companies?
The IEA finally offered clean energy advocates some answers to that question in it's latest
World Energy Outlook
report. The fact is the in the global scenario, fossil fuel consumption is subsidized to a much greater extent than clean energy.
The IEA estimates that fossil-fuel energy consumption subsidies reached $312 billion in 2010. The estimate includes gas, oil, coal and electricity generated from fossil fuel sources. The IEA data doesn't directly address handouts to oil, gas and coal companies, but it's another way of looking at the low prices for fossil fuel sources of energy as opposed to "high-priced" renewable energy.
Clean energy subsidies, on the other hand, reached a total of $57 billion in 2010.
The fossil fuel consumption subsidy estimate shows a declining trend, down from $558 billion in 2009, but the decline is a function of lower energy prices, and the IEA says it's high time for these subsidies to end.
The IEA report doesn't help U.S. investors to answer the question of how much its government is subsidizing oil, gas and coal companies. In fact, the U.S. doesn't even figure on the list of the nations providing support to the fossil fuel industry in the form of consumption subsidies.
Iran, Saudi Arabia, Russia, India and China are the top five nations, with Iran's near-$70 billion in annual fossil fuel subsidies at close to twice the level as the second and third place nations, Saudi Arabia and Russia.
The IEA predicts that renewable energy subsidies will eclipse the $200 billion mark by 2035.
While the IEA outlook shows renewable energy entering the mainstream, the agency believes the single-most important driver for the clean energy sector will be the elimination of fossil fuel consumption subsidies. "Getting the prices right, by phasing out fossil-fuel subsidies, is the single most effective measure to cut energy demand," the IEA says in its new report.
In the U.S. market, for example, recent wind projects have stalled as a result of rate payer agencies crying foul at the higher prices being passed along to the energy consumer by way of renewable energy project development. U.S. wind companies like
have suffered mightily during the wind market doldrums of 2009, and the American Wind Energy Association marks it as the worst recent year on record for the renewable industry.
In Germany, there is never-ending debate about whether solar power is helping to bring down the price of energy use overall, or simply cutting for itself a larger portion of the energy profits, and passing along a bigger solar energy bill, as a percentage of the total energy bill, to rate payers.
The IEA annual energy report also takes a crack at predicting the rise of China's green energy industry, megawatt by megawatt. The IEA estimates that by 2035, China's solar industry will be 85 GW and its wind market at 335 GW.
There's good reason for both China and India to move away from fossil fuel sources, at least in the case of oil. In 2009, India's oil import bill was close to 4% of GDP, while China's oil import bill was just short of 2% of GDP. India and China combined had a larger oil import bill as a percentage of GDP than the U.S., Europe and Japan combined.
A big part of that evolving Chinese clean energy story will be depend on solar companies like
, which have all received big support packages from their governments. China has doled out more than $15 billion in loan packages to these three companies this year.
With the need for more renewable energy subsidy as opposed to fossil fuel consumption support, one could use the IEA findings to go beyond questioning the same old attacks on renewable energy for being too expensive. The Obama administration recently decided to challenge in international trade court China's support for its clean energy industry, picking up on a petition filed by the United Steelworkers Union.
Meanwhile in the U.S., solar companies and wind companies are dreading the expiration this year of the Treasury's cash grant program for renewable energy projects.
, for example, started building a solar project that it hadn't even found a buyer for yet to make sure that the eventual buyer qualifies for the cash grant that expires at the end of December. Some more skeptical clean-energy experts fear that the expiration of the cash grant will have a big impact on the pace of solar and wind project development next year.
The IEA also notes that a "golden age of gas" is coming, and will lead to cheaper gas prices for consumers, particularly in Europe. There will be a rush to build gas-fired power plants at the expense of clean energy generation. In fact, the IEA report notes that big oil companies are scrambling to reposition themselves as major gas producers. Big oil may spend lots of advertising dollars on pretty adds with sunflowers and friendly cartoons of environmentally friendly algae, but the real money is still going to traditional energy.
On the same day as the IEA report release saying that gas, alongside fossil fuel subsidies, would continue to serve as an impediment to clean energy,
announced its $3.2 billion purchase of
, leading to a major rally among natural gas producers with M&A frenzy overtaking the energy sector.
The full IEA report can be found at: http://www.worldenergyoutlook.org.
-- Written by Eric Rosenbaum in New York.
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