Understanding cost in determining viability of alternative energy

Posted Aug. 24, 2011, at 4:05 p.m.

At a basic level, the word “alternative” simply means another choice without reference to quality or benefit.

To some, “alternative energy” is a misnomer originated at the onset of the first oil embargo in 1973 when promises associated with cost and performance of power systems like solar and wind were made long before their physical capabilities were known.

The purpose of this article is to begin understanding the economic viability of alternative energy choices.

Cost is defined in economic terms as “the value of money that has been used up to produce something, and hence is not available for use anymore.” We must be sure that cost is understood amidst the fog of grants, government subsidies, tax credits or any other means of paying for these projects beyond privately sourced dollars. Government funding only changes the source of the money to pay for alternative energy systems but not the “cost” of the product. We all pay the “cost” no matter what governmental scheme is used. It is important to understand the definition of cost in order to determine the economic viability of alternative energy purchase.

The state and federal governments are remiss for lacking a definition that quantifies “viable” alternative energy solutions (i.e., one-year payback) from impractical choices (i.e., 200-year payback), therefore the most impractical alternatives receive the same recognition and government benefits as the most practical choices at the detriment of losing the circulation of good money that could otherwise be more wisely invested on behalf of the taxpayers.

For instance a $16,500 wind turbine that can’t produce enough power to keep a 100-watt light bulb going for a full year presently receives a 30 percent federal tax credit of $5,000, a state tax credit and a rebate from Efficiency Maine which was collected from electricity rate payers.

Does that make sense?

Legislation typically includes, in boiler plate form, the phrase “alternatives such as solar, wind and geothermal” when reflecting on government incentives without regard for the issue of economic viability.

The only qualification to receive government incentives is that the project has to be an alternative such as solar, wind or geothermal. The incentive is received no matter how poor the economic return is on a given alternative choice.

Legislation defining viable alternative energy solutions should include cost legitimacy and assurances that government money is not used to support or encourage nonviable alternative energy funds at the expense of forgoing good investments.

In other words, there should be an economic litmus test, presently absent in legislation, to differentiate between viable and nonviable alternatives that fit within the framework of a legitimate definition for qualified alternative energy systems truly worthy of government incentives.

If our lawmakers learned about the fundamentals of energy before they set forth legislation for “alternative energy” incentives, they would be less likely to fund poor economic investments with money borrowed from China that will “hence not be available for use anymore” when its time to pay the loan back with interest.

James LaBrecque, technical adviser on energy to the governor, co-authored this piece with Joshua Hayward, who has worked as a financial strategist for 19 years and can be heard Monday mornings at 7 on the George Hale & Ric Tyler Show, 103.9 FM Bangor, 101.3 FM, Augusta.

Editor’s note: Submissions for business columns should be 650 – 850 words, and should be unique to the Bangor Daily News and pertinent to the Maine business community. Columns, a head-and-shoulder shot and a short bio can be sent to business@bangordailynews.com.

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