Who benefits from renewable energy subsidies in Texas?
Texas is known for fiercely promoting its oil and gas industries, but it’s also the second largest producer of renewable energy in the country after California. In fact, more than a quarter of all wind power generated in the United States in 2021 was generated in Texas.
These projects benefit from a lucrative tax incentive program called Chapter 313. This incentive program expires on December 31, 2022, and the rush of applications for wind and solar energy projects to obtain incentives before the deadline offers a rare window into a notoriously opaque industry.
By reviewing applications and ownership documents, we were able to determine who actually builds and owns much of the country’s renewable energy, when and how those assets change hands, and who ultimately benefits from the tax incentives.
The results might surprise you. The majority of large-scale solar and wind power projects in Texas aren’t owned by renewable-focused companies — they’re owned by energy companies or utilities better known for fossil fuels, including some that have aggressively opposed renewable energy and climate policies in other states and nationally.
The policy implications of these findings are complex. While these subsidies can cause some energy companies to reduce their greenhouse gas emissions, they can also allow energy companies to continue polluting from existing fossil fuel assets while collecting the benefits of the subsidies.
A subsidy program that saves businesses billions
Chapter 313 limits the amount companies must pay in property taxes for schools if those companies build infrastructure and agree to create jobs. The Texas Legislature passed it in 2001 when a number of large corporations, including Intel and Boeing, were considering Texas as an investment location.
Businesses using this program can save billions of dollars in local property taxes. However, surveys have revealed high costs per job and minimal requirements for businesses. The state school funding system also suffered.
The program was not renewed, but companies that applied for the incentive before August 1, 2022 could grandfather their investments for 10 years of tax benefits. This has led to the rush of applications, including for wind and solar projects.
Who proposes renewable energy projects?
We reviewed 191 wind and solar project applications filed in 2022. If built, these projects would nearly double the number of renewable energy projects in Texas.
It is notoriously difficult to track owners of renewable energy projects in the United States, as most are structured as limited liability companies or LLCs. However, applying for incentives in Texas not only requires owner information, but also the signature of an individual representative of the owners. This provides insight into the impact that grants can have and who benefits.
We found that just over a third – 69 of the 191 proposed projects – are owned by renewable energy companies, such as Denmark’s Ørsted and Recurrent Energy, owned by Canadian Solar.
More than half of the proposals – 101 – were submitted by energy companies better known for oil and gas, or utilities with fossil fuel assets. This includes the renewable energy subsidiaries of oil supermajors such as Total and BP, and utility owners such as EDF, AES and Engie, all of which are major global players.
Some project requests came from investment groups such as DeShaw Group, Cardinal Investment Group and Horus Capital. Apex Clean Energy, a renewable energy subsidiary of leading investment manager Ares Management, frequently appeared in the nominations.
New owners take over
The proposed projects provide a snapshot of renewable energy project developers – but what happens after these projects are built?
To understand this, we also looked at all renewable energy projects completed in 2020 and 2021 that participated in the Chapter 313 incentive program.
To our surprise, almost half of the projects built in 2020 or 2021 had changed hands by 2022. Some were due to corporate acquisitions. Many other projects have been sold.
This changed the composition of the owners. While renewable energy companies owned about half of demand-stage projects, in 2022 two-thirds of projects were owned by utilities and energy companies with fossil fuel assets.
The original developers may have benefited from the first year or so of the tax relief, but the new owners are poised to reap the majority of the remaining years of the 10-year tax incentive.
The most common sales model was a renewable energy developer selling a project to an energy company or utility. For example, Duke Energy bought a solar project originally owned by Recurrent Energy, and Alpin Sun sold a solar project to BP.
We found that ownership by self-styled “venture capitalists” and other investors was rare before 2022. The lucrative, expiring incentive program likely led to a gold rush of applications, including by some companies with limited experience in renewable energy.
When Renewable Incentives Become Fossil Fuel Company Subsidies
Many owners benefiting from these subsidies have parent companies with high carbon emissions and a history of fighting climate policies.
For example, the company with the most renewable energy projects funded under Section 313 from 2020 to 2022 is NextEra. NextEra is also the parent company of Florida Power and Light, a utility that has campaigned against rooftop solar in Florida and sued to block hydroelectric imports into Massachusetts. In Texas, however, NextEra lobbied for the continuation of Chapter 313 incentives.
Other major energy companies on the list of owners include French companies Total Energy, BP, Duke Energy and Savion, which is owned by Shell.
The data suggests possible tensions within green energy politics.
Environmentalists have long advocated for federal and state subsidies for renewable energy as a way to tackle climate change, including in the climate-focused inflation bill currently in Congress.
However, as our analysis of the data shows, the owners who benefit from renewable energy incentives may in some cases be the same fossil fuel companies that actively oppose a green energy transition. Findings from a 2021 study, using data released by energy companies on earnings calls, also suggest that energy companies’ investments in renewable energy projects are often simply diversification strategies – they do not replace fossil fuels.
Our analysis is based on a program in Texas, but with the size of the renewable energy sector in Texas and the companies involved, it may offer insights for broader renewable energy policies.
The key to any grant program is to clearly articulate goals and track the success of their achievement. If the goal is to reduce greenhouse gas emissions, that means looking at who benefits and whether the subsidies actually lead to a transition from fossil fuels.
Our data is beginning to illuminate the answer.
This article is republished from The Conversation under a Creative Commons license. Read the original article.