A May 30, 2015 story in the Los Angeles Times titled Elon Musk’s growing empire is fueled by $4.9 billion in government subsidies provides an enlightening look at the basis for Musk’s recent business success. His visionary — and generously subsidized — enterprises including Tesla, Solar City and SpaceX have resulted in his elevation to hero status among the technorati.
Here is the basic story line.
Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, together have benefited from an estimated $4.9 billion in government support, according to data compiled by The Times. The figure underscores a common theme running through his emerging empire: a public-private financing model underpinning long-shot start-ups.
“He definitely goes where there is government money,” said Dan Dolev, an analyst at Jefferies Equity Research. “That’s a great strategy, but the government will cut you off one day.”
The story provides plenty of details about the monetary flows from the government to Musk-led enterprises and also indicates how a fair portion of the money flows to people at the top end of the income ladder. It even provides some insights about the way that the government policies have forced Musk’s competitors in the automotive industry to write large checks to Tesla to purchase environmental credits awarded for each all-electric vehicle sold.
The Palo Alto company has also collected more than $517 million from competing automakers by selling environmental credits. In a regulatory system pioneered by California and adopted by nine other states, automakers must buy the credits if they fail to sell enough zero-emissions cars to meet mandates. The tally also includes some federal environmental credits.
Those credits are on top of the $7,500 federal tax credit and $2,500 California state tax credit given to buyers that can afford to purchase his $100,000 + automobiles — a group whose average household income is $320,000.
This tale caught my attention partially as a result of having been a long time listener of Leo Laporte’s This Week in Tech podcast. That weekly conversation program features between two and four invited “tech” journalists that spend a couple of hours sharing their reactions and opinions to news stories from the previous week.
In the past couple of years Musk and his enterprises have been discussed on that show at least as often as Apple and Tim Cook. With rare exceptions, the discussion takes on the tone of hero worship on the par of that accorded to the late Steve Jobs.
It’s worth discussing here because Musk’s Solar City and Tesla’s foray into the energy storage business are described by some people as evidence that there is a diminishing need for nuclear energy to address the challenges caused by CO2 and the more noxious waste products produced by the massive hydrocarbon enterprise that currently powers most of the industrial world.
Aside: Musk fans that see the combination of solar energy and storage as a killer app that obviates the need for nuclear overlook the fact that Musk favors nuclear energy as an important emission free power source. End Aside.
Please don’t misunderstand me. I admire some of the technology that has been created in Musk enterprises. Pay Pal is one of my more frequently used banking tools, and I think that the battery configuration for the Tesla is nothing short of a brilliant use of high volume production and exceptional control technology along with a keen understanding of the importance of weight distribution in an automobile.
However, Musk has been an enormous beneficiary of government largess and some of his enterprises would close their doors tomorrow if the subsidy spigot that supports them was turned down even a little bit.
One of the frequent charges thrown at nuclear energy is that it is a subsidy-driven enterprise that wouldn’t exist without a constant stream of payments from taxpayers. The reality is that nearly all monetary subsidies for nuclear energy in the United States ended about a quarter of a century ago. The only program that recent analysis can identify that provides a financial benefit for nuclear plant operators is somewhat favorable tax treatment for income generated by decommissioning funds investments. The value of that treatment in 2013 was computed to be about $1.1 billion spread over more than 100 plants with substantial assets in their decommissioning funds.
Most of the recent, highly publicized, programs that supposedly provide assistance to nuclear energy developments are little more than future promises. For example, there are no current production tax credits being paid to operators of emission free nuclear plants. The Energy Policy Act of 2005 included a tightly limited PTC for new nuclear plants, but those future payments won’t start until 2018 at the earliest.
Here are some other subtle limitations from Section 1306 of the Energy Policy Act of 2005.
- Unlike the PTC provided for wind and solar, there is no option to take a 30% investment tax credit instead of a series of payments stretched over a period of time.
- The nuclear PTC is fixed at 1.8 cents per kilowatt hour, unlike the wind and solar credit that was indexed for inflation in 2005 and now stands at 2.3 cents per kilowatt-hour.
- Only 6,000 MW of new nuclear plants could qualify for the credit, and only plants whose design was certified after December 31, 1993 were included. (This provision prevents the soon-to-be-completed Watts Bar 2 from being eligible.)
- The maximum annual payment for any individual plant is capped at $125 million, which means that a 1150 MWe AP-1000 operating at a 90% capacity factor will receive a PTC worth just 1.38 cents per kilowatt hour.
- In a year where an AP1000 doesn’t have a refueling outage and achieves a 100% CF, the PTC payment will amount to just 1.2 cents per kilowatt hour instead of the more frequently mentioned 1.8 cents.
- Even if there is room remaining under the 6,000 MWe limitation, qualifying plants must be placed in service before January 1, 2021.
In contrast to the nearly $5 billion that Elon Musk has collected from taxpayers — largely on the promise [dream?] that his enterprises will produce sustainable jobs for people engaged in the admirable enterprise of lowering CO2 emissions and reducing fossil fuel dependence — the widely touted Department of Energy small modular reactor (SMR) grant program is worth just $452 million over a six year period split between two grant awardees.
DOE SMR program grant recipients will still pay the federal government the full cost of obtaining an NRC license at the going rate of $274 per professional staff hour, with billable hours starting for all work after the introductory meeting. Unless operating before January 1, 2021, which is highly unlikely under the current regulatory construct, their systems will not qualify for any tax credits under current law.
One more thing worth mentioning. While doing some reading by the community pool yesterday I found the following relevant quote.
The finance minister was concerned that industry not earn too much money too early, if at all. “Privatization of profits” and “socialization of losses” were terms much used, even at that time. Schaffer insisted that industry have no voice beyond providing funding and that all negotiations be conducted strictly according to the principles of the federal finance ministry and the court of audit.
Source: Winnacker, K and Wirtz, K, Nuclear Energy in Germany, American Nuclear Society, 1975.
Note: For context, “even at that time” in the above quote refers to the first German nuclear program begun in 1957.