Best use of government energy subsidies in this energy market…

An article in the Wall Street Journal last week confirmed what I have been observing over the past couple months as I speak to people in the energy business.

Government subsidies alone may not be enough to overcome generation options which are not commercially viable.

In addition to the recent American Recovery and Reinvestment Act of 2009, production tax credits and investment tax credits for renewable energy have been in place since 1998. These credits have promoted alternative energy generation from wind and solar. Unfortunately this market sector is not showing healthy growth -- wind orders are down 50% from the first quarter last year and solar projects in California are down 60% vs. the first quarter of 2008.

Challenges include financing issues and a lower demand for electricity. But, a larger factor is the competition faced from more cost efficient sources of energy like gas generation.

With gas futures at $3.35 per MBTU alternative sources are becoming less attractive to fund. For example, T. Boone Pickens has just delayed his wind farm project until at least 2013.

Funding exciting new sectors of energy generation should continue, but, we need to make these new technologies commercially viable. Government subsidies need to be used to improve wind farm production costs, reduce photovoltaic costs and show a track record of economic production.

The next generation of these important renewable energy options must be economically solvent without government subsidies.

This brings me back to nuclear generation. The current interest in nuclear power is possible because in the last 20 years that energy sector has shown it can produce electricity safely and at the lowest cost. Yes, challenges exist like long term storage and initial construction costs, but the picture is clear – once these plants are built, not only are they are safe but they are one of the most economically viable energy sources out there.

For more about the challenges that clean energy is facing check out the WSJ article WSJ article and Money/CNN article on Wind Power money cnn.com.