UH, ABOUT THOSE NEW ENERGY INCENTIVES…

The Washington Post reports solar and wind energy industry producers and investors are proceeding happily about their business now that the Senate has passed a housing bill within which is an extension of production tax credits (PTCs) vital to the wind energy industry and investment tax credits (ITCs) vital to the solar energy industry.

Maybe.

In politics and poker, if a bet looks like a sure thing, look again.

Here’s where it gets a little sticky. The Senate did not specify where in the federal budget the funds to cover the cost of the New Energy incentives ($6 billion over 10 years) will come from. And the measure must be ratified by the House of Representatives before it is official.

How is that a problem? After all, the House already passed the New Energy incentives three times in the last year, right?

Well, yes, but the House is committed to “Pay-Go”: It will not pass a measure without specifying funding for it. Each of the three times the House has approved the New Energy incentives in the last year, its bill has been rejected by the Senate because a group of recalcitrant Senators objected to how the House wanted to fund the tax breaks.

Now it's deja vu all over again. There is every reason to believe the House will once again specify funding and pass the incentives package. But then the measure must go back to the Senate for approval of the funding stipulation. And there is just no reason to believe the Senate will assent to the House’s funding proposal.

Until somebody figures out a satisfactory funding compromise, all New Energy development remains in limbo. Obvious question: How bad is limbo?

Congress let the wind energy industry’s PTCs lapse in 1999 and new installations dropped 93% in 2000. When the PTCs lapsed in 2001, new installations dropped 73% in 2002. Lapsed in 2003, dropped 77% in 2004.

The solar energy industry is no different, just a little worse. In February, Arizona Public Service Co. announced it would build a 280 megawatt solar power plant but now says it will not proceed if the federal ITC is not extended. Solar producers are already reporting that banks are telling companies not to start projects that won’t finish in 2008. Wind projects may at least continue in development on the assumption the production tax credit will be available by the time power producing starts.

What will Congress do? Not clear. Senator Baucus may draft all new legislation for a variety of tax incentives, including those for New Energy. The present bill is likely to go to a House-Senate conference committee where compromise could be found, although for now file that under "Hope Springs Eternal."

The majority in both houses favors passage of the incentives but a minority in the Senate must assent to funding the package or leaders in the House must agree to passing an unfunded measure. Against such political decisions, Senators and Representatives must consider the real-life urgency of New Energy and the building of the 21st century energy infrastructure.

One other small but relevant matter: The U.S. economy. Greg Wetstone, lobbyist, American Wind Energy Association (AWEA): "In the absence of an extension by Memorial Day, we're looking at 116,000 jobs at risk -- 76,000 in wind and 40,000 in solar -- and $19 billion in clean energy investment…We have a lot of friends in the House, and we need to make them understand that time is imperative."

Sign and submit a petition to register a complaint against putting the New Energy incentives in limbo at Support Renewable Energy Tax Credits

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Energy Boost; Solar and Wind Businesses Powered by Tax Breaks
Anita Huslin (w/Steven Mufson), April 14, 2008 (Washington Post)

WHO
Tony Clifford, president, Standard Solar; Senators Maria Cantwell (D-Wash.) and John Ensign (R-Nev.); Matt Cheney, chief executive, MMA Renewable Ventures; Chris Cook, senior vice president, SunEdison

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WHAT
Last week’s passage by the Senate of the New Energy incentives left one thing to be desired: Funding.

WHEN
- December 31, 2008: PTCs and ITCs will expire if not extended by both houses of Congress and assented to by the President.
- April 10: The Senate passed an unfunded extension of the New Energy incentives, including production tax credits (PTCs) vital to the wind energy industry and investment tax credits (ITCs) vital to the solar energy industry.
- 2007: Standard Solar tripled its revenue, raised new funds for expansion.
- The oil and gas industry has benefited from various federally funded incentives since at least the 1950s, when Congress passed what was then called the “golden gimmick.”
- The federal government has provided PTCs and ITCs to spur New Energy development since the 1970s.

It hasn't come to this yet. (click to enlarge)

WHERE
The New Energy incentives are presently in limbo between the Senate and the House of Representatives. Many are optimistic they will eventually arrive safely in the federal budget but there is presently no assurance of that.

WHY
- PTCs and ITCs are vital to the continuing growth of New Energy in exactly the same way that longstanding tax breaks and subsidies are vital to the fossil fuel and nuclear energy industries.
- The solar industry ITC provides a tax break on 30 cents of every dollar invested in solar installations.
- The wind industry PTC provides a tax break of 2 cents for every kilowatt-hour of wind energy produced.
- The Cantwell/Ensign legislation extends both tax breaks and provides other New Energy and energy Efficiency incentives.

There must be an answer somewhere. Up there? (click to enlarge)

QUOTES
- Tony Clifford, president of Standard Solar: "We just raised $3.5 million in new capital with the expectation that the incentives were going to get extended…If the [federal tax breaks] do not happen, that's going to be a significant disincentive for a lot of venture capital."
- Senator Maria Cantwell (D-Wash.), bill co-sponsor: "We are not only providing certainty to these industries, infusing money into our economy, but creating high-paying, long-term jobs to help Americans get through these tough economic times…"
- Matt Cheney, chief executive, MMA Renewable Ventures: "…there are a lot of [wind] turbines being sold well into 2009, 2010, 2011…But still, wind farm developers can't bridge any particular [subsidy] gap if it's a long one. And if it's not renewed at all, companies will start unraveling."
- Chris Cook, senior vice president, SunEdison: "If you lose 20 percent of the [tax break], first we'll look toward state incentives to cover the gap…If you hit a cap with that, we'll once again have to go back to the customer and ask if they will make up the difference. My guess would be . . . they'll say no, and the deal will fall apart."