NEW ENERGY TAX CREDITS: SOLAR STOCKS DROP, BLUE DOGS HOWL

Solar stocks, reacting to news about the New Energy tax credits, were already dropping when the news broke that Congress rejected the rescue package. The news did no good for any sector of the market, much less solar stocks.

There was a moment some months back when news of toxic waste dumping by solar manufacturers in China set off a short panic in solar stocks. NewEnergyNews suggested taking a deep breath, waiting the day out and buying low at the end of it. Solar stocks came back the next day, as predicted. This is different.

Here’s the good news: It’s always darkest before the dawn.

There are going to be sessions Thursday and Friday, and maybe even over the weekend again. And there is every reason to think Congress will then pass a bailout package.

As for the New Energy tax credits: Staffers on both the Democratic and Republican sides of the House confided to NewEnergyNews that the market was telling the truth: There is no reason to believe lawmakers will put through a bill extending the New Energy tax credits before the November 4 election.

As reported here yesterday, House Democrats have brought forward revised versions of the legislation but the word on Capitol Hill is that H.R. 7201 and H.R. 7202 are not radically different than H.R. 6070, the House bill the Senate refused to consider in place of its bill, H.R. 6049. (See ENERGY TAX CREDITS – COMPROMISE OR R.I.P. UNTIL AFTER THE ELECTION?)

Both the House and Senate bills approved extension of the New Energy tax credits and both bodies passed their bills by large majorities. Extension is expected to fail for the 7th time in 18 months, however, because the House and the Senate cannot agree on how to fund extension in a way that will not force President Bush, who claims to want to approve extension, to veto.

The Senate passed its version of the extensions 93-2, along with a general package of revenue “pay-fors” on September 23. The House Democratic majority, pushed by the fiscally conservative Blue Dog faction, altered the Senate bill, taking very specific tax breaks away from the oil industry and very specific tax-havens away from the financial sector to create additional pay-fors, passed the new version 226-166, and sent it back for Senate approval September 27.

Click to learn more about the Blue Dog Coalition.

The House will not approve the Senate scheme for funding the tax credit extensions and the Senate will not approve the House plan.

Senator Max Baucus (D-Mont), Chairman, Senate Finance Committee: “The House and Senate just don’t talk to each other enough and work on trust and understanding…That’s what this really is. They’re in their little world. We’re in our little world, instead of just sitting down like adults, both sides, House and Senate and working out solutions.”

Maybe. Or maybe this is all part of the solution to a different problem, the election.

By handling the legislation like this, everybody who wants to can now say they voted for extending the New Energy tax credits. And it gives both parties something substantive to run on. Liberal Democrats will tell their base to actively support their candidates if they want New Energy. Blue Dog Democrats and Republicans will tell their base to actively support their candidates if they want New Energy but not new taxes.

That’s why they call this “the silly season.”

It’s also why solar stocks are likely to plummet farther, for longer, this time. Buying low this time is only for those who can afford to hold the stocks for some time, possibly until well into 2009, before seeing any significant upturn in value.

Last caveat on solar stocks: Those who can buy solar stocks as they bottom out, and hold them, will eventually be glad they did.

Why? Because while the fiscally conservative Blue Dog Democrats in the House are leading the pack now, there is every reason to believe a compromise can be reached after the election.

The current stalemate benefits all the players politically. After the election, however, the two parties are likely to hold a “lame duck” session, one last hurrah, according to hill insiders. Speaking off the record, one Congressional staffer told NewEnergyNews Congress is likely to suddenly realize the New Energy tax credits are far too important and far too non-controversial to NOT extend for next year.

Jim Cooper (D-Tenn), member House Blue Dog Coalition: “We’re all for the legislation, but it needs to be paid for…”

They have until December 31 to come to their senses and find a way through the partisan mire.

And, finally, even if this Congress decides to stonewall New Energy, the next Congress could extend the credits retroactively.

Either way, a lot more is now riding on the November 4 outcome.

From “the big picture is brighter” file: The fall of solar stocks was particularly pronounced because the major news of the day would otherwise have driven stock values higher.

Although there was disappointing news of a toxic spill at a silicon plant in China (no injuries, controlled quickly), Spain announced new feed-in tariff caps of 100 megawatts per quarter plus a bonus hundred megawatts. This constitutes 100 extra megawatts for this year and 100 more megawatts for 2009 than was expected, adding 15% to the total number of megawatts to be subsidized through 2010. It will mean bigger solar energy industry volume. Bigger volume drives costs down. Lower costs means more volume. Etc.

Implication: Beyond this contentious silly season, there could be a constellation of factors both in the U.S. and abroad conspiring to drive renewed growth.

Solar Stocks Clobbered; No ITC Extension Before Election
Eric Savitz, September 29, 2008 (Barron’s)
and
House Won’t Consider Catchall Tax Extenders Bill Passed by Senate
Richard Rubin (w/ Bart Jansen and Emily Ethridge), September 29, 2008 (CQ Politics)

WHO
The U.S. House of Representatives; The U.S. Senate; Leading stocks in the solar energy sector: First Solar, Evergreen Solar (ESLR), Energy Conversion Devices (ENER), Suntech, SunPower, JA Solar, Canadian Solar (CSIQ), Solarfun (SOLF), LDK Solar (LDK), MEMC Electronic Materials (WFR)

WHAT
Solar stocks, reacting to the likely failure of the solar energy industry’s investment tax credit (ITC) to be extended by Congress, were dropping ahead of the news that Congress rejected the financial markets bailout package.

H.R. 7060, The Renewable Energy and Job creation Tax Act of 2008 and the 2 more current revisions, H.R. 7201, The Energy Improvement and Extension Act of 2008 and H.R. 7202, Temporary Tax relief Act of 2008, are all expected to be ignored by Congress between now and the election, leaving the vital New Energy tax credits without extension.

View the full ENER chart at Wikinvest

WHEN
- One version of the tax credit extensions passed in the Senate September 23.
- Another version of the tax credit extensions passed in the House September 27.
- Solar stocks fell September 29 as it became apparent the tax credits would not win extension in the current session of Congress
- Congress expected to adjourn for the election as soon as the financial markets bailout package is settled.
- December 31: The existing New Energy tax credits expire.

WHERE
Until extended, the tax credits and the New Energy industries remain in limbo.

WHY
- First Solar (FSLR): Down $26.82, 12.95%
- Evergreen Solar (ESLR): Up 18 cents, 3.02%
- Energy Conversion Devices (ENER): Down $7.39, 12.2%
- Suntech (STP): Down $6.29, 16.35%
- SunPower (SPWR): Down $22.41, 26.95%
- JA Solar (JASO): Down $2.06, 16.68%
- Canadian Solar (CSIQ): Down $4.00, 17.57%
- Solarfun (SOLF): Down $1.90, 15.70%
- LDK Solar (LDK): Down $5.41, 15.05%
- MEMC Electronic Materials (WFR): Down $2.65, 9.08%

View the full SPWR chart at Wikinvest

- Research from Navigant Consulting shows the 8-year tax credit extension means 440,000 new solar industry jobs and a doubling of new solar capacity to ~630 megawatts in 2009.
- H.R. 7060:
(1) extends the production tax credit (PTC) for wind 1 year,
(2) extends the PTC for biomass, hydrokinetic and geothermal energies 2 years,
(3) extends the investment tax credit (ITC) for solar systems and small wind turbines 8 years,
(4) has an 8-year extension on energy efficiency building improvement tax credits,
(5) has tax benefits for buying electric vehicles (EVs), has tax benefits for producing cellulosic ethanol and advanced biodiesel,
(6) includes many of the same benefits (to veterans, teachers, Native Americans, hurricane victims, etc.) that were in the package passed by the Senate September 23,
(7) includes tax credits for “clean” coal development,
(8) extends major R&D tax credits,
(9) excludes tax credits to oil shale producers and coal-to-liquid producers,
(10) removes the controversial tax credit to New York City to help redevelop the World Trade Center zone.
- H.R. 7060 pay-fors:
(1) freezes an oil industry deduction on earnings (raising $4.9 billion over 10 years),
(2) changes the way stock sales are accounted for (raising $6.7 billion/10 years),
(3) extends existing taxes on unemployment income and the oil spill liability fund ($3.2 billion/10 years),
(4) redefines foreign oil earnings and expenses ($2.2 billion/10 years),
(5) postpones a cut in taxes on foreign interest earnings ($18.6 billion/10 years),
(6) closes a loophole on deferred compensation from tax haven corporations ($24.8 billion/10 years).

QUOTES
- Dan Ries, analyst, Collins Stewart: “[T]he ITC extension looks stalled until after the election and possibly until a new president is sworn in…[It is] a setback for the solar industry…”
- Senator Orrin G. Hatch (R-Utah): “That’s a tragedy because there was a lot of good stuff in there that really would help our industry at a time when they need it…”
- Mitch McConnell (R-Ky), Minority Leader, U.S. Senate: “The Senate is not going to pass those components in a different configuration.”
- Congressman Thomas M. Reynolds (R-NY): “The Democrats have failed to produce a result with tax extenders that are vitally important to our economy moving forward…They run the Senate. They run the House. And they couldn’t get it done.”
- Monica McGuire, executive secretary, R&D Credit Coalition: “The political virtue of compromise is absent in the waning days of the 110th Congress, marked in part by failure to restore and strengthen the R&D tax credit that is included in tax extenders legislation…”