NEW ENERGY IS IN THE STIMULUS BILL; FEED-IN TARIFFS OR RES RIGHT BEHIND?

Several possible policy measures to spur New Energy growth in the current struggling economy were summarized in a Wall Street Journal blog post reported yesterday in NewEnergyNews’ daily MORE NEWS feature.

This week, the most important of those policy measures – a series of abridgements to the incentives package the New Energy industries worked so hard to pass in 2008 – was passed by two crucial House of Representatives committees, Ways and Mean and Energy and Commerce.

The most important of the incentives abridgements in the New Energy section (Section V) of the American Recovery and Reinvestment Tax Act of 2009 alter the production tax credits (PTCs) and investment tax credits (ITCs) extended in last year’s bill.

Tax credits are useful to offset taxes on business profits. New Energy’s financing has in recent years come from lending institutions making handsome profits and in need of such tax offsets. In the last 1-to-2 years, the solar energy industry has lost 15 of its 20 sources of major financing and the wind power industry has lost 8 of its 14 sources. Of those institutions still lending to New Energy, few are still burdened in the current tax environment by profits. (See SOLAR & WIND CALL FOR INCENTIVE FIX)

As a result of the downturn, the wind industry expects to see up to half of its planned 2009 projects cancelled or postponed as well as major layoffs in the turbine-manufacturing sector.

House New Energy advocates have so far turned back the New Energy industries’ suggested fix of making the credits refundable.

Martin Vaughan, Congressional reporter, Dow Jones: “Congressional staff on the House Ways and Means and Senate Finance committees were wary of proposals to make the tax credits refundable, because refundable tax credits for businesses might be seen as corporate welfare, and there is little precedent for them.”

Instead, House leaders have increased the credits package and included a very important temporary grant program for New Energy projects. Grants big enough to fund projects would essentially eliminate energy producers’ presently fruitless search for partners in failing financial institutions.

House New Energy advocates have also so far turned back, as too expensive, the New Energy industries’ suggestion to make the credits retroactive for 10 years. In the bargaining process, the New Energy industries reportedly rejected a compromise 5-year retroactive proposal because recent hurricane losses provide adequate income-offsets in that period.

Other important amendments to the tax credit package include (1) a longer-term (3-yesar) extension of the PTC, and (2) the option for energy producers and financing partners to choose between the PTC and the ITC (based on whichever is more beneficial).

That the New Energy industries are happy to see these changes is clear in the letter from the American Wind Energy Association (AWEA) to Chairman Rangel of the Ways and Means Committee.

Chairman Rangel has long championed New Energy and is now exerting his influence in support of President Obama's goals. From NancyPelosi via YouTube.

Gregory Wetstone, Senior Director of Government and Public Affairs, AWEA: “I am writing on behalf of the more than 1,800 companies in the American Wind Energy Association (AWEA) to express our strong support for the “American Recovery and Reinvestment Tax Act of 2009”and to thank you for including critically important provisions in this bill to ensure that renewable energy continues to grow through the economic downtown…Your leadership and the Committee’s effort to help the renewable sector monetize tax incentives even in a down economy are critically important for the wind industry, as is the effort to provide stable long-term policies to support renewable energy.

“We are, in particular, grateful for the Committee’s proposal to restructure the tax incentives for renewable generators, including the ability for wind energy generators to elect an investment tax credit in lieu of the production tax credit and to participate in a grant program administered by the Department of Energy. AWEA is also deeply appreciative of the three-year extension of the production tax credit through 2012…”

The stimulus package is scheduled to move to the House Rules Committee January 23. Democratic leaders intend to keep it on track for passage by the mid-February Congressional holiday. President Obama is expected to sign the legislation as soon as Congress gets it to his desk.

House Republicans are presently doing everything they can to delay the process.

Coming from the grassroots supporters of New Energy is a completely different form of New Energy subsidy. Though not widely known in the U.S., European nations have been working for years to perfect the feed-in tariff (FiT) concept and it has served to drive the New Energy industries in those places to higher levels of achievement than so far seen in the U.S. despite the fact that Europe has less abundant New Energy resources.

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An FiT rewards those who build New Energy with a guaranteed rate, usually well above market value, over an extended period of time, usually 15-to-20 years, for all the power they feed into the grid. It is possibly the most intuitively obvious of the New Energy incentives. It seems only right that anyone who installs a wind turbine, solar panels or geothermal system should earn for what it produces. It would likely come as a surprise to many New Energy enthusiasts in the general public that in most parts of the U.S. there is no such payoff for power generated (above the amount of the producer’s individual bill).

The term “tariff” – common in Europe though carrying a slightly negative connotation in the U.S. – is used by power companies to describe the per-kilowatt-hour price of electricity.

The main difficulty with the FiT, ironically, is its great effectiveness. It drove the construction of New Energy in Europe so fast that supply shortages resulted and costs rose. To avoid this unintended consequence of the incentive, Germany added to their pioneering New Energy program 2 crucial amendments. One limits the amount of capacity to which the FiT applies, matching demand to the growth in manufacturing capacity to control for supply shortages. The other is a degression rate, by which the guaranteed above-market rate falls off year-by-year. This encourages early adoption but shifts long-term cost burdens from the subsidy to the economies of scale created by the FiT.

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The call for an FiT is now emerging all over the U.S. at the state and local levels. It is widely seen as an effective way to drive consumer demand. The California Energy Comission CEC), for example, is recommending the state’s Public Utilities Commission (CPUC) limit the FiT to systems of 20 megawatts or less. Such systems are not utility-sized but consumer- and small business-sized.

Hawaii, Wisconsin, Indiana and Michigan have also recently proposed Renewable Energy Tariffs and Minnesota is about to. (Renewable Energy Tariff is an alternative name for the FiT. See Paul Gipe’s invaluable Primers on Feed-in Tariffs, Advanced Renewable Tariffs, & Renewable Energy Payments)

The New York state Solar Energy Industries Association (NYSEIA) just joined the associations of Florida (FSEIA) and California (CalSEIA) in calling for their state legislatures to institute the FiT for those who install solar photovoltaic systems.

Paul Gipe, FiT advocate, Wind-Works: “NYSEIA…[called for] a minimum solar PV target of 2,000 MW and suggested that a target of 6,000 MW by 2020 could propel the state to the forefront of solar development not only in the United States but the world. The association argued that solar PV on just 0.5% of the land area could provide all the electricity consumed in the state…[NYSEIA] said that the rapid, large-scale development of solar PV with feed-in tariffs would drive down the cost of utility service for all customer classes while making the state a leader in job creation.”

As part of her aim to move the state of Hawaii almost entirely away from its dependence on imported fossil fuel energy, Governor Linda Lingle, HECO (the state’s biggest utility) and other state offices formed an agreement to institute a series of FiTs. The guiding principle behind the design and adoption of the Hawaii FiT program is simple: They will build it if it pays. The Governor, the utilities and the concerned state offices intend to use state coffers to remunerate citizens who build the kind of energy the state’s leaders and utilities have agreed they most want, New Energy.

From the agreement: “[The FiTs will] dramatically accelerate the addition of renewable energy from new sources…[and the FiTs] should be designed to cover the renewable energy producer's costs of energy production plus some reasonable profit."

There has so far been almost no discussion of a national FiT. Beyond the New Energy benefits in the stimulus bill, the Obama administration and the New Energy industries remain focused on a national Renewable Electricity Standard (RES). Such a national RES, already law in 28 states despite having been blocked by a recalcitrant conservative minority in Congress throughout the Bush years, would require the nations’ utilities to obtain 10% of their power from New Energy sources by 2012 and 25% by 2025.

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Letter from the American Wind Energy Association to Chairman Charles Rangel (D-NY) of the Ways and Means Committee of the House of Representatives
January 21, 2009 (American Wind Energy Association)
and
House Bill To Include Billions In Grants For Wind Projects
Martin Vaughan, January 15, 2009 (Dow Jones via CNN Money)
and
CEC Recommends Cost-Based Feed-in Tariff
Paul Gipe, January 5, 2009 (Wind-Works)
and
What's New
Paul Gipe, November 19, 2009 (Winbd-Works)

WHO
Committee on Ways and Means of the House of Representatives (Charles Rangel (D-NY), Chairman, and Dave Camp (R-Mich), Ranking Member); Committee on Energy and Commerce of the House of Representatives (Henry Waxman (D-Calif), Chairman, and Joe Barton (R-Texas), Ranking Member); Department of Energy (DOE); California Energy Comission CEC); California Public Utilities Commission (CPUC); Indiana State Representative Matt Pierce (D-Bloomington); Governor Linda Lingle, HECO (the state’s biggest utility) and other state offices; the American Wind Energy Association (AWEA) (Denise Bode, CEO; Gregory Wetstone, Senior Director of Government and Public Affairs)

WHAT
Evolving methods of creating financial support for New Energy include the top-down allocation of federal funds from The American Recovery and Reinvestment Plan stimulus package and the bottom-up grassroots movement to institute state and local feed-in tariffs.

Chairman Waxman has long championed New Energy and is now exerting his influence in support of President Obama's goals. From NancyPelosi via YouTube.

WHEN
- The production tax credits (PTCs) and investment tax credits (ITCs) were originally expanded and extended October 2, 2008, along with the passage of the first financial rescue package.
- President Obama has indicated he wants the current stimulus package passed and put to work as soon as possible.
- Speaker Pelosi and Senate Majority Leader Reid intend to see the package passed and sent to the President’s desk by the February 16 Congressional President’s Day break.
- Michigan’s FiT was passed in 2007.
- Indiana’s proposed FiT will be debated in 2009.
- The Hawaii FiTs are scheduled to go into effect in mid-2009.

WHERE
- The New Energy incentives as finalized by Congress will be administered by DOE.
- California, Indiana, Michigan, Minnesota, Wisconsin and Hawaii are in the process of legislating FiTs.
- Florida, California and New York solar energy associations have called for state legislative action on the FiT.
- FiTs have been successful in Germany, Spain and Italy. France and Greece are perfecting FiTs and there are grassroots movements calling for one in Canada and the UK.

WHY
- Federal funding allocated to New Energy in conjunction with the original financial rescue package are insufficient not in the amount but in the method of dispersal.
- Amendments apply to wind and solar energies as well as closed-loop biomass. open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy and marine renewable facilities; Energy Efficiency projects; E85, hydrogen, and natural gas fuel dispensing pumps; and R&D in fuel cells, battery technology, renewable energy, energy conservation technology, efficient transmission and distribution of electricity, and carbon capture and sequestration.
- Changes in the New Energy incentives made by the Ways and Means Committee include:
(1) 3-year extension of the PTC;
(2) Optional choice of the ITC instead of the PTC;
(3) Allowance of ITC and PTC use in conjunction with other federal state and local bonds;
(4) Removal of caps on ITCs for business small wind, solar water heating and geothermal systems;
(5) Increased funding for Clean Renewable Energy Bonds (“CREBs”) that go to New Energy projects;
(6) Increased funding for Energy Conservation Bonds that go to greenhouse gas cutting projects;
(7) Higher caps for Energy Efficiency program caps;
(8) Increased tax credits for businesses that install pumps to dispense E85 fuel, hydrogen, and natural gas;
(9) 20% higher credits for R&D in fuel cells, battery technology, renewable energy, energy conservation technology, efficient transmission and distribution of electricity, and carbon capture and sequestration.
- Extension of the PTC to 3 years gives New Energies stability important for growth.
- The CEC recommends using a cost-of-generation price to set the FiT.
- Extensive further information on feed-in tariffs at Electricity Feed Laws, Feed-in Tariffs, Advanced Renewable Tariffs, and Renewable Energy Payments

January 16, 2009: “We are committing to double the production of renewable energy in the next 3 years and to modernize more than 75% of federal buildings and improve the energy efficiency of more than 2 million American homes…That will put people to work, it will save us on our energy bills, it will free us from our dependence on foreign oil…” From VoiceOfAmericans2008/CNN via YouTube.

QUOTES
- John Gimigliano, principal in national tax accounting practices, KPMG: "I think this has potential to change the whole dynamic of the way these deals have been done…One question is, does the developer need the investment bank anymore to get the deal done? If I'm going to get a big slug of money to service the debt, I may not need an equity partner in this deal anymore."
- Denise Bode, CEO, AWEA: "We are grateful for the three-year extension of the production tax credit and the new DOE grant program to ensure that renewable tax credits have value…This bill puts us on the path to meet the president-elect's ambitious goals for clean energy."