SOLAR & WIND CALL FOR INCENTIVE FIX

"Refundability" is a new buzzword. According to the leaders of the solar and wind energy industries, it is the way to make incentives designed to spur New Energy development effective in these new, hard times.

New Energy’s best incentives in the last few years have come from the federal government in the form of production and investment tax credits. Big solar and wind installations are “capital-intensive” (require large cash commitments). A small business or home small wind or solar rooftop installation is a big cash commitment on the individual level. In either case, getting the money back in the form of a reduction in tax obligations (“tax credit”) is beneficial to those who are earning taxable profits.

Not many of the lending institutions that funded the big solar and wind installations during the last few years are making taxable profits these days. Neither are the people who were once committing to small wind or solar rooftop installations. So who needs tax credits? (Almost nobody.)

President-elect Obama identified the New Energy industries as key sources of potential economic growth and announced plans to invest a significant part of his stimulus package to double production over the coming 3 years. That will be essentially impossible to do through tax credit incentives, given the severely constrained credit of the current financial circumstances.

The 2008 demand for the tax credits would need to double in 2009, triple in 2010 and increase five times by 2011. Not likely when of 20 sources financing new solar projects in 2007, only 5 are still doing so and of 14 sources financing new wind projects in 2007 and 2008, only 6 are still doing so. In the wind industry alone, use of tax credits is expected to fall off by $2-to-$3 billion.

click to enlarge

Denise Bode, CEO, The American Wind Energy Association (AWEA): "We applaud President-elect Obama's aggressive goal…Wind energy is ready to do its part, but we face a major obstacle in this economic downturn…We can continue to grow through this difficult period only if the new administration and the 111th Congress act immediately to make renewable tax incentives refundable so they can work as they are intended to - even in the current financial context…"

Adding refundability would allow the federal government to make actual payments as part of the incentive package. It would further subsidize installations in a time of diminished taxable incomes and return to the tax credit concept the incentive value it was intended to have.

Refundability allows payment equivalent to the value of the tax credit and begins when the funded project starts generating power. Such a guaranteed return on investment would be particularly attractive to the many investors thought presently to be on the financial sidelines, awaiting a turn of events.

The New Energy industry leaders also suggest adding a “carry-back” provision to the tax credit package, allowing 2008 and 2009 credits to apply to taxable income over the last decade. This provision, too, would attract investors anticipating only a temporary fall off of their recent years' significant revenues.

Rhone Resch, President and CEO, Solar Energy Industries Association (SEIA): "Our industries have become powerful economic engines in the U.S., each year creating tens of thousands of new jobs and billions of dollars in economic investment. And we have the potential to put many thousands more Americans back to work. But due to the recession, projects are now being put on hold, factories are closing and workers face potential layoffs unless Congress refines the tax credits now so they work as originally intended…”

Is refundability something Congress will buy into? Despite refundability having in the past been applied to biofuels subsidies, Child and Dependent Care Tax Credits, the Earned Income Tax Credit and other tax credit incentives, it is so far not looking good for these adjustments to the New Energy incentives.

Bode and Resch say tax policy leaders in Congress contend granting refundability would “set a precedent” that would interfere with the design of future tax credit incentive programs. Congressional reluctance could also could have something to do with the fact that hard cash attracts customers and is likely to drive the cost of the New Energy incentive program up a billion dollars over 2 years.

Expect to read about political backroom brawls over refundability in early 2009.

click to enlarge

Solar, wind industries want rework of tax credit
Sandy Shore, January 9, 2009 (AP via Forbes)
and
Alternative energy producers seek stimulus funds
Jim Snyder, January 9, 2009 ( The Hill)
and
Wind, Solar Industry Leaders Urge Refundable Tax Incentives
January 9, 2009 (Environment News Service)
and
Solar And Wind Ready To Lead New Clean Energy Economy
January 9, 2009 (American Wind Energy Association)

WHO
The American Wind Energy Association (AWEA) (Denise Bode, CEO); The Solar Energy Industries Association (SEIA) (Rhone Resch, President and CEO)

WHAT
Refundability must be added to the Production tax credits (PTCs) and Investment tax credits (ITCs) approved by Congress as part of a package of benefits intended to nurture New Energy and Energy Efficiency development to the fit them to the circumstances of the present recession.

click to enlarge

WHEN
- The PTCs and ITCs were approved as part of the rescue package passed by Congress October 3, 2008.
- To double New Energy installed capacity in 3 years would require use of the ITCs and PTCs to double in 2009, triple in 2010 and increase five times over by 2011.
- The biofuels industry has received a little more than $30 billion in federal tax credits since 1978 and there were major long term mandates and subsidies in the 2007 energy bill (requiring 36 billion gallons of biofuels to be blended into gasoline by 2022 and giving refiners a blenders tax credit now at 45-to-51 cents/gallon) while the other New Energies were largely bypassed.

WHERE
- The slowdown impacts not just installation developers and manufacturers. It also hits installers, contracters, plumbers, electricians, roofers, maintenace and support businesses and trades.
- Aside from adjustments to the tax credits, the New Energy industries want Congress to mandate New Energy and Energy Efficiency installations in federal facilities and authorize power plant installations on federal lands.

WHY
- The wind and solar industries are facing slowed growth, postponed projects and worker layoffs for the first time in years.
- To further create value from adding refundability, the New Energy industries advocate providing the opportunity for investors to “carry-back” tax credit benefits earned in 2009 and 2010 and use them to offset taxable earnings over the last decade.
- In 2007 and 2008: 50+ wind energy manufacturing facilities opened, expanded or were announced in the U.S, creating 14,000 jobs, more than half in 2008; the solar energy industry created 15,000 jobs, bringing its total employment to over 80,000.
- 2008: The wind industry built a record 7,500 new megawatts in the U.S., reaching a total installed capacity of ~24,000 megawatts and the solar industry nearly doubled growth of solar PV installations.
- A Navigant Consulting 2008 study showed an effective tax credit incentive for the solar energy sector will create 440,000 permanent jobs and generate $325 billion in private investment by 2016.
- The Renewable Fuels Association has proposed $1 billion in short-term credit and $50 billion in loan guarantees for ethanol and biofuels.
- Examples of the fates of New Energy producers during this financial downturn: (1) VeraSun Energy Corp., the nation's No. 2 ethanol producer, filed for Chapter 11 bankruptcy protection; (2) Windmill blade maker LM Glasfiber will lay off 150+ employees and halt production at a Little Rock, Ark., plant; (3) Wind tower manufacturer DMI Industries will cut 20% of its work force at plants in West Fargo, N.D., Tulsa, Okla. and Fort Erie Ontario; (4) Evergreen Solar closed its Marlboro, Mass., pilot plant; (5) Energy entrepreneur T. Boone Pickens put wind farm plans on hold in Texas; (6) BP Solar cancelled plans for a $97 million expansion of its Frederick, Md., plant.

click to enlarge

QUOTES
- Rhone Resch, President and CEO, SEIA: "Companies have started laying off workers…Factories have been shuttered and many small businesses that entered into the solar industry in the last couple of years cannot get lines of credit to keep their businesses open."
- Denise Bode, CEO, AWEA: “We believe that step can keep wind power growing in this difficult economy…"
- Rhone Resch, President and CEO, SEIA: "Congress must use the stimulus bill to move us away from our backwards-looking, recession-burdened economy and toward a new era of recovery and prosperity with solar and wind leading the way…Our industries have become powerful economic engines in the U.S., each year creating tens of thousands of new jobs and billions of dollars in economic investment. And we have the potential to put many thousands more Americans back to work…But due to the recession, projects are now being put on hold, factories are closing and workers face potential layoffs unless Congress refines the tax credits now so they work as originally intended."
- Denise Bode, CEO, AWEA: "By working together to repair this critical policy, we can put Americans back to work, help achieve national energy security and start down a path that will make America a leader in renewable energy manufacturing and development," said Bode.
- Rhone Resch, President and CEO, SEIA: "The American public overwhelmingly supports renewable energy and these policies. Our elected leaders have an opportunity to support renewable energy in the stimulus bill that will keep these vitally important industries growing in the U.S…."