Congress -- Finally -- Gives Renewable Energy Breathing Room

Posted on October 3, 2008 by Dennis Pfaff

The renewable energy industry Friday finally got what it wanted from Congress, an extension of federal tax incentives considered vital to the future of wind, solar and other sources of power -- even though some parts of the industry seemed to be a little more equal than others.

On a 263-171 vote, the U.S. House approved a massive bailout of the country's financial system that also included the approximately $17 billion in renewable tax credits. The bill, which ended months of stalemate and uncertainty over renewable energy policy, went to President Bush, who immediately endorsed the legislation and signed it into law.

According to a summary of the bill's provisions, it treats major renewable sources significantly differently. It extends the current 30 percent investment tax credit for commercial solar installations, as well as similar tax breaks used by businesses and homeowners for eight years, until 2016. It also eliminates a $2,000 cap on residential solar installations. But the major incentive for wind, known as the production tax credit, got only a one-year extension.

In reacting to the bill's passage, Thelen LLP San Francisco energy partner Ellen L. Bastier (pictured), who has been representing alternative energy companies for more than 20 years, noted the differing treatment for wind and solar:

"Today the renewable energy industry, particularly solar, can exhale. The extension of these federal tax incentives should help the industry establish itself as a permanent part of the nation's energy picture. Obviously, there is still a lot more work to do regarding wind; the industry will have to go through this again in a matter of months."

Nevertheless, she said, the credits should boost the confidence of companies to make new investments, to put money into long-term research and development toward new technology and will help renewable energy compete with fossil fuels.

The wind industry would also clearly like to see a longer extension, of its tax credit, which goes to project owners based on the amount of electricity they produce. The credit now is about 2 cents per kilowatt hour. In a statement, Greg Wetstone, an official of its trade group, the American Wind Energy Association, praised the vote in favor of the credits, which he called "essential to the continued growth of wind energy." But he conceded more work lies ahead:

"We look forward to working next year with a new Congress and administration to fashion a serious long-term clean energy policy that increases domestic energy, increases our reliance on clean renewable energy, and creates jobs for Americans.” 

 

Julie Clendenin, a spokeswoman for the group, told Climate Law Update the wind industry wants to see a multi-year extension of the tax credits:

"We'll be starting early in the year on our policy agenda, with a more long-term focus so we don't have to do this every year."

Wind has enjoyed spectacular growth in recent years, according to the industry. And the federal government, which has set some lofty goals for the energy source, has noted that wind-generated electricity grew more than any other renewable source between 2005 and 2007.

Beyond wind, green technology in general also has been getting a lot of interest from venture capitalists, even in tough economic times.

Thelen's Bastier cited the broader context surrounding the tax credits:

"Renewable energy is one of the brightest spots in an otherwise challenging economy right now, so it's timely that the federal government has finally come around to renewing this crucial support. Of course, there are other factors that have been helping to promote the industry, including state renewable portfolio standards, the rising cost of oil and the prospect of a price on carbon emissions. These tax credits should be among the final factors required to really spark the renewable energy industry's success in coming years."

Similarly, the solar industry trade group, the Solar Energy Industries Association, noted the potential economic impact of the extension in its enthusiastic response to Congress' action. The group's statement predicted the extension of the credits would help create more than 400,000 jobs. Said the organization's president, Rhone Resch:

“This bill is a major step in our long journey toward energy independence and ensures that solar energy will be a significant part of America’s energy future. This long-term extension of the solar tax credits will create a domestic solar industry with hundreds of thousands of jobs while providing clean, affordable, carbon-free energy to millions of American families, businesses, and communities.”

The Edison Electric Institute, representing the electric utility industry, also praised the passage of the bill, with its "particularly crucial" energy incentives.

Perhaps ironically, one of the few down notes came from the environmental community, which, while embracing the renewable energy credits, criticized provisions supporting "dirty" energy sources, such as tar sands and deriving fuels from coal. Said Carl Pope, executive director of the Sierra Club, in a statement released by the organization:

"It is outrageous that every time Congress tries to pass clean energy measures, the allies of Big Oil and Coal demand a ransom. The Sierra Club strongly objected to these provisions but while we regret the addition of these environmentally harmful provisions to the package, we nevertheless urged members of Congress to renew the urgently needed extensions of tax incentives to support clean energy and energy efficiency technologies."

Additional energy-related provisions of the bill include incentives for conservation, plug-in electric vehicles, cellulosic biofuels and carbon capture. Among other things, it also gives boosts to small wind turbines, biomass facilities, marine wave and tidal energy and geothermal equipment.

--Dennis Pfaff of Thelen LLP

 
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Congress Bats Renewable Tax Breaks Back and Forth -- No End in Sight

Posted on September 26, 2008 by Dennis Pfaff

Congress continued its high-stakes game of tax policy ping-pong Friday and despite the passage of another bill appeared little closer to actually extending federal incentives for renewable energy.

The House took the latest swing at the issue, approving on a 257-166 vote a $60 billion tax relief bill (see summary) that included $15 billion for renewable energy, carbon capture, energy efficiency and conservation projects. However, the measure differed from a bill (see summary) that passed the Senate earlier in the week and it also faced a veto threat from President Bush. Almost immediately, a key Senate leader on the issue, Sen. Max Baucus, chairman of the Senate Finance Committee, all but declared the House measure dead on arrival.

Various reports, including stories from Bloomberg and Environmental Capital, published by the Wall Street Journal, cited the House's insistence on eliminating tax breaks elsewhere to pay for parts of the bill, including the non-energy provisions, as a major sticking point. Bush's veto threat, for instance, criticized the House version for "raising taxes on certain classes of Americans" and for separating out legislation to spare millions of Americans from paying billions of dollars under the Alternative Minimum Tax.

Energy provisions in the two bills were similar but not identical, according to a comparison of the measures' summaries. Both bills would extend for eight years investment tax credits for solar energy and give homeowners more of an incentive to install solar equipment. It would also give a one-year extension to production tax credits for wind. However, the House version would extend incentives for other forms of renewable energy for somewhat longer than the Senate bill, and it would give less toward carbon capture projects than would the Senate bill.

The House also would scrap the Senate bill's financial encouragement for refineries to process oil from shale and tar sands, a provision that had drawn fire from environmentalists.

Despite the controversy, Bloomberg reported that Baucus, a Montana Democrat, said he was confident of a compromise. Earlier in the day, however, the senator's statement asking the House to take up the Senate version had warned that the House bill "cannot pass the Senate and will assuredly draw a veto." 

House Speaker Nancy Pelosi issued her own statement saying it was the Senate that should act:

“I urge my colleagues in the Senate to seize the opportunity to enact this bill law, thus creating and saving jobs in a difficult economy, providing essential tax relief to families and businesses, and speeding our transition to a clean, renewable energy and energy efficient future.”

Rep. Charles Rangel, the chairman of the House Ways and Means Committee, and a chief backer of the House bill, also held fast, saying in his own statement that the Senate had already approved offsets contained in the measure:

“We’ve made sacrifices in this bill – we have removed controversial provisions that have drawn objections in the past. We have removed controversial offsets, instead closing loopholes and ending tax breaks that the Senate has already blessed. This bill makes sense. The only thing keeping this bill from the president’s desk is politics and I hope we can work together to jump that hurdle and I hope we can jump the hurdles and make this bill law.”  

Caught in the middle, the industry reacted cautiously to the developments Friday. The Solar Energy Industries Association's president Rhone Resch issued a statement praising Pelosi and Rangel for their "leadership and perseverance" on the issue. At the same time, Resch urged speedy action:

"We are calling on Congress to take immediate action to extend the tax credits that are supported by 94 percent of the public and the administration. We need to avoid further downturn in the renewable energy industries, Congress needs to act now."

--Dennis Pfaff of Thelen LLP   

Photo: Massachusetts home with rooftop solar system; Courtesy U.S. Department of Energy-National Renewable Energy Laboratory, Credit: groSolar
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Wind Turbine Market Set for Major Growth, New Report Predicts

Posted on September 2, 2008 by Dennis Pfaff

Analysts at a private research company are predicting that the market for wind turbines and components could experience remarkable growth in the next few years.

According to a statement from the company, BCC Research, its new report shows that the domestic market for turbine hardware will hit nearly $61 billion in 2013. That's a big jump from this year's estimated market value of $11.2 billion. The report itself is available for a fee.

The company said its data showed that Texas -- not surprisingly, given the fact the state is already the nation's top wind power state in terms of capacity -- had the biggest expenditure among the states. Texas' estimated $3 billion this year is likely to jump by several times over to $15.2 billion by 2013, according to the company. Growth in California could be even more remarkable, going from $676 million this year to as much as $17.1 billion in 2013.

Big jumps were also predicted for Colorado, Iowa, Minnesota and Washington.

Although the BCC statement did not include many details of its analysis -- or indicate whether it had looked at the sticky issue of extending federal tax credits for renewable energy  -- its predictions generally seemed compatible with other analyses showing the country with a healthy appetite for wind. For instance, as Climate Law Update reported earlier this spring, federal officials saw significant gains in the energy source over just a single year. Just a few weeks ago, another private market analysis showed a robust future for wind and not long before that the wind industry itself released an analysis showing wind spinning right along. 

The U.S. Department of Energy earlier this year forecast that wind could provide about 20 percent of the nation's energy by 2030. The report estimated that wind in 2008 would account for more than 1 percent of the nation's electricity supply. 

Among the factors favoring the wind industry cited in some of the reports was the presence of the federal tax incentives, as well as state renewables portfolio standards that provide major incentives for utilities to seek out wind and other alternative sources of power.

--Dennis Pfaff of Thelen

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Wind Poised for Record Expansion, Says Market Study

Posted on August 15, 2008 by Dennis Pfaff

Wind energy in the United States is poised for a record-setting surge, according to a new study released by a private firm analyzing global renewable energy markets.

In a statement, the Cambridge, Mass., outfit  Emerging Energy Research reported that installed wind capacity could exceed 150 gigawatts by 2020. The report itself is available for a fee.

By contrast, a report from the American Wind Energy Association that was the subject of a Climate Law Update dispatch estimated the nation's current capacity at about 19,500 megawatts (19.5 GW). Both reports estimated something in the vicinity of 8,000 megawatts of new capacity could be complete by the end of the year. 

Joshua Magee, policy director for the consulting firm said in the company's statement that energy market conditions are favoring wind:

"Wind is becoming increasingly competitive with conventional fossil fuel power generation options such as natural gas and coal. Given the substantial volatility of fossil fuel capital and operating costs in the past several years, wind is now one of the least-cost power generation options available to US utilities seeking new capacity."

Both the latest report and the earlier analysis by the wind association, however, noted the significant shadow over the renewable industry, the question of federal tax incentives. Lawmakers have repeatedly failed to renew credits for both wind and solar. Such incentives "remain crucial to the wind project revenue stream," said the new statement. Lawmakers are almost certain to attempt to revive some form of assistance for the industry, with House Speaker Nancy Pelosi just this week pledging to push legislation that would include alternative energy sources, according to the San Francisco Chronicle.  

Other factors boosting wind's fortunes, according to the firm, was the fact that more than half of the states now have renewables portfolio standards requiring utilities to deliver a minimum amount of power from such sources as wind and solar.

As if to underscore the demand for wind energy, the Los Angeles Department of Water and Power recently announced it had concluded an agreement for more than 72 megawatts of wind power from an Oregon facility now under construction.

The consulting firm's identified wind giant Texas continuing as a major player in the industry but other regions, including the Southwest, Midwest, West and Pacific Northwest growing as well. Expansion, however, will be heavily dependent on investment in new transmission, said Magee.

Another critical factor, the firm suggested, involves the ability of wind turbine equipment manufacturers to keep up with demand. The company said it expected that the turbine sales market would clime from an estimated $12 billion in 2008 to nearly $16 billion by 2015. With that kind of money on the table, the company said it's guaranteed that major financial institutions, power and infrastructure manufacturers and utilities and power producers will be participating "across the wind turbine value chain."

--Dennis Pfaff 
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Progress on California Renewables Threatened -- Tax Uncertainty Cited

Posted on August 2, 2008 by Dennis Pfaff

From California comes an ominous warning regarding renewable energy as Congress continues stumbling over extending tax breaks for wind, solar and other alternative power sources.

A new report from the California Public Utilities Commission warns that the state's big investor-owned utilities are in danger of not meeting ambitious renewables portfolio standards goals of providing 20 percent of their electricity via renewable means by 2010. Furthermore, the percentage of such juice in their mix has actually fallen in the last few years, failing to keep pace with load growth.

The document also suggests the state will have difficulty meeting an even more aggressive objective that would have utilities meeting one-third of customers' energy needs with renewable power by 2020. Such a goal has been promoted by state officials to help achieve greenhouse gas reductions required under California's AB 32 climate change law. 

Although the report mentions several factors posing risks to the 2010 goal, including transmission, financing and even conflicts over military radar, at the top of the list is the tax incentive question:

"Possible expiration of the federal Production and Investment Tax Credits is the number one source of risk to new [renewables portfolio standard] generation expected to come online by 2010. Unfortunately, this is also the area of risk over which the state of California has the least control."

A spokesman for Northern California's Pacific Gas and Electric Company, told the San Francisco Chronicle that renewal of the credits is "absolutely vital." But environmentalists also suggested to the paper they weren't alarmed by the report because of how quickly the state is trying to move, although one called the Congress failure so far on the tax issue "criminally irresponsible."

Regarding the even higher 33 percent standard down the line, the report laid out the challenge ahead, saying the state must look at its experience with the current objective and apply those lessons:

"Such an aggressive goal must be backed up by action and real progress, which means that California must effectively address the barriers hindering achievement of its 20 [percent] goal. Further, the magnitude of the 33 [percent renewables portfolio standard] implies costs, [greenhouse gas] emissions and new operating and planning challenges that are not yet fully understood."

The Chronicle, meanwhile on Saturday also reported on a new effort in Congress to try to break the current snarl over energy policy which has entangled the renewable incentives. The bill would allow some offshore drilling and also invest heavily in wind, solar and other alternatives, the paper reported. 

Not all is gloomy on the renewable front, however. Just last month, a CPUC report found that California so far this year has installed as much solar generating capacity on buildings as it did in all of 2006. 

--Dennis Pfaff

(Photo: U.S. Department of Energy-National Renewable Energy Laboratory; Credit: Robert Gough)
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IRS Determination Opens Up Possibility of New Renewable Transactions

Posted on July 1, 2008 by Dennis Pfaff

The Internal Revenue Service has issued Notice 2008-60, which provides significant new guidance regarding a key tax incentive for renewable energy that could facilitate additional transactions.

Published by the tax agency last week, the document defines sales to an "unrelated person." Under the tax laws, to claim Section 45 production tax credits on alternative energy facilities, a taxpayer must sell electricity to unrelated persons. In the new guidance, the IRS has allowed taxpayers to make sales to a "related person," if the power is then re-sold to an unrelated person.

In the language of the IRS document, which also applies to sales of refined coal and coal produced from Indian lands:

"Electricity or coal will be treated as sold to an unrelated person for these purposes if the ultimate purchaser of the electricity or coal is not related to the person that produces the electricity or coal. The requirement of a sale to an unrelated person will be treated as satisfied in these circumstances if the producer sells the electricity or coal to a related person for resale by the related person to a person that is not related to the producer."

The determination could be particularly important for utilities that must comply with renewables portfolio standards, such as those in California, where there's serious consideration being given to greatly boosting the requirements as part of the state's plan to fight greenhouse gas emissions. Those companies, who will be faced with the construction of a large number of new alternate energy facilities, may get to the point where limitations on the credits will limit their usefulness to the utilities.

Now, the facility can be owned by a partnership in which the utility is a partner, and the partnership can sell electricity to the utility for re-sale to the utility's customers. Sales by the partnership would qualify for the credit.

The credits to which the guidance applies range in value from 1-cent per kilowatt hour to 2.1 cents, depending on the type of facility. But they could be short-lived. Congress still has not broken an impasse that has kept the incentives from being extended beyond their expiration date at the end of this year, a subject that Climate Law Update has covered frequently, including this recent story. 

(Photo of IRS headquarters, Washington, D.C.; Wikipedia)

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Wind Tax Incentives More than Pay for Themelves, GE Study Says

Posted on June 18, 2008 by Dennis Pfaff

As Congress struggles with extending tax credit incentives for renewable energy, a new report surfaced Wednesday that showed, at least for wind power, that the government more than makes its money back by giving breaks to the industry.

The study from GE Energy Financial Services, a major player in wind, came a day after the U.S. Senate again failed to move forward on legislation that would keep existing tax credits for wind, solar and other renewable energy afloat beyond the end of the year. The same thing happened about a week ago, although a chief Senate backer of the incentives has pledged to keep up the fight for them.

Into this deadlock comes the new research findings showing that wind energy projects that began operating just last year pumped a net of $250 million into the federal treasury, after deducting the so-called production tax credit.

In addition, the study, which was accompanied by a press statement and a fact sheet, asserted the projects generated additional millions in state and local property and income taxes and put thousands of people to work both in construction jobs and to operate wind farms. Others, including environmentalists, have projected that renewable energy could be a big job-producer.

And, so as not to forget one of the underlying purposes behind such renewable projects, it said that the projects had helped avoid 10 million metric tons of carbon dioxide, a greenhouse gas, from going into the atmosphere.  

The study estimated that the federal credit, now at 2.1 cents per kilowatt hour, cost about $2.5 billion but generated $2.75 billion in revenues, including $1.9 billion on the project's income (figured on a "net present value" basis), as well as income taxes on workers' wages, taxes on suppliers' profits and taxes on lease payments and royalties to landowners.

Revenues from the projects themselves become "significant" when the tax credits run out after 10 years, the report said. It calculated direct taxes from the projects using a formula that also discounted for federal borrowing to finance the credits. The report also relied on an economic development model developed by the federal government.

There was little doubt the report, which also drew support from the American Council on Renewable Energy, was intended to put pressure on lawmakers to act soon on the tax legislation. In Wednesday's statement, Kevin Walsh, managing director of renewable energy at the GE unit sponsoring the report said:

“Congress is debating how to pay for the wind tax credits perhaps without realizing that, over time, wind farms pump more money into the U.S. Treasury and state and local coffers than they take out. Our study shows that the wind farms more than pay for themselves through existing tax revenues, so it’s time to renew the incentives immediately.” 

GE, of course, is no mere bystander when it comes to wind energy. The financial services unit has what it called a "growing portfolio" of more than $3 billion in assets in wind, solar, biomass, hydro and geothermal power. Wind makes up about 80 percent of that, according to the company. Climate Law Update also recently reported that an upbeat government assessment of wind power called another GE unit the dominant manufacturer of wind turbines in the United States market. The company also joined several hundred others in formally urging Congress last week to act on the tax credit extensions. 

Various reports, including a story in Forbes and another in the San Francisco Chronicle, have weighed in on the possible causes and consequences of the continuing impasse. The Financial Times, meanwhile, reported that the United States is poised to pass Germany as the world's leading wind power market but the publication also notes concerns over the uncertainty of the tax credit. Recently the U.S. Department of Energy issued a projection that wind could supply 20 percent of the country's energy needs by 2020.

(Photo: GE wind turbines in Iowa; Department of Energy/National Renewable Energy Laboratory; Credit: Todd Spink) 

  
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