Clean Energy Gets Kick-Start
Laura Peters, Editor-In-Chief -- Semiconductor International, 10/1/2008
About a week before this issue of SI went to print, the U.S. Congress was deciding whether it would renew a renewable energy investment tax credit (ITC), set to expire at the end of the year. At the same time, an economic crisis, centered around cash-strapped banks and a depressed housing industry, drove the government to action. By the time you read this, among other things, you will know whether the renewable energy ITC passed.
The debate was not over whether the clean energy credit should be extended, but how it would be paid for. In the past, such credits were most often paid for by limiting tax breaks for oil companies. Congressmen and women who believe in a “pay as you go” approach to deficit spending don't want to offer credits without reducing spending. If passed this year, oil and gas companies will get fewer tax breaks to allow the renewable energy tax credits.
The bill, which has been rejected by the Senate eight times and has changed form over the course of the year, is now worth $18B in ITCs for clean energy projects and reduced energy consumption. It would now provide an eight-year extension for investment tax credits for solar energy projects. The solar portion applies to commercial and residential installations and, importantly, it lifts the $2000 cap on residential projects. Homeowners get a 30% tax credit for installing solar equipment. Businesses get a 30% tax credit for investing in solar, wind, geothermal and ocean thermal energy equipment, which is extended over the next eight years. Purchasers of plug-in electric vehicles could deduct $2500-$7500, depending on battery capacity.
When it comes to energy efficiency, homeowners could claim a tax credit of up to 10% of the cost of qualified energy efficiency improvements, including insulation, replacement windows, and heating and cooling equipment.
All this could be compared with the economic situation should the renewable energy tax credits be allowed to expire. This is exactly what Navigant Consulting (Burlington, Mass.) studied in a mid-September report, “Economic Impact of the ITC,” which was prepared for the Solar Energy Research and Education Foundation (Washington, D.C.). The study compared likely economic benefit associated with the current ITC (with eight year extension) to a reduced ITC (end of 2008 expiration), which decreases the commercial tax credit to 10% and eliminates the residential tax credit.
The new bill, according to Navigant, could drive an additional 19 GW of solar energy installations, create 276,000 jobs, and spur investment of $232B from 2009 through 2016. The study included solar energy using photovoltaics (PV), solar water heating, and concentrating solar power (CSP) approaches. One key assumption is the full eight-year extension, as opposed to several one-year or two-year extensions. As stated in the report, “Short-term extensions do not provide stable support for long-term capital investments to increase manufacturing or complete utility-scale solar power plants, and typically lead to 'boom-bust' cycles of annual installations, as seen in the U.S. wind industry.”
With the current ITC, Navigant estimates that by 2016, 28 GW of cumulative new solar installations will be in place vs. 9 GW with the reduced ITC. Investment levels over the eight years rises from $93B to $325B, which include direct investment (mostly manufacturing, construction and installation), indirect investment (their suppliers) and induced investment (customers with increased purchasing power). Navigant estimated that 440,000 jobs would be created in the eight-year timeframe vs. 163,000 with the reduced ITC.
So, despite the potential for clean energy to stimulate the economy, create jobs and reduce dependence on oil, as I was wrapping up this editorial, it appeared that this ITC was doomed to expire. The Senate and House were still haggling over their different versions of the bill when the time came for them to adjourn and begin their fall campaigns. Then, at the last minute, the $18B tax incentives for renewable energy got rolled up into the $700B Emergency Economic Stabilization Act of 2008.
My bet is that the big stabilization plan will pass — what will happen to the economy, I cannot say. But at least for the next eight years, clean energy companies and their suppliers will be able to go forward with building investments without having to wait with bated breath to see if Congress will support growth in this promising sector or just argue back and forth until time runs out.
