January 26, 2012
Energy Tax Breaks Proposed, Despite Waning Support for Subsidies
Assisted by technological innovation and years of subsidies, the cost of wind and solar power has fallen sharply — so much so that the two industries say that they can sometimes deliver cleaner electricity at prices competitive with power made from fossil fuels.
Their efforts received a boost on Thursday from President Obama, who called for a package of tax credits for renewable power as part of a broader energy plan that he outlined while on a campaign swing through Nevada and Colorado.
But the lobbying by the wind and solar industries comes at a time when there is little enthusiasm for alternative-energy subsidies in Washington.
Overall concerns about the deficit are making lawmakers more skeptical about any new tax breaks for business in general. And taxpayer losses of more than half a billion dollars on Solyndra, a bankrupt maker of solar modules that defaulted on a federal loan, has tarnished the image of renewable power in particular.
“Most of the folks I think recognize that this is not a Solyndra effort here,” said Representative David G. Reichert, Republican of Washington, who introduced a bill to extend a renewable tax credit last year. Solyndra was financed under a now-expired program, part of the 2009stimulus package, that provided government loan guarantees for clean-energy projects, some of which administration officials expected to be risky.
The wind and solar companies argue that the tax breaks they are seeking are different. The tax credits can be taken only by businesses that are already up and running, so taxpayers are less likely to be stuck subsidizing a failing company, proponents say.
“This is a program that doesn’t pick winners or losers,” said Rhone Resch, president and chief executive of the Solar Energy Industries Association. “It’s hard to argue against a program like this that is creating jobs.”
Without the new breaks, industry executives warn, they will be forced to scale back production and eliminate jobs in a still-weak economy.
The American division of Iberdrola, a big Spanish producer of wind turbines, is already feeling the impending loss of one tax break that expires this year. “We’ve seen the prospects for new wind farms really fall off,” said Donald Furman, a senior vice president at Iberdrola Renewables, which announced this week that it was laying off 50 employees. “We’re not getting out of the business and we’re not in any financial trouble, but we are doing the prudent thing so that we don’t have issues.”
The tax break that Iberdrola and other wind companies rely on, called the production tax credit, has been in place since 1992 but after repeated extensions is now scheduled to expire at the end of 2012. It allows for a credit of 2.2 cents per kilowatt-hour of electricity generated for the first 10 years of a project’s operation, which the industry says is sometimes enough to eliminate the price difference between wind power and fossil fuels.
The Congressional Joint Committee on Taxation recently estimated that the production tax credit would cost the government $6.8 billion from 2011 to 2015 for projects in place before the end of this year.
The other tax break, which expired at the end of last year and was especially popular with solar companies, allows renewable energy companies to get 30 percent of the cost of a new project back as a cash grant once construction is complete. Without the cash grant program, a company can still take the 30 percent credit, but must spread the benefit over a period of years. The industry says the grant program is more effective because it encourages a broader range of private investors to help finance its projects.
As of early this year, the cash-grant program, known as the 1603 program, had awarded $1.76 billion for more than 22,000 solar projects, according to the Treasury Department.
Mr. Obama, who has been a steadfast supporter of clean-energy programs, has already begun making a case for new government investment in clean energy projects as a way to foster both energy independence and employment at a time when Capitol Hill evaluates new laws in terms of job creation as well as budget cost or savings.
“Because of federal investments, renewable energy use — sources like wind and solar — has nearly doubled,” Mr. Obama said at a stop at Buckley Air Force Base in Aurora, Colo., where he promoted the increasing use of renewable power by the military and repeated a call for Congress to approve the tax credits. “Thousands of Americans have jobs because of those efforts.”
Mr. Obama used his trip to press for increased use of liquid natural gas in transportation, appearing at a United Parcel Service center in Las Vegas that received a stimulus grant to support natural gas-fueled trucks. He also said that the Interior Department would open up about 38 million acres in the Gulf of Mexico to gas and oil exploration and development, selling leases in June. The Bureau of Ocean Energy Management estimates drilling there could yield one billion barrels of oil and four trillion cubic feet of natural gas.
According to the American Wind Energy Association, wind projects account for more than a third of all the new electric generation installed in recent years, while over the last six years, domestic wind turbine production has grown twelvefold, to more than 400 facilities in 43 states. A recent study by Navigant Consulting found that this year the industry would support 78,000 jobs, but that the number would fall to 41,000 in 2013 without an extension of the production tax credit.
Solar, too, is growing quickly in the United States. According to the Solar Energy Industries Association, more solar was installed in the third quarter of 2011 than in all of 2009 combined. A one-year extension of the 1603 tax-grant program would create an additional 37,000 solar industry jobs in 2012, according to a report by EuPD Research.
Lobbyists for both industries say the new tax breaks need to be passed quickly and are trying to get Congress to include them in a bill to extend the payroll tax cut.
That bill, like all tax cuts these days, has Congress at loggerheads. “But true performance-based incentives, where incentives are only provided when actual production occurs, seem to be maintaining their support,” said Robert Gramlich, senior vice president for public policy for the American Wind Energy Association.
How this will play out in Congress is anybody’s guess, lawmakers say. Mr. Reichert said the credits were not yet part of the negotiations over the payroll tax cut, which is due to expire at the end of February.
Republican leaders may look to revive the Keystone XL oil pipeline — as proposed, the pipeline would run 1,700 miles from oil sands in Canada to refineries on the Gulf Coast — as part of a compromise to approve the renewable energy credits, according to lobbyists and lawmakers involved in the discussions.
But there is a lot of ideological opposition to more tax credits, said Senator Jeff Bingaman, Democrat of New Mexico and the chairman of the Energy and Natural Resources Committee, who supports the extension.
“The rhetoric is that the government should get out of the way,” he said. “That gets translated into opposition to a lot of these things.”
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