How green energy beats red ink

The faltering economy has hurt renewable energy firms. But there are steps the US can take to keep them afloat

Kate Sheppard
guardian.co.uk, Tuesday 10 February 2009 18.00 GMT

Like nearly every other part of the economy, the renewable energy industry has taken a hit in the past few months as the market staggers. And for an industry that's still in its fledgling stages, the news has been particularly grim.
On the same day last month that President Barack Obama visited an Ohio factory that manufactures nuts and bolts used to build wind turbines, the New York Times detailed major layoffs in the wind-energy industry. North Dakota-based DMI Industries, a wind-turbine manufacturer, has laid off 20% of its staff at three plants in Oklahoma, North Dakota and Ontario. Six months ago, the same company had announced plans to expand and become the "largest wind tower manufacturer in North America". The Danish wind-turbine company LM Glasfiber also announced 150 layoffs at its Arkansas plant, and the Spanish wind company Gamesa is laying off 180 employees at its eastern Pennsylvania plant.
While conservatives have criticised spending in the stimulus bill for renewable energy and other green projects, those concrete job losses in the industry should indicate that they are in need of assistance. The spending is even more important in the context of Obama's greater economic recovery vision, which includes a goal of making more than 75% of federal buildings and two million homes more energy efficient and doubling the nation's renewable energy production in three years. The stimulus could be the down payment on those goals, but there must be additional help to keep these industries afloat, and they must come at the federal and local level.
The House version of the economic recovery package has $28.4bn for energy efficiency and renewable energy programs. While the Senate stimulus is still subject to change, it would currently put $40bn for energy programmes like weatherising homes and developing advanced battery systems and a more efficient electrical grid.
But while direct spending on renewable projects is important to keeping clean energy alive through the recession, it's the tax programmes and the signals this bill could send to the market that will set determine the prospects for renewables over the next few years. Both bills include $13bn to extend tax credits for renewable energy production, which is a start.
The most important element in this bill is that it would make the tax credits for solar and wind energy refundable. The like most tax credits, they're not currently refundable, meaning that a producer only gets the money back if it makes a profit.
The problem is that with the market what it is today, not many renewable energy companies or the entities that back them are making money. Thus, the tax credits (the same much-beleaguered credits that Congress fought over all of last year before finally slipping them into the October bail-out of the financial markets) aren't helping at all.
The solar and wind industries would like the renewable tax credits to become refundable, which means the federal government would offer rebates even to companies that aren't making money. The House has already approved a measure in their stimulus bill to do just that, and it should be a relatively simple fix, since the government already committed to putting $17bn toward those tax credits last year.
The package would also increase by 20% the research expense credits for renewable energy, energy conservation, fuel cells, batteries, efficient transmission and distribution and carbon capture and sequestration. The alternative-fuel vehicle refuelling property credit was also increased from 30% to 50% through 2010, and the residential energy-efficiency and energy-improvements tax credit was raised from 10% to 30%. It also extends the credits for wind, biomass, geothermal, small irrigation, hydropower, landfill gas and ocean currents for three years, to the end of 2012. Solar got an eight-year extension of its tax credits last year, putting them on somewhat more assured footing.
The extensions are important, but they don't go far enough. Though longer than the piddly extensions they got last year, they're not nearly long enough to convince big-name, international renewable companies that they should set up shop in the United States. General Electric Energy's John Krenicki threatened last year that without a more permanent signal, "We'll go to Germany and China". Renewables advocates would like to see at least an eight-year assurance on all the credits, if not longer.
Another boost would come through the creation of a manufacturing tax credit, which could influence companies as they make plans about where to open manufacturing facilities. Renewables advocates would like a 30% refundable tax credit for the purchase of the manufacturing equipment used to produce the material and components for renewable technologies as well.
The other key move to help grow the renewables market would be to adjust the federal tax code to give states and localities more incentive to create their own renewable initiatives. Currently, if a business is making use of a local incentive, they're excluded from using the federal tax credits. This affects places like California, which last year passed a new law that made it possible for counties and cities to use general fund tax dollars or municipal bond money to create loan programmes for energy-related improvements.
Those programmes, already underway in Berkeley and in consideration in other cities, allow private citizens to finance solar photovoltaic systems over 20 years rather than having to pay upfront. But those benefiting from the local credit can't make use of the federal one. Groups like California's Vote Solar are lobbying for the federal government to eliminate the barrier to using the federal credits, which would incentivise the move to renewables even further and support municipalities that want to take initiative.
The other big fight for renewables this year will be on a Renewable Electricity Standard (RES), which would create the legal impetus to move toward clean energy. In the 110th Congress, an RES passed in the House as part of the 2007 energy bill but failed in the Senate. Already this year, there's a strong House bill on the table that calls for the US to draw a quarter of its energy from renewables by 2025. A Senate bill in the works would call for 20% to come from renewables by 2021.
So while the outlook for renewables is dismal right now, there are some relatively simple actions the federal government can take to support the industries. The stimulus will be a down payment, but there will have to be significant measures following up on that if renewables are to play a larger role in the energy portfolio.