How Politics Threatens to Kill the One Incentive U.S. Renewable Energy Needs Most
The U.S. renewable energy industry has experienced massive growth in the past year, in spite of a recession that dried up nearly every financing avenue, all because of a tax grant program inserted last year into the stimulus package. So, what will happen when the program expires three weeks from now? Thousands of lost jobs, according to the solar and wind industries during a teleconference call Wednesday.
As alarmist as that sounds, it's not untrue. The industry won't implode, but it will certainly stagnate. Solar industry has forecast that 2,000 megawatts of new solar capacity will be installed in 2011. That figure drops to about 800 megawatts if the grant program expires.
The grant program gives renewable energy project owners a direct payment for 30 percent of the total project cost, in lieu of taking an investment tax credit. It's provided $1.3 billion in funds to build 1,179 solar projects in the past year. These solar projects supported about 20,000 U.S. jobs alone, according to the Solar Energy Industries Association.
Politics is the problem here. The stimulus package is reviled by the GOP. And anything attached to it, including a successful clean energy grant program, won't get their support. A proposed one-year extension of the program was defeated by Congress over the weekend; and it wasn't included in the Obama-GOP tax package announced this week -- a deal viewed as the last hope for program.
It's worth understanding why the subsidy was inserted in the stimulus bill to begin with. And believe it or not, it started with the Bush Administration. A 30 percent solar investment tax credit was passed in 2005 and then extended in 2008 under the Bush administration.
Solar and other renewable energy companies that didn't have enough taxable income to use tax credits relied upon tax-equity investors like Lehman Brothers, JP Morgan, and Wachovia to buy their tax benefits. The banks would provide financing to the renewable energy companies and use those tax credits as a way to shelter other taxable income.
We all know what happened next. The credit crisis, bank failures and a shrinking pool of tax equity investors. The tax credit was converted into a direct payment grant and inserted into the stimulus package so companies could build renewable energy projects and create new clean energy jobs during a recession that saw lots of construction and manufacturing employees out of work.
The solar and wind industries are clearly worried that once grant program expires at the end of year, the financing won't be there to get new projects off the ground. Which is a remarkable thought, considering how much solar and wind capacity has been added in the U.S. Sure, if the program expires there will still be a 30 percent tax credit. But that means diddly to startups that don't have the profits to offset.
The looming deadline also has left companies like Sunpower, which booked $100 million worth of projects last month, scrambling to start construction before the end of the year so it can qualify for the grant program. All of this means there's a lot of activity right now, but it will likely plummet in 2011 if the grant program expires.
Photo from Flickr user Wayne National Forest, CC 2.0
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