Friday, July 11, 2008

Congress ponders energy tax breaks

By Kent Hoover, ACBJ Wire Service

Congress’ decision not to put a price on carbon emissions this year probably won’t slow the growth of wind and solar power, but failure to extend tax breaks for these renewable energy sources could, experts say.

Legislation to cap carbon emissions and create a system for trading carbon credits failed to clear procedural hurdles in the Senate last month. Supporters contend the bill is necessary to reduce global warming, and pledge to try again next year, when a new president and a new Congress take office.

The private sector, however, already is betting on a lower-carbon future. Venture capitalists invested $2.2 billion in more than 200 clean technology deals in 2007, a 340 percent increase in funding in only two years. Clean technology includes energy efficiency as well as renewable energy. In the first quarter of 2008, VCs invested $625 million in clean technology companies, up 51 percent from the same quarter a year earlier, according to the National Venture Capital Association.

Wind power accounted for only 1 percent of the electricity generated by utilities last year, but was the second-largest source of new power generation, behind natural gas. The U.S. was the fastest-growing wind power market in the world for the third year in a row. The Department of Energy thinks wind power can account for 20 percent of the nation’s electricity by 2030.

Solar power barely registered on the nation’s electric meter last year, but it too is growing rapidly. The amount of photovoltaic technology deployed in California last year surpassed the previous 20 years combined, according to the Solar Energy Industries Association.

Nuclear energy also may be headed for a renaissance. Electricity generation by nuclear power plants hit an all-time high last year. Over the past year, utilities have filed nine applications with the Nuclear Regulatory Commission for construction and operating licenses for nuclear power plants.

Renewables need tax credit
All of these alternative sources of energy need help from Congress in order to flourish, however.

The wind and solar power industries need Congress to extend tax credits for production of electricity from renewable energy sources and investments in solar energy equipment. Those credits are set to expire at the end of this year. In 2004, when the credits last expired, wind power installations dropped 77 percent, according to the American Wind Energy Association.

“While 2008 is shaping up to be another great year, we could see a very different story in 2009 as uncertainty looms over investment in wind power projects and manufacturing due to continuing delay in extending the production tax credit,” said AWEA executive director Randall Swisher.

Expiration of the tax credits would cost the wind and solar industries $19 billion in lost investment and 116,000 in lost employment opportunities, according to a study conducted by Navigant Consulting for AWEA and the Solar Energy Research and Education Foundation.

The House passed legislation May 21 that would extend these tax credits, as well as other popular tax breaks such as a tax credit for businesses that perform research and development in the U.S. The House, however, offset the cost of extending these tax credits by delaying a tax break for U.S. businesses with foreign operations and by altering deferred compensation rules for managers of offshore partnerships.

The U.S. Chamber of Commerce wants the tax credits extended but opposes targeted tax increases on other businesses. Many Republicans in the Senate also oppose the revenue offsets in the House’s bill, contending Congress doesn’t need to pay for continuations of existing tax policy.

It is still unclear how the fight over the bill’s revenue offsets would be resolved.

Nukes need financing help
Nuclear power supporters, meanwhile, contend Congress should create more robust loan guarantees for construction of new nuclear power plants.

“Nuclear power is an essential part of any workable response to the climate change issue,” said John Rowe, president and CEO of Exelon Corp. and chairman of the Nuclear Energy Institute.

But new nuclear plants “clearly represent a financing challenge,” he said.

“Companies are not willing to bet the farm on the success or failure of a single project. We need to find new and innovative ways to share the risk.”

Nuclear power plants, however, are so costly they’re a bad investment compared with energy efficiency, renewable energy and onsite generation of electricity, said Amory Lovins, chairman and chief scientist at the Rocky Mountain Institute, an environmental organization based in Snowmass, Colo.

Wall Street, he said, is “not dumb enough to put any of its money in such a bad buy.”
 

Kent Hoover is Washington bureau chief for American City Business Journals.