February 05, 2010
Ken Silverstein
EnergyBiz Insider
Editor-in-Chief
American energy policy is a bit stop and go. While it's now centered on going green, the signals coming from Washington are always yellow and continually making participants hesitant to commit to long-term projects.
Relatively inexpensive hydrocarbons have fueled this country for decades. But spiraling prices along with concerns over air quality and dependence on foreign governments have forced policymakers to rethink this situation. That is what has propelled the renewable energy movement forward -- a condition that has led to the development of better and cheaper technologies, permitting those sustainable fuels a foothold in markets.
The renewable sector says that, generally, production costs have dropped 80 percent in 20 years. To do better would require a more proactive government and more certain policies, it adds. The U.S. Energy Information Administration, in fact, said that development would jump if tax credits are extended and expanded.
The Obama administration has taken the view that green energy is the path to a brighter economic future. The stimulus package, which passed in February 2009 and which was pushed as the central vehicle that would lift the economy out of recession, has billions set aside for clean technology. It has been about supplying much-needed funding to companies at a time when traditional debt and equity markets are hard to crack.
What's the goal? If it is to create more renewable energy projects, U.S. lawmakers must establish firmly rooted tax laws and not ones that fluctuate from year-to-year.
In the United States, for example, the production tax credit given to renewable energy projects is generally extended for a year or two, maybe three, at the most. And it's always done at the last minute -- often the bargaining chip that others will toss in the mix so as to secure the breaks for their favored industries. The problem is that this type of uncertainty gives developers pause. Projects are delayed. People are out of jobs as a result.
By contrast, Europe enacts long term incentives. Germany has a two-decade long inducement to build out its solar program while Japan's is 12 years.
The production tax credit, which gives a 2.1 cent credit for each kilowatt-hour of power generated by some green facilities for the first 10 years of operation, has been allowed to expire three times in the last decade. The stimulus program extended these benefits to 2012 for wind and to 2013 for wave energy. It goes further, though, than previous efforts by allowing investment tax credits or cash grants in lieu of such tax benefits.
"The industry is dependent on extension of tax credits," says Bill Holmes, partner in the energy practice of Stoel Rives. "It would be nice to have something the industry could count on. It would motivate investment in infrastructure. Otherwise, if you look at sunset, the enthusiasm is limited."
Obama's Theme
To be sure, the production credits are not without controversy. Critics say that developers go forth not because economics dictate it but because of the tax breaks. It's particularly true in the early years of operations. Besides the credit, they say that wind developers get accelerated depreciation and sharply reduced sales and property taxes.
In fact, much of the growth so far in the renewable energy sector is because of government-sponsored tax breaks and state renewable mandates. But that's exactly how to foster technologies that are in their infancy. Moreover, until banks and other lenders get it together, many economic analysts say that the federal government must step up.
In a review of the literature released by the Energy Information Administration, the more traditional forms of energy -- coal, natural gas and nuclear -- have received their respective cuts of the federal pie. In 2007, the renewable sector got more than any other energy classification at nearly $5 billion. But when added together, those others topped that amount by well over $1 billion.
By contrast, 10 years earlier, coal, natural gas and nuclear got about $3 billion in federal subsidies. Renewables received half that amount. For the record, total payouts for all energy forms equaled about $16.5 billion in 2007 and about $8.2 billion in 1997.
If the goal is to become more energy independent, then those in the renewable energy community insist that the national focus must be on the creation of a new generation of fuels that will inspire the next wave of economic expansion. This is Obama's theme.
And while utilities were initially remiss, most have now gotten the message and have begun renewable energy programs. In nearly all cases, they are either required by state law and/or are given financial incentives to do so. To be successful, they must attract the best and brightest and particularly as their own employee base gets older. As such, many are creating educational programs and apprenticeships that seek to train everyone from engineers to linesmen to be part of the green evolution.
It's the type of momentum that could be captured on a grander scale. "Obama should launch his own moon shot," writes New York Times columnist Tom Friedman. "What the country needs most now is not more government stimulus, but more stimulation. We need to get millions of American kids, not just the geniuses, excited about innovation and entrepreneurship again."
The American economy must be fed. But U.S. energy policy is about more than the development of abundant fossil fuels. It's about building for a sustainable future and the promotion of cleaner energy. Partisanship aside, the country needs a portfolio of fuel options that allow it to hedge risks with the traditional sources while at the same time, stand stronger environmentally and economically with the modern ones.
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