Debate over renewable energy funding solutions

Renewable energy is quickly becoming the way forward for U.S. energy supply. The benefits of renewable energy, such as improved national and economic security, have wide-ranging appeal. But this technology is expensive, and politicians, utilities, analysts and manufacturers all have their own opinions about how to pay for it.

Tax credits have traditionally been a main tool in mitigating the high costs of renewable energy development. But the recent Production Tax Credit (PTC) extension is widely expected to be temporary solution.

This debate over renewable energy policy and funding is becoming increasingly divisive, as justifying cost-benefit and business value is not always easy. But finding a solution is an important step towards a more secure energy future. Renewble energy can enhance energy security, grow jobs, improve the environment and help spur more efficient energy technologies.

"Why wouldn't you pursue something that has all these attributes," said John Norris, a commissioner with the Federal Energy Regulatory Commission (FERC).

Norris was part of a recent American Council of Renewable Energy (ACORE) discussion on ways to elevate renewable energy policy to the next level.

The Commissioner said that external production costs as the biggest remaining barrier to renewable energy expansion. The good news, however, the price points of renewable energy technology are dropping.

 "The curve is just coming down dramatically," Norris said.

Effectiveness of tax credits

Tax credits have traditionally been a main tool in mitigating the high costs of renewable energy development. But the recent Production Tax Credit (PTC) extension is widely expected to be temporary solution. Even if it continued to be prolonged, tax credits are not ideal.

Douglas Holtz-Eakin, president of the American Action Forum, identified some other problems with tax credits. Specifically, he highlighted that they are uncoordinated, contribute to technical and budget inefficiencies, and do not offer the same subsidy levels for each renewable energy source.

"Decisions are being driven by the tax credits and not by business fundamentals. And, in the end, that means you are wasting the nation's scarce natural resources in the pursuit of a policy," he said, speaking at the ACORE Forum. "That always sets the policy up for attack."

Further, whenever taxpayer dollars are involved, people are going to take a close look any tax credit or incentive, often to the point of being hyper-critical and missing potential policy benefits.

"Whatever the merits of your policy goals, it's not a very survivable political strategy," Holtz-Eakin said.

As a result, the energy industry needs to find other ways to support the burgeoning renewable energy market. So what can take the place of tax credits in spurring renewable energy forward?

New financing solutions

Connecticut Senator Chris Coons last summer introduced legislation he hoped would extend Master Limited Partnerships (MLP) to wind, solar and biofuels projects. MLPs allow projects to raise money through the stock market while avoiding corporate income tax, and are currently available to oil, coal and natural gas projects.

Another popular idea is to transition financing away from federal sources.

"It's clear to us that we need smart policies going forward to break down barriers to the flow of capital from public markets," said David Danielson, assistant secretary for energy efficiency and renewable energy at the Department of Energy.

Outside of federal policy, global markets are beginning to embrace growing consumer support for renewable energy. This should be encouraging for the industry.

"As a policy matter, what the capital markets really care about are that [renewable energy] can compete on a cost basis with whatever rationalization or justification you want," said Jeffrey Holzschuch, chairman of the Institutional Securities Group at Morgan Stanley.

With a little creativity, even players in less ubiquitous industries like geothermal and hydropower should be able to find support for their projects.

"There are opportunities out there for every one of you in the market. You just have got to go get the right player," said Marc Gerken, president and CEO of American Municipal Power.

Cathy Snyder, vice president for Energy & Environment at Lockheed Martin, said that the financial support is hard to secure with renewable technology still perceived as volatile.

''Investors want to fund a sure thing. And often times [renewable energy projects] just aren't sure things, and that's the reason it's the government's role," she said.

As a solution, she argued that the Government should work to get mid-level technologies ready for big-time commercial use.

Taking all these ideas into account, federal policy is likely to remain the keystone of this discussion.

 "We should have a national energy policy," Norris urged.  "We are going to do this much less efficiently than we could be doing it if we had a coherent and aggressive and definitive -- maybe even if it's not exactly right -- national energy policy. That's the thing that makes me pull my hair out."