What to Expect When You’re Expecting Clean Energy
With the election finally behind us, Americans are quickly returning to the work at hand — comedians are developing original material in the absence of the daily dish of gaffes, President Obama is negotiating with Congress to steer us away from the looming fiscal cliff, and renewable energy lobbyists are gearing up to keep incentives for renewables off the chopping block when Congress starts making the deep spending cuts we know are coming.
There are a handful of important opportunities and pitfalls facing the renewables industry in the months and years ahead, the most pressing of which is the extension of the Production Tax Credit (PTC) for wind power producers set to expire this year. The PTC gives tax breaks to owners of renewable energy projects based on how much power they produce and sell. It’s critical for the relatively young wind industry, because it helps them secure financing and sign purchase agreements with utilities. (Solar developers don’t benefit from the PTC because, until recently, they haven’t resold the electricity they generate.)
If Congress does not renew the PTC, investment in wind power could drop from $15.6 billion in 2012 to $5.5 billion next year, meaning the loss of 37,000 jobs, according to the Union for Concerned Scientists. Uncertainty about the PTC’s future has already resulted in hundreds of layoffs. With Obama’s support, wind industry observers believe the PTC is likely to be extended.
For solar developers, it’s all about the Investment Tax Credit (ITC) which is set to sunset in 2016. The ITC reduces taxes for owners of clean energy projects at the time the project starts generating electricity. For homeowners and businesses, this has meant a 30 percent tax credit during the tax year when they installed solar PV, solar water heaters, wind turbines or geothermal pumps. These credits have been around since 2005 but, in a post-Solyndra, post-fiscal cliff world, it’s likely they will be phased out. For more on the timeline for subsidies, there’s a good article in the Wall St. Journal that runs down the whole list and doesn’t even make any snide remarks about renewables.
If renewable energy tax credits are phased out too quickly, the renewables sector will shed thousands of jobs, and costs for renewable power will increase. Though with PV prices still coming down fast, the solar industry is likely to be cost-competitive even without the tax credit by 2016. Another threat to renewable’s ability to achieve grid parity is natural gas — depending on the outcome of efforts to regulate or ban fracking at the national and state levels, the price of natural gas relative to wind and solar will have a big impact on the growth of renewables.
Two more items high on the renewable industry wish list are a National Clean Energy Standard and Clean Energy Victory Bonds. Obama proposed a National Clean Energy Standard (basically a federal standardizing of state renewable portfolio standards) during his State of the Union address this year as an alternative to the failed cap and trade legislation. The concept has strong support in the Senate and on the part of voters who are, on average, willing to pay $162 higher electricity bills per year to support a national 80 percent clean energy standard. Does House Speaker Boehner’s conciliatory tone and purple tie mean he’ll instruct House Republicans not to block a clean energy standard? Stay tuned.
As for Clean Energy Victory Bonds, Treasury bonds that would raise $50 billion for clean energy projects, legislation was proposed this year and will certainly not pass through this Congress. It will likely be brought forward again next year.
And now for the sleeper… a carbon tax? Really? Here’s why it’s possible: Congress will be addressing the long term fiscal and debt conundrum, the end result of which will be a long list of spending cuts and a short list of tax increases, which may include corporate tax reform. Large, powerful corporations (other than fossil fuel companies) could conceivably throw their weight behind a tax on big polluters instead of an increase of their own corporate tax rate or the closing of beloved corporate tax loopholes. A carbon tax would be hard for most Republicans to swallow, especially if it is structured in a way that would cause their constituents more pain at the pump. And the fossil fuel industry, accustomed as it to receiving a $59 in subsidies for every $1 in campaign contributions and lobbying, will certainly have something to say about it. So don’t hold your breath, but don’t rule it out either.
Special thanks to Chadbourne & Parke LLC for hosting a post-election webinar from which much of the information in this post was derived.
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