Green Articles
Federal energy 'independence' act threatens to chill solar industry
by Emma Ritch : Silicon Valley/San Jose Business Journal : December 24, 2007
The newest energy policy from the federal government leaves solar out in the cold.
President Bush signed the Energy Independence and Security Act of 2007 on Dec. 19, establishing standards for higher fuel economy, renewable fuels, green building and energy efficiency that environmentalists have described as positive steps to stop the increase of carbon output in the U.S.
But the same act failed to address tax incentives that make alternative energies more economical, and failed to establish a minimum renewable energy component to U.S. utilities.
The tax credits for solar and wind energies are set to expire at the end of 2008. Congress has another year before the expiration to find the bipartisan support needed to override a promised presidential veto, and alternative-energy companies are hopeful that will happen but can't count on it.
That means manufacturers would start to decelerate production in June 2008 because of anticipated reductions in demand.
"Without the [federal tax incentives], you would see a pretty massive slowdown in the progress of the growth of the industry," says Mark McLanahan, vice president for solar project finance for MMA Renewable Ventures.
McLanahan notes that the industry would not collapse but that growth would be less rapid. His company would likely turn to less price-sensitive customers, such as utilities required by states to produce a minimum amount of alternative energy, to keep business afloat until the tax incentives are reinstated.
"Although the subsidies are out there, everyone in the industry is working at feverish pace to bring down the price of solar," McLanahan says. "The industry is extremely committed to getting ourselves to a point where we don't need subsidies."
McLanahan says that price point is three to five years away from reality and until then subsidies are essential for bridging the gap.
Arno Harris, CEO of San Francisco-based Recurrent Energy Inc., says his company has a "high level of confidence in the industry and on Capitol Hill that we'll get the tax package early next year."
The incentives are a critical part of supporting the development of the solar industry, he says. But the continuing investment in clean tech, including the Dec. 10 announcement of Morgan Stanley's $200 million investment in Recurrent over two years, shows that investors don't see the recent energy bill's omissions as a particular concern, he says.
"We've got great bipartisan support," Harris says.
Emily Baker, director of public policy and political advocacy for the National Venture Capital Association, says investors see what was included in the bill as positive steps for the clean tech industry, such as geothermal.
Also, the renewable fuel standard increases the market for emerging developments in ethanol, such as cellulosic, biomass, soy, algae and sugarcane. Another positive inclusion in the bill is fuel economy standards increasing to 35 miles per gallon by 2020, she says.
And government buildings will be required to increase energy efficiency, which could improve the market for forms of energy storage and solar, she says.
"I think this bill is pretty monumental, especially because of the renewable fuels. There are a lot of venture investments in the biofuels industry, whether cellulosic or biodiesel or anything in between. But, yes, we're very disappointed the tax incentives were stripped out of the bill," she says.
If the incentives expire without an extension, Congress is sure to re-examine the decision in 2009, she says.
"If you talk to lots of venture capitalists, they will agree those kinds of incentives help with the certainty of consumer behavior," she says. "What the National Venture Capital Association pushed for is long and certain government support for these programs. We believe the federal government has a role to play and should dramatically extend these incentives."