Apr 02 2008

A Case for Energy Tax Credits

One of the most frequent questions I get from reporters is whether or not the extension of the energy tax credits by the US federal government will negatively impact several of the renewable energy power purchasing agreements we've announced over the past six months? 

This question is sure to heat up soon with speculation that two U.S. senators, Maria Cantwell, D-Wash., and John Ensign, R-Nev., are preparing to introduce a new renewable energy tax credit proposal within a week. 

The Cantwell Ensign proposal would represent the fourth attempt at securing tax credits in the past few months. Two bills failed Senate approval in December and most recently, the Renewable Energy and Energy Conservation Act of 2008, which included a section securing renewable energy tax credits, was narrowly defeated in February. 

Much is at stake.  According to a report by the Prometheus Institute and Greentech Media, $30 billion worth of solar thermal plants have been announced in the past six months.  These include more than 1600 MW from agreements signed by PG&E. 

Back to the question on the impact of these credits on all of these projects.  The basic answer is yes, there will be a significant impact.  But it's unclear as to how much.  Given the climate change, national security, and economic benefits derived from greater adoption of renewable energy (see Editorial below), it's likely that these projects will still be built. But it may take longer, delaying economies of scale and keeping costs high relative to conventional dirtier sources of energy.  We believe that the time to act is now. 

Peter Darbee, PG&E Corp's Chairman, President, and CEO makes a very compelling case for the need to extend the energy tax credits in today's Energy Daily.  I've included below the text in its entirety.  I recognize that this makes today's blog entry extremely long, but given the importance of this subject and the need for urgent action, I am hoping that his words will motivate.  

 

Senate Must Renew Renewable Energy Tax Credits

Commentary By Peter Darbee

As the head of one of America's largest electric and gas utilities, I like other utility executives have to consider the energy future that lies ahead for our company, our customers and the country. The more I talk with experts about the global warming crisis, the more I am convinced the problem is real and needs to be addressed immediately.

Across the country, we are seeing hotter average temperatures, more extreme weather and frequent droughts. In my home state of California, the predicted loss of snow pack will mean less hydropower as we face soaring demand for electricity during the hot summer months.

But if controlling greenhouse gas emissions is essential, the question on everyone's mind is how we can accomplish that without hurting our economy.

Congress has an immediate opportunity to take a step in that direction by supporting efforts to develop competitive new sources of renewable power that will not only reduce our carbon footprint, but also create new green jobs to boost our economy.

By providing tax incentives for renewable power as it did for new nuclear power development, Congress can help make the case for stripping carbon out of our energy supplies as strongly in our economic self-interest as it is a global environmental imperative.

In February, the House of Representatives passed a timely measure to prevent the expiration of production and investment tax credits for renewable power at the end of this year. In addition to extending the credits for several years, the House approach supports important energy efficiency programs, encourages investment in new technology such as "smart meters," the cornerstone of an advanced electric grid, and provides incentives for plug-in electric vehicles that could dramatically reduce our dependence on foreign oil.

Over the next couple of weeks, the U.S. Senate will have the opportunity to vote on similar legislation to extend or kill vital tax credits that nurture the growing wind, geothermal and solar power industries.

But partisan disputes in the Senate over how to fund these credits, if unresolved, could deal a devastating blow to the renewables industry.

A recent study by Navigant Consulting found that failing to renew the credits could cost more than 116,000 U.S. jobs and nearly $19 billion in annual U.S. investment.

These losses would be felt across the country, in states such as California, Colorado, Illinois, Iowa, Minnesota, North Dakota, Oklahoma, Oregon, Pennsylvania, Texas and Washington.

Those who wonder why Texas should care about supporting alternatives to oil and gas don't realize that it now harbors a quarter of all wind power capacity in the United States, and has tremendous potential for further growth.

Although the Navigant study was commissioned by the wind and solar industries, our company's experience as a major buyer of renewable energy attests to its general conclusions. Already we see a marked slowdown in new renewables projects slated for 2009 and beyond, as developers wait to see whether Congress will act.

Navigant's conclusions are also supported by the nation's experience with on-again, off-again federal support for renewables.

The expiration of production tax credits in 2004, for example, caused a 77 percent drop in installed wind capacity that year relative to 2003.

Last year, with credits in place, the wind industry enjoyed its best year ever, growing 45 percent. Developers installed more than 5,000 megawatts of new generating capacity, more than twice the previous record and enough to power 1.5 million homes.

The incentives have also helped drive tremendous growth of the solar industry, albeit from a much smaller base. Our utility alone contracted for more than 700 megawatts (MW) of power from solar developers last year. As scale grows and technology advances, the cost of solar photovoltaics is plummeting and the cost of solar thermal power is approaching parity with gas-fired generation.

This tremendous spurt of innovation and development could be squelched just when the national economy, buffeted by the housing collapse and record oil prices, needs all the support it can get.

Promoting renewable electric power, combined with incentives for gas-sipping plug-in hybrid electric vehicles, could drastically reduce both the carbon footprint of American transportation and our need for oil imports.

Senate support of tax incentives for new renewable development is an affordable first step toward reducing our nation's carbon emissions. And with the fate of several promising industries and tens of thousands of jobs at stake, it is a measure we can't afford not to take.

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