Alternative Energy on Edge in U.S.

By Nichola Groom and Matt Daily

Anxiety is setting in among companies specializing in solar and wind power, and the investors that are backing them, as U.S. lawmakers delay the extension of tax credits deemed critical for the burgeoning renewable energy industry.

After several failed attempts by Congress to prolong alternative energy subsidies that are set to expire at the end of this year, companies are bracing for the worst by cutting jobs and trying to increase their sales in Europe, where generous government incentives are more certain.

“It certainly is affecting business,” said Mike Splinter, chief executive of Applied Materials, a maker of solar equipment.

“It’s a major issue for the solar industry,” Splinter said. “We’ve seen hundreds of cities and many states start to adopt their own rules, and we can’t pass even the simplest, smallest of incentives.”

The alternative energy industry still relies heavily on subsidies to make prices of renewable power competitive with electricity generated from coal and natural gas.

Several attempts to extend the tax credits have failed in recent months as lawmakers argue over how to pay for them. In February, the House of Representatives approved an extension by taking away billions of dollars in tax credits from big oil companies, but the measure was opposed by the Senate.

The latest bill includes about $20 billion of incentives that extend for one year the federal tax credit for companies that produce electricity from wind, and extend it for three years for power generated from biomass, geothermal, hydropower, landfill gas and solid waste. Businesses and homeowners would also be able to offset 30 percent of the cost of solar or fuel-cell equipment purchased before 2014 with a one-time tax credit.

The measure passed in the House last month, but the White House threatened to veto it.

Democrats have said election-year pressures and soaring gasoline prices will eventually lead to an extension of the subsidies. But that confidence is not shared by the industry.

Akeena Solar, a maker of solar power systems, recently cut 8 percent of its work force and warned of weaker demand this year, in part because of a pullback in large-scale projects that would not be completed by the end of the year.

Tom Werner, chief executive of SunPower, has said that his company was ready to move business into markets outside the United States, including Italy, to offset a potential policy-driven drop in demand in the United States.

The Solar Energy Solutions division of Sharp, the Japanese electronics company, is seeing a strong increase in demand as its clients scramble to finish projects before the U.S. tax credits expire, said Ron Kenedi, vice president of the division.

But he warned that projects would be halted if an extension of the credits did not materialize.

“When you have a stoppage it gets tough to invest, and you get people thinking about, ‘Maybe I shouldn’t do it now’ – and that’s not a good thing,” Kenedi said.

Uncertainty about the subsidies has contributed to the volatility in renewable energy stocks this year. Akeena’s shares, for instance, are down about 60 percent from the all-time high of $16.80 they reached in January.

Erik Olbeter, an analyst at Pacific Crest Securities, said in a research note on May 14 that failure to extend the tax credits soon would hurt companies with large exposures to the U.S. market, like the solar companies Akeena and SunPower and wind turbine manufacturers like Vestas Wind Systems of Denmark.

Still, at least one investor says he believes the industry will thrive no matter what happens to subsidies because they are just one factor underpinning the skyrocketing demand for renewable energy sources.

“The chief worry is not that demand may slow, the chief worry is how fast can they make their business grow,” said Kevin Landis, chief investment officer of Firsthand Funds, an investment firm based in San Jose, California. Firsthand Funds counts Akeena, Suntech Power Holdings and Sharp among its portfolio of renewable energy stocks.

“That’s the right kind of problem to have,” Landis added. “I wouldn’t shed any tears about end demand right now.”

Originally published by Reuters.

(c) 2008 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.