September 15, 2008

Renewable Energy May Dim If Tax Break Ends Credits Benefiting Industry Will Expire Unless Congress Acts


Washington -- Green is in these days. From large-scale wind farms to solar panels on homes, schools and businesses, the renewable- energy industry is experiencing rapid growth in Wisconsin and elsewhere.

But that growth could stall next year if lawmakers in Washington fail to extend key energy tax credits that have helped fuel a rise in wind and solar power across the country in recent years. With just two weeks to go before Congress' targeted adjournment, renewable-energy officials worry the tax credits will lapse amid election-year politics and partisan bickering.

Democrats want to extend the tax credits as part of major energy legislation being discussed in Congress. The bill's chances, however, are slim, with Republicans balking at proposals to make up the lost tax revenue by eliminating tax incentives the oil and gas industry enjoy.

Wisconsin utilities say that without the tax credits they would have a harder time meeting the state's renewable-energy standards or could be forced to raise electric rates to help pay for renewable- energy projects. Others say losing the credits could also put a damper on Wisconsin's growing renewable-energy industry, putting good jobs at risk.

"It's a huge concern," said Jack Daniels, a co-owner of Milwaukee- based Hot Water Products, which distributes solar panels to heat water in homes and business. "It will definitely affect our business if (the tax credits) go away."

Solar panels expanding

The company, which sells a variety of other hot water products, got into the solar panel business about 2 1/2 years ago. Solar panels accounted for about $1 million in sales for the company this year, up from $400,000 in 2007, Daniels said.

The company's solar panels can be found in homes and businesses across the country. Hot Water Products recently sold more than 100 panels to the Kalahari water park in Wisconsin Dells as the first part of a four-phase solar panel project, according to Daniels.

The company also has received interest from the fast-food chain Culver's to install solar panels in its new stores and has a solar- panel contract with a major nursing home chain. But Daniels says that part of his business could dry up if the tax credits expire, because many of his clients would no longer find the projects cost- effective.

Businesses can now save 30% of the cost of investing in solar power; homeowners can receive tax credits of up to $2,000 for installing solar panels and other renewable-energy equipment.

Tax break a factor

The tax credits for commercial renewable-energy production are even more generous, giving wind, solar, geothermal and other renewable energy a 1.9-cent per kilowatt-hour credit that makes them better able to compete with natural gas or coal-fired power plants.

In Wisconsin, three large-scale wind farms have begun operating this year in Fond du Lac and Dodge counties -- bringing the state's wind power capacity to about 327 megawatts, enough to power roughly 100,000 homes, according to the American Wind Energy Association.

The tax incentives have been just one factor in that growth. Two years ago, the state passed a law requiring that renewable energy make up 10% of the state's electricity production by 2015. But utility companies say the federal incentives are helping them meet the state's goals without dramatic rate increases. Roughly half of all states have enacted similar renewable-energy mandates in an effort to reduce greenhouse gases that cause global warming.

Alliant Energy, a Madison-based utility company, is now building a wind farm consisting of 41 wind turbines in the Fond du Lac area that will produce enough energy to power nearly 20,000 homes. Wisconsin Public Power Inc. is planning to buy the energy produced at another smaller wind farm that is going up in Dodge County.

Incentives necessary

Alliant, which provides electricity and natural gas to about 1.4 million customers in Wisconsin, Iowa and Minnesota, is investing more than $1 billion in wind projects in the three states, according to company spokesman Scott Reigstad. The loss of tax incentives would make those projects more expensive, he said.

"If the projects cost more, it shows up in the rates to our customers," he said.

We Energies, which began operating the state's largest wind farm in Fond du Lac County this year, also could have to scale back future projects without the federal tax incentives, said spokesman Barry McNulty.

"The economics are contingent upon the tax credits," he said. "It could jeopardize projects in Wisconsin."

Congress has allowed the production tax credits to lapse three times in the last decade. When they expired in 2004, investments in wind projects fell by 77% the following year, according to the American Wind Energy Association. The industry has recovered, but it's not without controversy, with critics saying the wind towers are an eyesore and endanger birds and bats.

Given the uncertainty over the tax credits, many businesses and homeowners are not waiting to see what lawmakers do.

"Right now, everyone is rushing to install their systems in the next few months," said Niels Wolter, who works with Focus on Energy, the state's energy efficiency and renewable-energy initiative. "It's kind of chaotic."

Longer horizon needed

Others are more optimistic.

Mark Wagner, a lobbyist for Johnson Controls, says Congress is likely to extend the tax credits for another year, either sometime before it adjourns or shortly after lawmakers return for a new session next year.

But he'd rather see lawmakers approve the tax credits beyond just one year so companies like his can plan longer-term projects. Johnson Controls, the state's largest company based on sales, has long been known for its building efficiency business, which generates about $12 billion in sales globally.

In 2007, the company launched a renewable-energy business, working with clients already retrofitting an office building or constructing a new factory to incorporate solar or other renewable- energy technology. Company officials could do much more if their customers knew they could benefit from the tax incentives for years to come.

"It would allow us to plan for projects that take more than a year to put in place," Wagner said. Without longer-term tax credits, he said, "it's like I don't have enough runway to get off the ground."

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