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Tax Credits Underscore Need for Renewable Energy Subsidies

October 13, 2008

By Hagadone, Zach

Part of more than $100 billion in tax breaks squirreled away in Congress’ $700 billion financial rescue bill are two measures worth a combined $7.7 billion that are the life’s-blood of the country’s – and Idaho’s – renewable energy industry.

The Production Tax Credit gives wind, geothermal, biomass and other renewable power generators a one-year, 30 percent break on construction costs, and the Incentive Tax Credit provides homeowners and commercial users with an eight-year, 30 percent rebate on the installation of solar power systems.

Without the credits, set to expire Dec. 31, industry experts like renewable energy technology advisory group Navigant Consulting predicted investment in wind and solar, specifically, would fall from $26.6 billion to $7 billion by 2009.

“Over the past year, renewable energy has been a major source of economic growth in a troubled economy. Now, as our industries face major challenges related to the financial crisis, prompt Congressional action to extend renewable energy tax credits is more important than ever,” a consortium of renewable energy leaders wrote in a statement released by the American Wind Energy Association.

For Renewable Energy Resources, a company that provides wind, solar and geoexchange systems for businesses and homeowners throughout Idaho, the Incentive Tax Credit means the difference between a brisk trade in solar energy and a hiring freeze and re- focusing the business on other areas.

“With the expiration of the credits, I think homeowners just would absolutely not invest in this,” said Jeff Burns, director of business development at RER. “If you’re thinking about putting solar on your house, and if you do it by the end of the year you get a check back from the feds, you’re a lot more likely to go ahead with it.”

Burns said solar photovoltaic panels cost an average of $10,000 per kilowatt to install, with most residential customers putting up between two and three kilowatts. Commercial customers average about three to five kilowatts.

In business for about five years, RER has installed 10 to 12 such systems, but without the incentive credit in place that number likely wouldn’t increase much.

“In terms of interest and demand, that hasn’t slowed down at all,” he said. “If you took it from the perspective of phones ringing and emails coming in people are extremely interested, but when you get down to how much this stuff costs they drop off like flies.”

The Production Tax Credit is equally important to Idaho’s growing wind industry. Ranked 13th in the nation for wind energy potential by the American Wind Energy Association, Idaho has only about 75 megawatts installed out of an estimated potential 8,290 MW. By comparison, Oregon is ranked 23rd in the nation for wind potential but has 964.29 MW installed. Washington, ranked 24th for potential, has 1,289.38 MW installed.

Both Oregon and Washington have more robust state-level incentives than Idaho, which makes the federal tax breaks even more important to Gem State wind producers. Exergy Development Group spokeswoman Holli High said judging from past experience, the wind industry would take an enormous hit without them.

“The wind industry is incredibly predictable when it comes to years in which the PTC is not in place,” she said. “New installed wind capacity dropped by 93 percent in 2000, 73 percent in 2002 and 77 percent in 2004 – all years in when the PTC was allowed to lapse.”

Exergy, which was responsible for Idaho’s first utility scale wind project – the 10.5 megawatt Fossil Gulch Wind Park near Hagerman, would still be able to develop its portfolio without the credit, High said, but, “It’s safe to say, however, that few, if any, wind farms (would) be constructed in 2009 – by Exergy or anyone else.”

Steve Taber, CEO of Nordic Windpower, whose San Francisco-based producer of utility-scale wind turbines operates its North America manufacturing plant in Pocatello, said the Production Tax Credit is needed because it makes wind power competitive.

“The Production Tax Credit is absolutely vital to U.S. wind energy,” he said. “Every form of energy is subsidized in one form or another and that’s the way the wind industry is supported. … All it does is put wind on a level playing field with other forms of energy and allows it to compete just on the merits.”

Paul Kjellander, director of the Idaho Office of Energy Resources, agrees that the federal tax credits are important to renewable energy development, but there are other issues at play, like attracting capital investment.

“When developers sit down to discuss projects there’s always a reference to the level of subsidy or support that exists from incentives… so it’s always on their mind,” he said, adding that legislation granting 49-year leases on state land for wind development provides Idaho producers with a valuable, long-term tool to attract investors.

“A developer’s going to tell you it (the PTC) is a big issue,” Kjellander said. “I wouldn’t want to downplay it as not being significant. … I think it is important, but it’s going to depend on each individual project and each individual developer’s idea of risk.”

Credit: Zach Hagadone

(Copyright 2008 Dolan Media Newswires)

(c) 2008 Idaho Business Review, The. Provided by ProQuest LLC. All rights Reserved.




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