November 16, 2011

USA: Extending the Renewable Energy PTC

Rep. Dave Reichert (R-WA) and Earl Blumenauer (D-OR) have introduced legislation aimed at extending the Production Tax Credit, or PTC. 

First conceived in 1992 as part of the Energy Policy Act (H.R. 776), the PTC has been renewed year after year and also incorporated into the Energy Policy Act of 2005 as part of that Act’s Renewable Energy Production Incentives. The PTC currently provides a 2.2-cent per kilowatt-hour (kWh) on wind, closed-loop biomass, and geothermal resources for the first decade of a renewable energy facility’s life. Other renewable forms of energy receive a tax credit of 1 cent per kWh.

There is no maximum limit for credits claimed through the PTC, but the incentive is not available to all investors, and is further complicated by the addition of an Investment Tax Credit, or ITC, as an alternate to the PTC under the American Recovery and Reinvestment Act of 2009 (ARRA), also known as the stimulus.

This newest extension, called the American Renewable Energy Production Tax Credit Extension Act, H.R. 3307, aims to extend the tax incentive for hydro energy, wave and tidal energy; geothermal energy; bioenergy; Municipal Solid Waste (MSW; landfill gas, biomass and biogenic energy); and wind. The first six have already been extended to the end of 2013. The PTC for wind is set to expire at the end of 2012.

The legislation is, in the eyes of Rep. Reichert – a member of the House Ways and Means Committee which is currently assessing H.R. 3307 – the best way to bring proven renewable energy projects and all their inherent benefits (jobs, energy security, and economic development) into the mainstream.

Rep. Blumenauer, another member of the House Ways and Means, agrees, noting that renewable energy is essential to powering America’s clean energy future.

The American Wind Energy Asssociation, or AWEA, is also an avid supporter. Extending the PTC, wind experts say, will stablize the wind industry, providing financiers with the security of knowing that their projects won’t face the seesaw of Congressional renewal (or its lack).

But the biggest fan of PTC renewal may be the Union of Concerned Scientists, or UCS, a science-based nonprofit working for a safe and healthy world environment. As the UCS notes, “Short-term extensions of the PTC are insufficient for sustaining the long-term growth of renewable energy.”

All agree renewable energy is good for the economy and the environment. In spite of that, H.R. 3307 faces its own difficult environment. Proposed in an era when Republican leadership dominates the House and favors traditional sources of energy like coal, oil and natural gas, the legislation must also overcome the handicap of a seriously reduced Democratic majority in the Senate.

Add to those factors a looming $1.2 trillion federal deficit, which Republicans propose to eliminate by cutting education, social programs like Medicare and Social Security – and, it seems, everything but defense spending – and even bipartisan legislation on behalf of renewable energy seems like so much pie-in-the-sky.

In fact, never in the past decade has renewable energy faced such negativism. In spite of truly bipartisan support, from such notables as Republicans Rep. Frank Lucas from Oklahoma, Tom Latham from Iowa, Robert Dold of Illinois, Steve King of Iowa, and Jim Gerlach from Pennsylvania – all of whom have crossed the aisle to stand alongside Leonard Boswell (D-Iowa), Bruce Braley (D-Iowa), Collin Peterson (D-Minn.), Mike Thompson (D-Calif.), John Larson (D-Conn.), a highly vocal Republican majority is suggesting dropping all renewable energy subsidies and letting market forces decide winners and losers – an argument which finds support even in ultra-green California, where regulators are debating whether consumers should be asked to pay more for renewable energy just because it’s clean.

This burgeoning negativity may have its roots in the bankruptcies of two (solar) renewable energy firms backed by loan guarantees from the U.S. Department of Energy, or DOE. The first was Solyndra, and the burn - $535 million in loan guarantees – made the next bankruptcy, that of Beacon Power, almost easy to swallow at a mere $43.5 million.

The Solyndra failure has since triggered an investigation, and critics of the DOE’s loan program point to the failures as proof positive that the government has no business influencing energy markets through subsidies (an argument that apparently doesn’t apply when it comes to fossil fuels). These renewable naysayers contend that  wind, solar, geothermal and biofuels – having literally “come of age” in the nursery of government subsidization – should now be expected to stand on their own feet.

If H.R. 3307 passes, one of the biggest winners will be wind, whose subsidies this year and next are estimated at about $900 million per year, with more than $17 billion in venture capital or private investment. In fact, the wind industry has prospered so strikingly under subsidies that it now supports more than 400 factories in 43 states staffed by 75,000 workers making wind turbine parts – a figure which the American Wind Energy Association (AWEA) says could go as high as 500,000 by 2030.


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