September 1, 2013

How ‘Stop-Start’ Policies Hamper Renewable Energy Growth

“Stop-Start” renewable energy policies have stifled consistent growth and frustrated investors, according to the American Council on Renewable Energy (ACORE).

These policies, which chart the course for development, currently exist in the form of a series of repeated extensions and expirations that create a series of unnecessary hurdles. Like most on-again, off-again relationships, the renewable energy industry is now demanding a more serious commitment from the federal government.

The demands come as part of a bipartisan effort to strengthen the industry in the U.S. Some 60 Democratic and Republican representatives recently sent a letter to the House Committee on Ways and Means that asked the government to include the renewable energy sector in its current ongoing discussion of tax reform legislation. The letter was penned by Democratic Congressman Raul Ruiz of California, Republican Jon Runyan of New Jersey and Democrat Earl Blumenauer of Oregon.

The key argument? “The United States saw a 34 percent decrease in renewable energy investment last year due to policy uncertainty.”

The leading driver of renewable energy development in the U.S may be to curb climate change, but additional factors include increased economic development — particularly in rural America — and increased energy security. International clean energy leadership also is an important factor.

During ACORE’s National Renewable Energy Policy Forum, it was revealed “that the lack of stability in U.S. policy has driven some U.S. manufacturers of innovative equipment to China, where they have easier access to the market.”

Meanwhile, Germany continues to meet its ambitious targets, with the long-term goal of having 80 percent of its country’s electricity needs met by renewable energy by 2050.

Bloomberg reports that Germany currently receives almost 25 percent of its electricity from renewable sources, and with less blackouts than its peers, including the U.S. Given that “Germany is a manufacturing powerhouse” and the world’s third largest exporter of goods, this is certainly no simple feat.

Deloitte attributes Germany’s success to a realistic approach to the country’s energy transition, combined with the development of competitive energy policies that are both “cost-competitive and ensure stable supply.”

Therefore, if United States is to compete on the world stage, there need to be more stable renewable energy policies.

Stop-Start policies lead to Stop-Start investments

Popular examples of “stop-start” policies include the 1603 Grant program, the PTC (Production Tax Credit), and the ITC (Investment Tax Credit).

The 1603 Grant program, created in 2009 through the American Recovery and Reinvestment Act (ARRA) to ease the financial burden created by the recession, provided cash grants to qualifying developers.

With approximately $18.2 billion in grants funding over 77,000 renewable energy projects. The program expired in 2011 despite its success.

Bloomberg New Energy Finance (BNEF) estimates “the 19 GW of wind installed between 2005 and 2008, which cost the government $10.3 billion using the Production Tax Credit (PTC), could have been achieved through only $5 billion in 1603 Grants.”

Meanwhile, both created in 1992 via the Energy Policy Act, federal tax credits, the ITC and the PTC have experienced multiple extensions and modifications.

For example, the PTC has been extended on several occasions, and expired at least four times. The PTC expired again on December 31, 2012 for wind projects, before being renewed on January 1st 2013, with the addendum that projects can qualify if they have begun construction, as opposed to being fully operational.

As a result, there was a boom of wind energy projects in early 2012, as developers scrambled to capitalize on federal incentives, and then a lag in development towards the end of the year, and into 2013.

“2012 was a party for wind energy installation,” remarked Ethan Zindler, BNEF’s Head of Policy Analysis, during ACORE’s National Renewable Energy Forum, “and 2013 will be the hangover.”

The wind-power tax credit has been extended to 2014 but BNEF predicts that there will not be as many wind energy projects in 2013 and the New York Times notes that although the wind sector has started bustling again, it has been mostly reshuffling, rather than new projects.

In December 2013, the PTC will expire for all other technologies. The ITC will expire in 2016.

Reforming the Tax Code – Master Limited Partnerships (MLPs) & Real Estate Infrastructure Trusts (REITs)

The renewable energy industry ideally wants access to master limited partnerships (MLPs) and real estate infrastructure trusts (REITs; pronounced “reets”), which will only occur through reformation of tax codes.
These two investment structures would allow this sector increased, and more stable access to capital by increasing the type and quantity of investors.

ACORE notes that “MLPs would open up a whole new pool of investors to renewable energy, including retail and institutional investors that are largely excluded from renewable energy projects under current law.”
While Dan Reicher, Director of the Steyer-Taylor Center for Energy Policy and Finance at Stanford,stated that qualifying as an MLP or a REIT has the potential to make financing renewables easier and cheaper by at least a third of their current costs.

Presently, only “traditional” sources of energy have access to MLPs and REITs but ACORE reports that in May 2013, Senators Coons (D-DE) and Moran (R-KS) introduced legislation, S.3275 – Master Limited Partnerships (MLP) Parity Act.

This would make MLPs available to investors of renewable energy projects in both the electricity and fuel sectors, while Representatives Poe (R-TX) and Thompson (D-CA) introduced identical companion legislation in the House of Representatives.

Overall, the renewable energy industry simply wants access to the same privileges that fossil fuel industry has had for years, and their demands are clear.

They want policy stability through the consistent extension of the popular federal incentives – the Production Tax Credit (PTC) and Investment Tax Credit (ITC), reformation of corporate tax codes to include MLPs and REITs, and expansion of state-level RPS programs which all facilitate investment and technology development within the renewable energy industry.

Until then, the industry will continue to be mired in political red tape, and cautiously moving along.

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