Congress must revisit key tax break – green power lobby

www.environmental-finance.com/
New York, 20 November:

No sooner has the US Congress approved tax credits for renewable energy, it should immediately adjust them because the financial crisis has limited new project development, renewable energy advocates have said. In October, after numerous failed efforts, the legislature extended the key production tax credit (PTC) to the end of 2009 for wind and biodiesel and through 2010 for other renewable energy sources, and the investment tax credit for solar energy projects to the end of 2016.

The PTC, in particular, had been a crucial underpinning to a booming wind energy market in the US and the industry had been calling loudly for its extension. But, despite the recent victory, new projects are still failing to get off the ground because of a diminishing appetite for the tax benefits related to the projects among investors.

To exploit the credits, renewable energy developers must either have a US tax liability, or be able to attract backers who do - so-called tax equity investors. However, major players in this market - such as Lehman Brothers, Wachovia and American International Group - have either disappeared or scaled back their activity due to the financial crisis.

To spur investment, Congress should make the tax credits refundable, transferable and available to investment vehicles known as master limited partnerships, to allow their use by a wider range of investors. "If Congress does not take that step, we're going to see a significant downturn in what has been a booming industry," said Randall Swisher, executive director, American Wind Energy Association.

Ideally, Congress would adjust the tax credits during its lame-duck session, but troubles in the auto industry could overshadow the renewable energy sector. Any adjustment would solicit an "instant response" because projects on the bubble will quickly secure financing from organisations such as pension funds that have not traditionally been involved in renewable energy investment, said Rhone Resch, president, Solar Energy Industries Association.

The associations outlined six priorities for President-elect Barack Obama and the new Congress, with a minimum five-year extension of the PTC and additional funding for the currently $400 million/year Clean Renewable Energy Bonds programme at the top of the list. Obama should issue an executive order expanding federal procurement of renewable energy generation because the federal government is the largest US electricity customer, spending $5.8 billion per year, they suggested. The new administration should also support investment in electricity infrastructure and smart-grid technology to deliver renewable energy to population centres.

Obama has already spoken out in favour of several of the groups' stated objectives, including a national renewable portfolio standard to ensure that at least 10% of electricity consumed in the US comes from renewable sources by 2012 and 25% by 2025 and a federal greenhouse gas cap-and-trade programme. He has also pledged to invest $150 billion over the next 10 years on renewable energy projects, but $30 billion should be invested in 2009 to finance new projects and technology installations, they said. "If we don't have government participating in the renewable energy sector, we will go from being one of the bright spots to one of the industries struggling in this economy," Resch said.