Green Wombat

With
Congress back in session, renewable energy proponents are girding for a
battle over legislation that could make or break the nascent solar
power industry.

At stake in the energy bill now before Congress is the survival of a
30 percent investment tax credit that make large-scale solar power
plants a viable option for utilities under pressure to cut greenhouse
gas emissions by obtaining more of their electricity from renewable
sources. On the home front, a similar tax credit for residential solar
installations is up for grabs as Congress tries to reconcile House and
Senate versions of the energy legislation.

"There are at least eight or nine well-funded companies that are
actually making great progress in developing large-scale solar,"
says Joshua Bar-Lev, vice president for regulatory affairs for Oakland,
Calif.,-based solar power plant developer BrightSource Energy. "I don’t
know if any of them are going to be able to finance projects and get
the permits they need without these tax credits."

The solar companies and their allies in the utility industry and on
Wall Street had been pressing for an eight-year extension of the
investment tax credit. They also want to abolish a prohibition on
utilities from taking advantage of the incentive if they invest directly in
solar power plants. But since word hit the street that Congressional
leaders were considering stripping out the incentives to speed passage
of the complex legislation — catchall bills that will affect the fate
of nearly every energy-related industry, from Big Oil to biofuels —
solar proponents have been converging on the Capitol in an 11th-hour
lobbying frenzy.

"Things are very uncertain at the moment," says Chris O’Brien, an
executive at solar panel maker Sharp who serves as chairman of the
Solar Energy Industry Association, a trade group. "In recent years,
we’ve seen a very sharp increase in corporate investment, project
investment and financing for solar technology companies and solar
projects. There’s great concern that the U.S. market continue to grow."

Like other renewable energy sectors, solar has lived and died at the
hands of tax incentives. In the 1980s a California tax break encouraged
the construction of the state’s first utility-scale power plants by Luz
International, founded by BrightSource’s chairman. When the incentives
evaporated with the return of cheap energy that decade, the company’s
business disappeared (though those Mojave Desert solar power stations
continue to operate).

Global warming fears, renewable energy mandates imposed on utilities
and a flood of venture capital has revived Big Solar over the past two
years. The industry argues that longer term tax incentives must be put
in place to ensure solar power plant builders have enough time to break
into the electricity market and achieve economies of scale that will
drive down the cost of green energy. This time around, the solar
entrepreneurs have attracted the support of utilities like PG&E
(PCG) and Edison International (EIX) as well as Wall Street titans like
Goldman Sachs (GS) and Morgan Stanley (MS), both of which have invested
in renewable energy companies. (Morgan Stanley, for instance, is
backing BrightSource.)

"We’ve gone to Congress and talked to members about the need for
multi-year commitments so we have certainty," Rick Carter, PG&E’s
director of federal government relations, told Green Wombat. "What
we’ve seen over past couple years is stop-and-go with tax credits. If
you have multi-year leads to build facilities, that doesn’t work."

Take California, for example. Negotiations between a solar energy
company and a utility over a power purchase agreement can last more
than a year and it can take another three or four years to to obtain regulatory approval for a
solar power plant, secure the site and then get the facility built and
operating. PG&E, Southern California Edison and San Diego Gas &
Electric (SRE) all have signed long-term power purchase agreements for
solar power plants that will be financed and built over the next
several years.

Given that the prime solar sites and potential economic payoff for
Big Solar is in the sun-drenched West, companies like BrightSource have
been targeting Congress members from western states. "We want both
representatives and senators to see the benefit of this: price
certainty, jobs, clean energy," says Bar-Lev.

While the situation changes daily, action on the energy legislation is expected sometime in the next two weeks.