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Archive for the ‘investment tax credit’ Category

After a year of stalemate that threatened to strangle the nascent United States solar industry, the U.S. Senate on Tuesday passed energy legislation that extends a key investment tax credit until 2016.

The 30% solar tax credit was part of a package of green energy incentives that includes a one-year extension of the production tax credit crucial to the wind industry and a $2,500-$7,500 tax credit for people who buy plug-in electric vehicles. (That should make General Motors (GM) happy as it prepares to roll out its ever-increasingly expensive Volt plug-in electric hybrid.)

Homeowners also won an extension of a tax credit for installing solar panels and the $2,000 cap on such systems was lifted. Put in a small wind turbine or a geothermal heat pump and you can claim up to a $4,000 and $2,000 tax credit, respectively.

The big winner was the solar industry. Congress’ failure to extend the investment tax credit threatened to scuttle scores of multibillion-dollar solar power plants in the pipeline and undermine mandates that utilities like PG&E (PCG) and Southern California Edison (EIX) obtain a growing percentage of their electricity from renewable sources.

The legislation now returns to the House of Representatives, which earlier passed a similar version of the Senate bill.

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The looming expiration of a crucial renewable energy investment tax credit doesn’t seem to have spooked investors. Silicon Valley thin-film solar startup Nanosolar said Wednesday that it has secured another $300 million in funding and is jumping into the Big Solar game as well.

Writing on the Nanosolar blog,  CEO Martin Roscheisen said that the latest financing round – the company’s funding now totals half a billion dollars –  comes from oldline utility AES (AES), French utility giant EDF and the Carlyle Group, among other investors. Nanosolar, which prints solar cells on flexible materials, will supply solar panels to the newly formed AES Solar, which will build medium-scale – up to 50 megawatts – photovoltaic power plants.

The Nanosolar news is just the latest of a spate of deals to take solar panels off rooftops and plant them on the ground to generate massive megawattage. Two weeks ago, thin-film solar startup Optisolar won a contract from utility PG&E (PCG) for a 550-megawatt PV solar power plant while SunPower (SPWR) will build a 250-megawatt photovoltaic solar farm for the utility. Leading  thin-film company First Solar (FSLR), meanwhile, has inked deals over the past few months to build smaller-scale PV power plants for Southern California Edison (EIX) and Sempre (SRE). And thin-film solar company Energy Conversion Devices is assembling a 12-megawatt array for a General Motors plant in Spain.

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In a sign that solar industry and its political allies are starting to flex some real power, the federal government reversed course Wednesday and announced it would continue to accept new applications to build solar power plants on government land while developing an environmental policy for assessing the projects.

Green Wombat had been off the grid on holiday the past week and so was surprised to log back on to find the mainstream media and blogosphere ablaze over the Bush administration’s supposed move last month to halt big solar power plant projects in California’s Mojave Desert and elsewhere.

“Citing Need for Assessments, U.S. Freezes Solar Energy Projects,” read the headline on The New York Times story about the Bureau of Land Management’s decision to temporarily stop accepting new applications for solar power plants until it studies the environmental impact of industrializing the desert. “How to strangle an industry,” proclaimed Grist, a respected green policy blog about the move. Solar executives and politicians meanwhile slammed the BLM and predicted dark days for renewable energy. “This could completely stunt the growth of the industry,” the Times quoted Ausra exec Holly Gordon.

Problem is, those stories were dead wrong: The feds did not freeze a single solar power plant project currently under review. What was left unsaid, or just briefly mentioned, was the fact that the BLM is continuing to process the 125 solar power plant proposals already in the hopper. Those lease applications cover nearly a million acres for solar power plants that would produce 60 gigawatts of electricity if all are built, which they won’t be. Those projects alone will keep companies like Ausra, BrightSource Energy, FPL (FPL) and PG&E (PCG) busy for years to come, moratorium or not.

“We don’t even like to call it a moratorium,” says Alan Stein, a deputy district manager for the BLM in California. Stein called me on my mobile just as I was about to step into a kayak at Elkhorn Slough near Big Sur. I had spent several months talking to Stein and other BLM officials while criss-crossing the Mojave with solar energy executives for a forthcoming Fortune story and he seemed taken aback by the tone of the media coverage.

But the higher-ups in Washington got the message. “We heard the concerns expressed during the scoping period about waiting to consider new applications, and we are taking action,” said BLM Director James Caswell in a statement. “By continuing to accept and process new applications for solar energy projects, we will aggressively help meet growing interest in renewable energy sources while ensuring environmental protections.”

The head of the solar industry’s trade group, the Solar Energy Industries Association, declared victory. But SEIA president Rhone Resch complained in a statement that, “BLM has only resolved half the problem. They have yet to approve a single solar energy project. Expediting the permitting process is the next step in developing solar energy projects on federal lands.”

He’s right that the process – which is intertwined with California’s extensive environmental review of projects in that part of the Mojave – takes far too long. But developing a desert-wide environmental policy is absolutely essential for huge power plants that in total would cover hundreds of square miles of a fragile landscape home to protected wildlife and rare plants. Otherwise, watch each individual project get bogged down in endless environmental challenges.

What really threatens the nascent solar industry right now is not the BLM. Rather it’s the imminent expiration of the 30 percent investment tax credit that all these solar energy startups and their investors – which include companies such as Google (GOOG) and Morgan Stanley (MS) – are depending on make Big Solar economically viable. Congress has failed several times in recent months to extend the tax credit, which expires at the end of the year. If only solar energy execs and their supporters in Washington could exert the same influence on recalcitrant Republicans as they have on the BLM.

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solar_panels_2ce03.jpgIt’s all about the green economy, stupid.

The United States could lose more than 116,000 green collar jobs and forgo $19 billion in green tech investment in 2009 if Congress fails to extend two tax credits crucial to the renewable energy industry, according to a new study.

One red flag about this report: It was commissioned by the American Wind Energy Association and released by the Solar Energy Industries Association — two trade groups pressing for extension of the investment tax credit and the production tax credit. Green Wombat tends to look askance at studies paid for by business and whose conclusions support the sponsors’ political agenda. But a review of the research conducted by Navigant Consulting indicates that it is solid, based on federal labor data and employment models as well as Navigant’s own market analysis.

Some background. The ITC provides a 30 percent tax credit for the installation of solar arrays and other equipment. Homeowners can claim the tax credit up to a maximum of $2,000 for residential solar arrays. There’s no cap for commercial solar arrays and the tax credit has been a key to attracting financing for large solar installations that can cost millions of dollars. (Several states, most notably California, offer even more lucrative incentives, which should help prop up demand.) The production tax credit provides a subsidy for the generation of electricity by solar, wind, geothermal and other renewable energy systems and has driven the construction of massive megawatt wind farms.

Both credits expire at the end of 2008 and the renewable energy industry and their allies in Silicon Valley and on Wall Street are pressing Congress for a long-term extension — five to eight years — to provide a stable investment climate for green projects. (Last week, executives from Google (GOOG), Hewlett-Packard (HPQ), Applied Materials (AMAT) and Credit Suisse (CS) were among those that signed a letter urging Congress to take action by March 1.)

The Navigant study projects that without the investment tax credit installations of solar arrays will fall from a projected 790 megawatts to 325 megawatts in 2009, eliminating 39,400 potential new jobs.

A couple of points to consider about those numbers. Navigant only considered the impact on the photovoltaic industry that manufactures and installs rooftop solar arrays. It did not calculate the consequences for the solar thermal business, which builds large-scale solar power plants that use mirrors to focus the sun’s rays on liquid-filled tubes or boilers to create steam to drive electricity-generating turbines. The solar thermal industry is in its infancy but utilities like PG&E (PCG), Southern California Edison (EIX) and San Diego Gas & Electric (SRE) have signed several contracts for solar power plants and negotiations for gigawatts more of solar electricity are ongoing.

The first solar power plants in California won’t go online until around 2010 but the construction and operation of those projects are expected to create thousands of jobs. Like the PV industry, solar thermal companies are dependent on the investment tax credit to attract the big money it takes to finance the construction of billion-dollar power plants. The loss of the investment tax credit would hit California particularly hard.

While rooftop solar companies worry about losing business in the future if the investment tax credit is not renewed, the more immediate concern among solar execs Green Wombat has talked to recently is finding enough workers to keep up with demand, especially in California.

Navigant projects an even bigger crash for the wind industry should the production tax credit expire, with installations falling from 6,500 megawatts to 500 megawatts in 2009 with the lose of 76,800 jobs. The wind industry has been continuously buffeted in recent years as Congress has allowed the production tax credit to expire repeatedly only to resuscitate it. In the past, the expiration of the tax credit has resulted in a 73% to 93% drop in the wind market, according to Navigant.

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Twice now the renewable energy industry has narrowly lost votes in Congress to extend an investment tax credit crucial to jump-starting the market for large-scale projects like solar power plants. In December, Big Oil outmaneuvered green energy advocates and their Congressional supporters by claiming that rescinding huge tax breaks for the fossil fuel industry to pay for renewables would cost consumers at the pump. A more recent attempt to revive the tax credit also failed.

Now the American Council on Renewable Energy is bringing out its big green guns. Representatives from Silicon Valley tech giants, Wall Street investment banks and utilities signed a letter sent to the congressional leadership late Wednesday urging the long-term extension of the 30 percent investment tax credit as well as the production tax credit for the electricity produced by solar, wind, geothermal and other renewable energy systems. Among the signers urging action by March 1 are executives from )Google (GOOG), Hewlett-Packard (HPQ), Applied Materials (AMAT), Credit Suisse (CS), Wells Fargo (WFC), venture capitalists Kleiner Perkins Caufield & Byers and utility San Diego Gas & Electric, a subsidiary of energy giant Sempra (SRE).

Interestingly, the phrases “climate change” and “global warming” never appear in the letter. In a savvy move, the council has forsaken doom and gloom for a purely economic message: American jobs, competitiveness and innovation are at stake, the signers argue, and the tax incentive will spark a green tech boom at relatively little cost to the taxpayers. It’s a Silicon Valley mindset and its no surprise that while the signers represent companies from all over the United States, most hail from California.

The tax credits expire at the end of 2008 and proponents argue that a five-to-eight year extension is needed to create a stable investment climate, given that it can take three to five years for a large solar power plant to be permitted and built.

“The United States is in a historic position to lead in innovation and competitiveness in the renewable energy sector,” wrote the council’s three co-chairs, which include Dan Reicher, Google.org’s director of climate and energy initiatives. “As with all energy markets and in plans for growth in any businesses, certainty and continuity in public policy provides the confidence needed for stability in investments. We must ensure we are not creating an environment for boom and bust cycles in renewable energy and that we are not tying the hands of business owners in the sector looking to scale their technologies to meet demand and price points.”

Without an extension of the tax credits, the council warns that renewable energy projects in the pipeline that would produce 42 gigawatts of greenhouse-gas free electricity — enough to power tens of millions of homes — could grind to a halt, giving competitors in Europe and Asia the upper hand when it comes to green tech innovation.

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brightsource-ivanpah.png

When President Bush signed the energy bill into law last month, much was made of the legislation’s mandate that automakers dramatically boost the fuel efficiency of their fleets. Less noticed was that the bill dropped a provision that would have extended the solar investment tax credit — a measure viewed as essential to transforming solar energy from a niche business into a multi billion-dollar industry that can generate gigawatts of greenhouse gas-free electricity.

The timing couldn’t be worse. With the current solar credit set to sunset, as it were, at the end of 2008, Big Solar is at at a tipping point: Utilities and renewable energy companies are in the midst of negotiating massive megawatt power purchase deals whose financing depends on the 30 percent investment tax credit, or ITC.

“I think there is a major concern that this will stall all the beneficiaries of the ITC,” said Joshua Bar-Lev, vice president for regulatory affairs for solar power plant developer BrightSource Energy. The Oakland, Calif.-based startup is negotiating a 500-megawatt agreement with California utility PG&E and is proceeding with plans to build a 400-megawatt solar thermal power station on the Nevada border (artist rendering above).

Solar energy companies, utilities like PG&E (PCG) and Edison International (EIX) as well as financiers such as Morgan Stanley (MS) and GE Energy Financial Services (GE), had pushed for an eight-year extension of the investment tax credit to give Big Solar projects enough time to get off the ground and start to achieve economies of scale. The provision also would have allowed utilities to claim the credit for solar projects they build. The measure drew support from both sides of the aisle in Congress but died — by one vote in the Senate — when Bush threatened to veto the energy bill because the solar tax credit would be financed by repealing previous tax breaks given to Big Oil.

“The Congressional leadership is very strong in their support of the ITC; they will put this on the table In 2008,” said Chris O’Brien, a Sharp Solar executive and chairman of the Solar Energy Industries Association, in an e-mail. “The solar industry will continue to contact legislators in key states.”

House Speaker Nancy Pelosi and the Democratic leadership in the Senate have pledged to re-introduce renewable energy tax credit legislation this session. “Speaker Pelosi has said repeatedly that she hopes to address that this year,” Drew Hammill, a spokesman for Pelosi, told Green Wombat. “We’re just getting started but there’s bipartisan support for the tax credit.”

Publicly, at least, no one in the solar industry will say that the uncertainty over the tax credit is affecting planned projects. “Our expectation is that there will be another tax bill that will address this issue,” said Kevin Walsh, managing director of the renewable energy group at GE Energy Financial Services. “We’re working on a number of [solar thermal] deals but it’s too early to disclose them.”

In recent months, PG&E has signed deals for more than a gigawatt of electricity — enough to light more than 750,000 homes — with solar power plant developers. Such power purchase agreements can take more than a year to hammer out and the permitting and construction of a solar power station can take another three to five years.

“We’re continuing to move forward with negotiations and with contracts that have already been signed, but certainly the absence of the ITC could potentially impact future projects,” said PG&E spokesman Keely Wachs. “Without the credit, it does increase the cost of that energy and of course it also sends a very clear market signal as to our country’s energy priorities.”

Silicon Valley solar startup Ausra is building a 177-megawatt solar power plant on the Central California coast to supply electricity to PG&E and is pursuing deals with Florida’s FPL (FPL) and other utilities.

“Just like any business, the solar industry prefers a predictable system for the future,” wrote Holly Gordon, Ausra’s director of regulatory and legislative affairs, in an e-mail. “It will be more difficult to plan for our projects while the situation remains uncertain. While we are currently seeing excellent demand for solar energy at market prices, we need a long term extension of the renewable energy tax credits to ensure market stability and investor confidence as the market continues to grow.”

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solar-energy-bill-2.pngWith 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 makes 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 Industries 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.

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