U.S. DEBT DEAL KILLS OFF PROSPECTS OF RENEWABLE-SUPPORT
August 6, 2011
By Jim Efstathiou Jr. and Christopher Martin
U.S. government support for renewable energy may plunge from record levels, setting back the use of wind and solar power before they can compete on their own with oil, gas and coal.
Direct spending, tax breaks and research funding pushed federal renewable-energy subsidies to $14.7 billion in 2010, according to Alan Beamon, director of the Energy Information Administration’s Office of Electric, Coal, Nuclear and Renewables Analysis. Project developers are lining up for subsidies approved in the 2009 stimulus bill as incentives expire and the deficit-reduction deal dims prospects for future backing of solar panels and wind farms.
“The debt agreement, which is focused on cuts only and not revenue increases, makes it more likely that this infant sector gets strangled before it matures,” Daniel J. Weiss, a senior fellow at the Center for American Progress, a Washington policy group that advises Democrats, said in an interview with Bloomberg Government.
The deal on a debt-limit increase that Congress and President Barack Obama struck to avert a U.S. default would result in at least $2.1 trillion in spending cuts, according to the Congressional Budget Office. Additional savings of at least $1.2 trillion would come from enactment of a deficit-reduction bill or from automatic spending cuts if Congress fails to accept a package framed by a 12-member panel.
“The potential lapse of key subsidies at the end of 2011 puts the pressure all the more directly on the clean-energy sector to drive down costs and become more competitive between now and then,” according to a Dec. 13 report by Bloomberg New Energy Finance.
The Treasury Department has paid out $7.78 billion in grants to developers of wind, solar, biomass and geothermal energy under an incentive that was created in the stimulus bill and lapses at the end of the year. Tax credits for wind, solar and geothermal projects end in 2012 and 2016.
“I will be working hard to preserve renewable energy incentives, but it will be more difficult to do so going forward, and that is one reason I opposed the deficit deal,” Senator Robert Menendez, a New Jersey Democrat, said in an e- mail. “Oil company incentives do not sunset, but renewable incentives do.”
Government aid for renewable energy is up from $5.12 billion in 2007, according to the EIA. Subsidies are expected to decline beginning this year, and will fall 77 percent by 2016 from the record in 2010, according to the White House Office of Management and Budget.
The expiring grants from the Treasury filled a void in project financing that followed the collapse of Lehman Brothers Holdings Inc. three years ago. The grants were offered after the recession sapped demand in the tax equity market, where tax credits earned by solar and wind project developers could be sold to companies seeking to reduce their tax burden.
The tax credits also will expire unless Congress approves an extension. The production tax credit, used mainly by wind- farm developers, runs out at the end of 2012. The investment tax credit, which goes primarily to solar and geothermal projects, ends in 2016.
“The truth is that paying equity subsidies for green energy is expensive,” Kevin Book, managing director at ClearView Energy Partners LLC, a Washington-based policy analysis firm, said in an interview. “Who will be the strong voice to defend credits, and which credits get defended?”
Other subsidies for energy, which go both to renewable sources and oil and gas, may also be targeted by the congressional debt-reduction panel.
Written into the federal tax code are benefits valued at $24.2 billion for renewable energy and efficiency incentives through 2014, compared with an estimated $17.9 billion for the oil, gas, and coal industries, according to a December report by the congressional Joint Committee on Taxation.
“We’ve only just started supporting renewable energy,” Ellen Vancko, manager of the Nuclear Energy and Climate Change Project at the Cambridge, Massachusetts-based Union of Concerned Scientists, said in an interview. “We need to allow these technologies to mature so they don’t need subsidies.”
Globally, government spending on renewable energy peaked last year at $74.5 billion and will decline to $68 billion this year before dropping to $21.4 billion in 2013, according to New Energy Finance.
In the U.S., the 2009 stimulus bill provided $65 billion for clean energy, including loan guarantees for solar and wind power, funding for state programs to help make homes more energy efficient, research into battery-powered cars and trucks and systems to capture carbon dioxide from power-plant emissions. The bill also created the Treasury grant program.
Spent by Mid-2012
By the end of last year, the U.S. had spent 36 percent of the $65 billion, according to Stephen Munro, an analyst with New Energy Finance in Washington. By mid-2012, all the money should be spent.
About $34 billion in stimulus funds will be spent on clean energy this year, up from $13 billion in 2010, Munro said. The remainder, about $18 billion, will be delivered by July 2012 as continued disbursements for Treasury grants and accelerated depreciation for renewable technologies, he said.
Projects that begin construction this year can qualify for a Treasury grant. Payments under the program, made when the renewable power source goes into service, are expected to reach a high of $4.26 billion this year and end in 2016 with $620 million in outlays, according to the White House Office of Management and Budget.
The grant program was extended through this year in a December 2010 tax deal.
“The Treasury grants are very vulnerable in the current fiscal mood and the production tax credit has always been a political football,” said Nathanael Greene, director of renewable energy policy at the Natural Resources Defense Council in New York. “Wind energy has the most at stake right now. Expiry of the credits would put a lot of people on the street.”
The stimulus bill also included $6 billion for Department of Energy loan guarantees to back renewable projects, a figure later reduced to $2.5 billion. The department said in May it stopped work on a loan guarantee for Cape Wind off of Massachusetts because there wasn’t enough money for all applicants. The first U.S. offshore wind farm is projected to cost $2.6 billion. Funding for the loan guarantee program fell to $170 million in the current budget.
Current wind “projects are safe, and prospects for extension of the program beyond 2012 are as good as ever,” Bode said in an e-mail. “I had a front-row seat to tax reform in the mid-1980s, and I feel confident that wind incentives will survive this process.”