Proposed Extension of Tax Credits for Renewable Energy Would Have Uneven Effect
Source: By DIANE CARDWELL, New York Times • Posted: Friday, December 18, 2015
But even as renewable energy stocks rallied — SolarCity’s shares surged more than 40 percent — and advocates and executives cheered, some sectors of the industry appeared to benefit more than others.
The solar and wind industries got much of what they wanted, energy specialists said, while some technologies, like fuel cell storage and geothermal, were largely left off the table. Biofuels were somewhere in the middle.
For the solar industry, the proposed extension, up for action in Congress this week, is better than many executives and analysts had expected. For example, the investment tax credit for solar projects, which was to fall to 10 percent at the end of 2016, is to stay at 30 percent until 2019, then gradually decline to 10 percent by 2022. And, in another gain, projects will be required only to begin construction, rather than operation, as is the case now, to qualify for the credit.
The effect, specialists say, will be to make large, commercial-scale projects more viable, like the roughly two gigawatts’ worth scheduled to come online in Texas for 2017.
For example, Tony Clifford, chief executive of Standard Solar, a developer and builder based in Rockville, Md., said that the company had passed up or abandoned close to $100 million worth of business, including a large wastewater treatment plant in the Midwest, because it did not think it could get them up and running by the end of 2016. Now he is hopeful that if the legislation passes as proposed, some of that business could return.
In addition, said Shayle Kann, who leads GTM Research, more states, including Ohio, Illinois and Florida, could become strong residential markets for solar by the end of the decade.
“The market wasn’t going to disappear,” without an extension of the 30 percent solar investment tax credit, he said. “What you weren’t going to have is the bunch of new states pick up that are going to become economically viable over the next few years. The big impact for distributed solar is just more geographic diversity.”
Wind industry executives and proponents were similarly bullish about how the extension would affect them. The production tax credit, which expired at the end of 2014, is to be extended retroactively through 2016 and then decline in value each year until it is phased out in 2020. The five-year step-down offers one of the longest periods of certainty in more than a decade.
In the near term, developers may proceed with projects that had stalled in the face of questions about meeting federal construction requirements, said Michael Garland, chief executive of Pattern Energy. But longer term, the new time horizon would help the industry to continue bringing costs closer to those of conventional fuels, even cheap natural gas.
“The manufacturers know the goal they have to get to,” Mr. Garland said, “and we can push them a bit to get there.”
Nonetheless, he said, the industry would still not end up on a level playing field with conventional fuels, which have access to tax advantages that wind does not, or solar, which would largely retain a permanent 10 percent investment tax credit.
But Lee Peterson, a senior tax manager in the Renewable Energy Industry Practice at CohnReznick, an accounting, tax and advisory firm, said the differences among the industries made sense, given that wind developments benefit from much larger economies of scale and have had access to subsidies and development financing longer than solar.
“Even a massive solar system is still dramatically smaller than a wind project — it’s sort of like comparing the difference between a bus and a fleet of taxi cabs,” he said. “So it makes sense that they would have different treatments.”
The inclusion of biofuel incentives, while welcome, seemed unlikely to give those fuels as big a boost as the incentives aimed at conventional oil, which will stay in place longer, said Bob Dinneen, president of the Renewable Fuels Association.
A tax credit for producers of cellulosic biofuels applies only to gallons produced and sold, so while it will help companies that have plants up and running, it would have a limited ability to spur the development of more.
“A company like DuPont that is just now opening up a commercial-size facility in Nevada, Iowa, is given a real opportunity to sell that product competitively,” he said. “But you’ve got to be up and running and producing before you’re going to see any benefit.”