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Energy & the Environment: Renewables Seek Sustainment

Tax Incentives Power Record Growth, but Industry Faces Backlash

While the rest of the economy stumbled or slumbered, 2010 was a banner year for the American renewable-energy business. Fueled by billions in tax incentives created by the economic stimulus package the year before, revenue for the manufacturers and installers of solar panels grew by an astonishing 67 percent, in the estimate of the industry’s trade association. And, after last year’s installation across the country of new turbines capable of generating 5,000 megawatts of power, the American Wind Energy Association felt comfortable declaring that air was now comparable to natural gas in cost-effectiveness at generating new electricity.

But sustaining that pace of growth in this year’s highly partisan, budget-focused Washington will require every ounce of lobbying acumen that the wind and solar sectors can muster.

The challenges are twofold. With long-term policies that would benefit carbon-free power sources — such as a cap-and-trade regime for greenhouse gas emissions or a national renewable-electricity mandate — politically out of reach for the immediate future, the wind and solar industries will focus on preserving the tax incentives on which they have long relied to attract investors. But as deficit fears have left more established sources — including oil, ethanol and nuclear — scrambling to defend their own subsidies, renewable-energy companies are keenly aware of the precarious circumstances they face.

The task is complicated by the ongoing political backlash against the 2009 stimulus, which has proven to be a double-edged sword for renewables. When he unveiled the fiscal policy blueprint that was later adopted by the House as an annual budget resolution, Republican Paul Ryan of Wisconsin derided the stimulus package energy spending as “expensive corporate welfare funding directed to the president’s allied industries.”

To counter charges of political cronyism, wind and solar lobbyists have been emphasizing their industries’ job growth potential. “We’re not an issue that is owned by the Democrats or the White House,” said  Rhone Resch, the president of the Solar Energy Industries Association.  Solar now employs almost 100,000 workers — in 50 states — and has created more than 50 U.S. factories in the past 18 months, making it the nation’s fastest-growing industry. The wind industry says it has utility-scale projects operating in 38 states and more than 400 manufacturing facilities across 43 states.

But it remains to be seen whether that economic message will drown out the resounding chorus calling for deficit reduction. An early test will come later this year, when one of the stimulus programs that has powered growth in both sectors is scheduled to expire. In an acknowledgment of the new political reality, solar and wind are beefing up their lobbying and outreach efforts.

The solar industry group last month hired Manning Feraci as its top Washington lobbyist, touting his 14 years of experience as a House Republican aide working on the influential Ways and Means Committee. The wind energy association just snagged Maggie Lemmerman, an energy adviser for the British Embassy who had worked in the House for John Boozman of Arkansas, who’s now a freshman GOP senator on the Environment panel.

And both groups are spending generously on influencing lawmakers. The solar association’s tally topped $300,000 for the first three months of this year, a 14 percent increase from a year ago. The wind association’s spending was half what it was a year ago, but remains not insignificant, at $350,000 in the first quarter. And both plan to step up their giving to candidates in the 16 months before the next election. “We’re trying to take our PAC from a $100,000-per-cycle PAC to a million-dollar-per-cycle PAC,” said Resch of the solar association. “We are going to look and act like any other big industry here in Washington.”

A Level Playing Field

The primary goal for renewable-energy industries has always been parity with fossil fuels. “The key here is really just long-term policy stability,” said Aaron Severn, the wind association’s director of federal legislative affairs. In the past, that has meant pushing legislation that would provide incentives for the carbon-free power they provide. For instance, a national cap-and-trade emissions trading system would have leveled the playing field by internalizing the costs of greenhouse gas emissions produced by coal and oil — pollution that for now is emitted free.

A second longstanding policy objective is the creation of a national renewable-electricity standard, which would mandate that an increasing share of domestic power be generated from wind, solar or other renewable sources by a certain date. (The standard considered but abandoned in the Senate last year, for example, was 15 percent by 2021.)

Both policies would essentially guarantee a market for wind and solar — as well as for other low-carbon power — but remain firmly out of reach for the foreseeable future. Cap-and-trade has been so well branded by critics as a “national energy tax” that even its strongest Democratic supporters have abandoned it until at least after the next election. Republicans have made clear their distaste for any new federal energy mandates — including a broader national “clean-energy standard” floated by President Obama in January, which would have included power generated by nuclear and by “clean coal.”

That means renewables will remain dependent on the handful of tax credits that have sustained them in leaner times. “We’ve dropped costs dramatically over the years, but we’re not quite there yet,” Severn said. For solar, the primary tax driver is an investment tax credit of 30 percent. For wind, it’s a 2.2-cents-per-kilowatt-hour credit for the production of electricity from utility-scale turbines. Sustaining the incentives has been a perennial struggle, but as the economy slipped into recession in 2008, wind and solar companies encountered a new challenge: Equity markets were no longer investing in the credits, starving projects of capital that was needed to break ground.

The industry’s savior was Section 1603 of the 2009 economic stimulus law, which gave renewables companies an upfront grant of up to 30 percent in lieu of their existing tax credits. The popular program threw a lifeline to companies struggling to get things started and is the primary driver of the record growth in wind and solar in the past two years.

New Political Challenges

The renewables lobby touted its job creation numbers to secure a one-year extension of the program at the end of the 111th Congress. Both the wind and solar trade associations are now scrambling to head off the program’s expiration in December, but a one-year extension could cost the Treasury as much as $1 billion in lost revenue — an expense big enough to suck the tax break’s future into the debate on the federal deficit. Further complicating matters is an ongoing campaign by small-government interests to block new energy subsidies as well as the continuation of existing incentives.

“While some energy programs may enjoy broad public support, one thing is clear: the trajectory of federal spending to support economically suspect energy sources is unsustainable,” a coalition of dozens of conservative and tea party-linked groups wrote to every member of Congress in March. To show that it means business, the campaign has been pressuring supporters of a bipartisan House bill that would provide tax breaks for natural-gas-powered vehicles. Although only a handful of previous backers have dropped off the measure, the pace of addition of new cosponsors has slowed.

Subsidies for renewables were dragged into a debate initially spurred by Democrats seeking to end billions of dollars of tax breaks for major oil companies. “If we are talking about ‘Big Oil,’ why don’t we talk about ‘Big Wind?’” Lamar Alexander of Tennessee asked in May. A frequent critic of the industry who also is the top Republican on the Appropriations subcommittee that funds energy projects, he came to the Senate floor armed with Congressional Research Service data, and he charged that on a per-unit-of-energy basis, renewables producers receive 50 times more federal support than do providers of fossil fuels.

Solar and wind lobbyists are quick to counter such criticisms as they make their case to the many new faces on Capitol Hill. “What we’re doing as an industry is to be very upfront and candid to explain to Republicans and Democrats how the program works,” said Resch, “and how this policy has really helped create a solar industry in the United States.” Resch noted that members of his association have had meetings with all 87 of the new House Republicans.

Solar lobbyists come armed with state-by-state job numbers. An analysis currently in the works — part of a strategic plan hatched last year — will calculate jobs created by Section 1603 as well as estimates of job losses if the program were to expire. Wind advocates note the longstanding bipartisan support for their production tax credit, which expires at the end of 2012.

Both associations are exploring backup plans if an extension of the 1603 program proves politically untenable. For the solar lobbyists, that could include some sort of restructuring of its current investment tax credit, which expires in 2016. The wind industry remains committed to its production tax credit but is weighing its options.

There is a recent reason for such fears. The first version of the wrapup spending package for the current budget year, passed by the House in March, would have eliminated a loan guarantee program created by the stimulus law to boost renewable and efficiency projects. (Negotiators on the final deal abandoned that language, however, so the program can continue through September.)

Renewable lobbyists aren’t taking any chances with the 1603 program. “I understand the politics behind why certain policies won’t be supported because they’re in the Recovery Act,” Resch said, “but at the same point in time, the leaders in this country need to look at those policies that actually did work.”

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