Renew tax credits for renewable energy

Even as lawmakers of both parties talk about the need to shift the country toward clean, renewable energy, Congress is in danger of letting key tax credits that have fueled the growth of wind and solar power expire at the end of the year.

The Senate failed for the second time in a week Tuesday to pass a bill to help businesses and homeowners switch to renewable energy. The tax incentives have strong bipartisan support, but they have been caught up in a fight between Democrats and Republicans over how to pay for them.

The stalemate is causing jitters among utilities and investors, including Bay Area venture capitalists and companies that are making billion-dollar bets on new technology, solar power plants and manufacturing sites to build solar panels and wind turbines. Many projects are being put on hold until Congress acts.

Arno Harris, CEO of Recurrent Energy in San Francisco, which helps finance and operate large-scale solar power projects, said his company is rushing to finish projects before Dec. 31, when the credits expire. Because large solar projects can take six months to build, the company is delaying new U.S. projects until the credits are renewed.

"It creates a hiccup that is very unfortunate," Harris said.

The stalemate is a classic example of how even popular programs can fall victim to gridlock in Washington.

House Democrats, seeking to abide by "pay-as-you-go" budget rules, insist that the tax credits must be paid for by raising revenue elsewhere. But Senate Republicans have balked at every proposal so far to find that money.

The House first passed a measure early last year to extend the renewable energy credits by cutting subsidies to big oil companies. The oil industry lobbied fiercely, President Bush vowed to veto it and the Senate blocked it.

Last month, the House approved a bill to extend the credits by delaying an obscure tax break for companies with foreign operations and closing a tax loophole for hedge fund managers. But Republicans objected to what they called a stealth tax increase, and the Senate's 52-44 vote Tuesday fell short of the 60 votes needed to prevent a filibuster and move the legislation forward.

The delay is putting at risk a boom in renewable energy projects in recent years that has the potential to remake the nation's energy supply.

There are currently 22 major solar power plants nationwide in the planning phase, many of them in Southern California, but all those deals were signed based on the assumption Congress would extend the solar energy tax incentives. Already, the Spanish engineering firm Abengoa, which is planning the largest concentrated solar power plant in the country 70 miles southwest of Phoenix, has said the plant won't be built if the tax credits expire.

Potentially huge loss

If the program lapses, "It will result in the loss of billions of dollars in new investments in solar," warned Rhone Resch, president of the Solar Energy Industries Association.

Many Bay Area tech firms and investors have poured money into renewable energy projects, and have a great deal at stake in the debate. The Silicon Valley Leadership Group and TechNet, two leading technology industry trade groups, have been among the most vocal advocates for extending the credits.

Santa Clara-based Applied Materials, a giant in the semiconductor industry, has developed a $3 billion business over the last two years selling high-tech tools to solar panel manufacturers, including new equipment that can make thin-film solar photovoltaics the size of garage doors.

But William Morin, director of government affairs for Applied Materials, said that without a steady policy of tax incentives most manufacturing will continue to go overseas to countries like Germany, which is now both the world's leading consumer and producer of solar power.

"We are in danger of falling behind because we don't have the right set of public policies in place to take that leading role," Morin said.

Happened before in 2004

Many renewable energy providers have seen this script before: Congress let a production tax credit for wind energy lapse three times over a decade. When it expired in 2004, investments in wind projects plummeted by 77 percent the next year.

The wind industry has since rebounded, with the help of new tax credits, and had investments totaling more than $9 billion last year, up more than double since 2006. At least 17 wind manufacturing facilities have been announced in the United States since 2007, according to Greg Wetstone, senior director of government affairs at the American Wind Energy Association.

But Wetstone added, "It's hard to get manufacturers to be willing to make that investment if they don't know for sure if the market is going to be there or if the tax policy is going to change in six months."

Ron Kenedi, vice president of Huntington Beach-based Sharp Solar, a leading producer of solar cells, said his company had planned to expand its 230-worker manufacturing plant in Memphis, but is waiting for a decision on the tax credits.

"It's a shame," Kenedi said after Tuesday's vote. "We are ready to grow. We are ready to add hundreds of jobs if this law gets passed."

Consumer threat, too

The bill could have an impact on consumers, too. Installing solar panels to power an American home costs about $25,000, but after state and federal tax incentives, a California homeowner would likely pay closer to $16,000.

Kenedi said a system could pay itself off over seven to 10 years, but he fears some consumers may decide to delay investing in solar if the federal solar tax credit for homeowners lapses.

Expiring wind and solar tax credits

If Congress doesn't act soon, many federal credits that have fueled the rapid growth of wind and solar energy in recent years will expire at the end of this year. Here are some of the key programs that would be affected:

Solar investment tax credit: The government now pays 30 percent of the cost to businesses to invest in solar power to meet their energy needs. Cost to extend for 10 years: $1.7 billion.

Residential energy-efficient property tax credit: Residential users also get a 30 percent tax credit for installing solar panels, geothermal heat pumps or small wind equipment. The tax credit, however, has a limit of $2,000, which lawmakers are trying to raise. Cost to extend for 10 years: $907 million.

Renewable energy production tax credit: This program gives wind, solar, geothermal and other renewable power sources a leg up with a 1.9-cent per kilowatt-hour credit, which makes them more competitive with natural gas or coal-fired power plants. Congress has let the tax credit lapse before, and each time investment in wind and other renewable energy projects dropped. Cost to extend for one year: $7 billion.

California incentives for solar power

California and two dozen other states have adopted renewable portfolio standards, requiring utilities to get a large share of their power from renewable energy. California is on track to get 20 percent of its power from renewable sources by 2010.

The state, as part of Gov. Arnold Schwarzenegger's Million Solar Roofs program, provides businesses and consumers with tax incentives that industry experts say can defray about one-third of the cost of installing solar power. The state also offers incentives for home builders to install solar panels on homes, and for utilities to shift to solar power. Cost over 10 years: $3.3 billion (through 2017)