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Tax Credits are in serious jeopardy… so is scaling the renewable energy industry.

Ladies and Gentlemen,

As “cleantechies” you need to get involved in politics, and quickly, to make sure that an important group of industries that will benefit our economy and our environment are not left out to dry.

The United States has demonstrated that it has remarkable renewable energy resources, industrial capability and business acumen; managed properly these resources could produce a tremendous amount of energy and set a standard for the rest of the world. There are many ways to accelerate the adoption of renewable energy, and the US’ current tax incentives have proven to be (somewhat) effective over the past 10 years – they have been the playing field on which individuals and organizations have made the decision to invest large amounts of capital. These tax incentives have set the rules of the game, for both individuals and corporations, and have stimulated the large capital outlays needed for energy projects. In previous blog entries (and everywhere on the net) you can read about the importance of stable, transparent legislation. It is critical that legislation remains clear as the investments being made are in the billions of dollars. Yesterday, the US Senate voted against allowing for a meaningful discussion about extending the current tax credits for another year – your senators have largely voted in blocs along party lines, as you can see here .

I do not presume that of all the possible schemes to stimulate renewable energy PTCs and ITCs are the most complete or sustainable solution to solving our energy needs; frankly, they probably are not. Fundamentally, they are an economic inefficiency, a way to spur investment that might not otherwise happen – but in this respect they are no different than hundreds of other inefficiencies which democracies embrace in order to foster the public good. What I do know is that the industry has been building capacity, projects and entire companies in an attempt to scale clean technologies to the point of making an impact. Without a clear understanding of what the economics will look like in the future these companies cannot make assumptions on cashflows and are not able to evaluate the risks associated with a potential investment.

This has proven to be very unsettling in the past and now, as has happened before, project developers and financial investors are not interested in developing their pipeline of deals. Legislators are creating a “boom and bust” cycle by giving incentives to companies to grow and invest and then not allowing them to budget accurately for further investment because they cannot evaluate what the future has in store. It is the equivalent of expecting a consumer to purchase a car now without knowing what terrain they will be driving on. Let’s call our consumer “Bob.” If Bob knew that he would be driving on the Autobahn most of the time, he could begin to consider making the decision to buy a Porsche or something that would be more suitable for a high speed motorway. But in this case, Bob doesn’t know if he’s going to be on some German Superhighway or some long abandoned jungle road. Without knowing what terrain or possible potholes he might encounter Bob would be wise to delay the decision of buying a car and take the bus for a while – or keep the clunker he has now. Likewise, a serious investor will not begin the arduous process of assessing and preparing a large project without knowing the terrain their investment is going to be exposed to.

Without extending the tax credits congress is sending a message to investors that reads:

Invest in as many projects as you can so long as they are in place by the 31st of December 2008. If they are not in place by then, you will have a different financial outlook for projects – but we won’t tell you what that looks like. Build your teams of employees based on the demand we have stimulated until now – but be prepared to draw down in the future (but you had better be ready to grow, too).

In essence congress is telling investors to take the bus – and telling consumers that they are stuck with the clunker they currently have. The problem in this case is that the lead-times involved for preparing for a big deal are often many months long. Without knowing what the tax incentives are going to look like for projects begun after 31 December investors and developers would rather not consider any projects, so they aren’t.

So, what to do? Easy, for the time being call your Senators and tell them that this is not acceptable. These industries require stable policies; the capital costs are too high. Our future on this planet requires that we figure this out soon; the stakes for failing are too high.

Ian Thomson

PS: If you are in San Francisco on the 13th of August – I encourage you to come and hear what the next president of the United States is proposing for his energy policy. You can register to the co-sponsored Renewable Energy Business Network (REBN) and Marines’ Memorial Association event here .

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One comment on “Tax Credits are in serious jeopardy… so is scaling the renewable energy industry.

CleanTechies Blog » Extension of ITCs says:

[…] Over the course of eight weeks the entire renewable energy industry in the United States had just about come to a standstill for reasons that did not involve the financial crisis that brought Lehman Brothers to its knees (see Tax Credits are in serious jeopardy… so is scaling the renewable energy industry). […]

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