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Energy Bill 2007 Could Give Renewables the Green Light -- or a Lump of Coal

The Energy Policy Act of 2005 enacted renewable energy tax credits, but most expire at the end of 2008. That tosses many tax and regulatory policies back up in the air. Congress has been working on two energy bills aimed at weaning the U.S. off oil, creating American jobs and addressing climate change. What will be in the 2007 energy bill, and what do renewable energy industry executives foresee if it passes -- or if it doesn't?

The U.S. House of Representatives passed the New Direction for Energy Independence, National Security and Consumer Protection Act (H.R. 3221), and the Renewable Energy and Energy Conservation Tax Act (H.R. 2776), which combine to repeal US $23 billion in government subsidies to oil companies, and redirect most of that money to support solar, geothermal, biomass and marine renewable technology. The bills are not law until the House and Senate agree on a version that passes votes in both chambers.

Incentives support growth industries

There are no subsidy-free sources of energy. Subsidies typically help emerging industries and technologies to get past their initial cost barriers. The interaction of the federal renewable energy electricity production tax credit (PTC) with state renewable portfolio standard (RPS) policies has forged a strong incentive for wind energy development, and we're seeing the results. The Investment Tax Credit (ITC) has likewise spurred growth in the U.S. deployment of solar power systems.

"This year the photovoltaic market is on track to grow by over 60 percent in the United States," says Rhone Resch, president of the Solar Energy Industries Association. "Much of this growth was spurred by the federal tax incentives in the 2005 energy bill. Unfortunately those incentives were too short-lived and will expire in 2008, without an extension.”

The impermanence of both the PTC and ITC has held back a renewable energy full court press in the U.S., except in certain states that have the policies and incentives to promote growth.

States doing it right

"Because of the favorable incentives that are in place in California, that's where our business has grown most rapidly," says Barry Cinnamon, CEO of Akeena Solar in Los Gatos, CA. As for the energy bill, Cinnamon's priority is "to make sure there are federal incentives so the benefits of solar power can be transmitted throughout the country."

"The 2007 energy bill, with its 30 percent tax credit and no cap, gives us the opportunity over the next 8 years to expand our markets from a few states to most states," says Roger Efird, president of Suntech America, the U.S. arm of a major Chinese solar manufacturer. "Experience has shown us that solar markets can be created when commercial customers achieve a return on their investment in seven years or less." He notes that the existing ITC created that kind of ROI only in states with their own incentives, such as California, New Jersey, Oregon and Connecticut.

Successful incentives make themselves unnecessary

"Americans want solar, and solar can go mainstream" says Tom Werner, CEO of SunPower in San Jose, CA. "The economics need to improve, and they improve by the industry scaling. The industry scales by having long-term visibility." SunPower believes it can reduce costs by half, if demand warrants scaling up production. "Provided there's a long-term market -- and the ITC would provide that -- then companies can reduce costs so there's no longer an incentive needed. I think that's unprecedented," Werner says.

Without federal support, will U.S. industry be out of the game?

"If the ITC doesn't get extended, basically concentrated solar power will stop in the U.S.," says Santiago Seage, CEO of Abengoa Solar, a Spanish developer of CSP energy plants. "The companies leaving this market will invest elsewhere, and not only in Japan and Germany. There are many countries now, worldwide, that are approving the equivalent of the ITC. We would invest somewhere else, which would be unfortunate."

Werner agrees: "Capitalism works, markets are efficient," he says. Without an ITC extension, "the industry will be focused elsewhere. Americans will be able to read about solar going to retail electric rate parity in other countries, and the U.S. will be a follower."

Country rounding third base

"If it is passed, with the extension and the residential provisions, it's going to be a turning point toward our country's energy independence," Cinnamon predicts.

"We are at a crossroads in determining America's energy mix for the future," Resch adds. "This energy bill will dramatically increase clean energy production. It creates a level playing field for energy technologies."

"At one time or another over the past 100 years, there have been statements made that seemed ludicrous at the time," Efird observes. "Things like, 'someday the entire nation will be electrified,' or 'someday personal computers will be common in almost every household.' All of these industries needed a little help when they were in their infancy. Now the solar industry needs a little help to be competitive. With that help, someday solar systems will be as commonplace as central heating and air conditioning."

Observers slide to edge of seats

The major House-passed energy bill (H.R. 3221) would extend the PTC for four years past its scheduled expiration at the end of 2008, and it would establish a national RPS with a target of 15 percent by 2020. It would establish $2 billion in a new category of clean renewable energy (tax credit) bonds, extend for eight years the 30 percent level for the commercial solar tax credit, and remove the dollar cap on the residential solar tax credit. In addition, it would establish $15.3 billion in revenue offsets from oil and natural gas provisions to support tax incentives for renewable energy and energy efficiency.

The major Senate-passed energy bill (H.R. 6) has no RPS or tax provisions. Investors, businesses and solar company CEOs are waiting for the outcome of House-Senate negotiations on a final bill. Then there's a serious risk that President Bush will veto anything substantive.

Public companies: SunPower (NASDAQ:SPWR)

Suntech Power Holdings (NYSE:STP)

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