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When oil prices spiked last summer, investment in any renewable energy project seemed like a prudent, and even necessary decision. Within months, however, the cost of oil dropped, the economy tanked, and priorities shifted.
"Any time conventional energy prices drop, it impacts renewable energy spending," notes Ying Wu, senior analyst for Lux Research, a New York-based emerging technologies research firm. "Solar is more expensive now that fossil fuel prices have gone back down."
That spells doom for business owners and investors looking for short-term returns on their investments, but those taking a long view are more likely to see renewable energy as a worthwhile, especially with the American Recovery and Reinvestment Act of 2009 stimulus package offering billions in green power incentives which, in some cases, may offset up to 50 percent of some renewable energy installations.
Tight credit, however, remains an obstacle.
"For companies that have already made an investment in solar projects, such as Yahoo and Wal-Mart, they will probably continue to make solar part of their energy mix," says Wu. "But companies that were just beginning to look at investing in renewable energy are slowing down, and financing for unfunded projects is getting delayed."
Though several solar companies have announced major layoffs because of collapsed financing, Monique Hanis, spokesperson for the Washington, D.C.-based Solar Energy Industry Association, believes the stimulus package, signed by President Barack Obama three weeks ago, will help turn things around. The measure includes $16.8 billion for the Department of Energy Office of Energy Efficiency and Renewable Energy (EERE), a nearly tenfold increase.
| Three Reasons Why Renewable Energy is Worth a Second Look |
|
• New federal tax incentives make renewable energy projects more beneficial than ever. Analysts suggest you can offset up to half of the total cost of the project by taking advantage of these incentives.
• Many states offer further tax incentives and grants to promote renewable energy growth. Speak to your local utility company to identify resources, partnerships and other opportunities to offset the cost of renewable projects.
• Despite the fact that fossil fuel costs have dropped, pending climate change legislation and an uncertain economy could spell price volatility. Investing in renewable energy is an excellent way to hedge your costs. |
"We expect provisions in the bill to stimulate demand, open up financing and create jobs," she says. "We are hopeful that the renewable energy grants, removing a penalty for subsidized financing, and loan guarantees will help free up the credit and investment markets and that the manufacturing tax credit will scale up U.S. manufacturing, which will keep prices coming down."
Lux analyst Johanna Schmidtke agrees. "The final stimulus bill offered a range of incentives for renewable energy," she says, pointing out the $6 billion earmarked to support loan guarantees for renewable energy and electric transmission technologies. The funds are expected to guarantee more than $60 billion in loans.
"That should encourage greater investment from private sector companies who can benefit from these grants," she says. "It should generate a big uptick in renewable energy generation."
Even before the stimulus bill was signed, certain regions still showed enthusiasm for solar energy, Hanis said. In California, for example, the number of grant applications for business and residential solar projects hit record highs in the last five months of 2008. And while she expects that interest to wane in '09, she thinks it will be temporary and localized.
"You'll still see activity where there are federal and state incentives for solar," she says. Along with California, she expects progress to continue in Pennsylvania, Ohio and New Jersey, where government programs to support solar investment remain strong.
"I got a call from a manufacturing company in Pennsylvania just yesterday that is still moving forward with a solar water heating project," she says. "And they are very excited about it."
She notes that several major businesses are also showing strong public commitment to solar, despite the economy. For example:
-- Global retailer Wal-Mart announced in January that its Mexican unit installed 1,056 photovoltaic panels on the roof of the Bodega Aurrera Aguascalientes retail center in the city of Aguascalientes in central Mexico.
-- Kohl's, the specialty clothing retailer based in Menomonee Falls, Wis., is currently converting four of its nine stores in Oregon to solar power, and also has solar projects underway in California, Connecticut, Maryland, New Jersey and Wisconsin.
-- As part of achieving its pre-certified LEED Gold status for all new store construction, Office Depot will install photovoltaic solar arrays to offset 11 percent of the building's total annual energy costs, and will include active solar tracking skylights that provide light to than 75 percent of the store. These plans will be implemented on every new store construction project going forward.
-- In the next redesign of its hybrid Prius automobile, automotive manufacturer Toyota plans to install solar panels on the vehicle's roof. The panels will power the air conditioning system and fuel its operation even when the main engine is turned off.
"There are definitely pockets of activity," she says of these and other initiatives. "But the larger projects will need additional funding to survive."
A Little Help from Uncle Sam
The new administration, along with the benefits included in the stimulus package, should boost all renewables industries, suggests Karlynn Cory, senior renewable energy analyst for the National Renewable Energy Laboratory (NREL), a renewable energy research and development lab in Golden, Colo.
"It was definitely a step in the right direction, and a lot of issues around liquidity and the tax market got addressed," she says.
One of the most promising additions was the extension of production tax credit (PTC) to 2012 for wind, and to 2013 for all other renewables. The PTC provides a 1.9-cent per kilowatt-hour (kWh) benefit for the first 10 years of a renewable energy facility's operation.
The extension also allows utilities and businesses already paying the alternative minimum tax (AMT) to take advantage of that credit, which creates greater incentives to invest in renewable energy. In the past, those companies that took advantage of the AMT were not eligible.
National Policy
Mr. Pouchet is recommending rebate schedules, tax exemptions, exclusion from sales and property taxes and cheap financing.
This all points out the fact the residential solar PV is not cost effective.
Why should a solar customer ask other tax payers to pay for his/her installlation? Some of the installations I'm seeing in my state - the customer is only paying one third of the installation cost.
This is ridiculous. We should focus our efforts on more cost effective efforts.
It comes down to economics
Alternative energy systems are still far too expensive. Solar Thermal due to scale can be competitive with traditional power plants but most companies and consumers don't require 20 megawatts of capacity. Hence solar thermal is the domain of the utility companies and large energy investors.
Wind, though much more competitive with grid power than PV has a two-year backlog for new turbines, regional permitting issues, and just go out and try to buy only one 3 MW turbine. No one wants to sell just one. So again unless you are a utility or energy investor wind won’t play.
Now we come to solar PV - the darling of the media and energy source for legions of political pundits, environmental groups (disclaimer - I am an active member of NRDC, UCS, and Sierra Club), and the politicians themselves who spout green job rhetoric as if it were fact. Sadly the fact is solar PV for the average business or consumer in the USA even with all incentives and rebates has a twenty (20) year payback or worse! Often the simple payback is north of 30 years.
This doesn't fly and it will not lead us to a shinny promised future of millions of new green jobs. Anything beyond a five-year simple payback for renewable energy systems is a non-starter especially when the full burden of energy production, safety, availability, maintenance, insurance, etc. falls on the individual energy consumer and not the utility that gains all of the production benefit.
In order to make consumer/residential level solar PV financially viable we need a national policy that:
1. Establishes a fixed rebate schedule of $5 per watt declining 1 for 2 based upon a total installed cost starting at $10 per watt. (ie - $8/W installed nets a $4/W rebate)
2. All solar PV installations are exempt from sales tax
3. All solar PV installations are excluded from the building property tax basis
4. Establish a local - State, County, City, Municipal ten-year bond funding program for Solar PV, Wind, small-scale Hydro, and Natural Gas refueling infrastructure with bonds being sold at 4% and funds made available at 5%. (this provides a positive cash flow to the agency for a change!)
5. Enable all such funds used in 4 above to be repaid via a ten-year property tax levy on the property where the assets are permanently attached.
Without the above there is no way we will see a million rooftops of PV in less than 10 years.
Jack Pouchet
Director Energy Initiatives
Emerson Network Power
The renewable energy industry needs customers, not subsidies
It will be very difficult for any kind of business to get loans over the next few years, as the Federal Government will be sopping up every penny of financing it can get its hands on to finance the budget deficit and the ongoing bailouts.
Federal involvement in the renewable energy industry, in the long run, will be anything but beneficial. As the article suggested above, most of the government money will be furnished to provide subsidies for projects that probably don't make sense on their own. Loans will also be guaranteed for projects that probably wouldn't receive loans under normal circumstances, but since the Government is pledging our tax dollars, now it's okay that we, the tax payers, underwrite the risk.
The Federal Government currently makes more money on oil than the oil companies themselves. In the long run, when the government seriously starts running out of an endless line of credit, their policies will favor those which bring in the most revenue. This either means they will start favoring oil again, or start taxing renewable energy.
The only true change of thinking would be to remove taxes from oil, thus removing governments bias for oil. The government should stay clear of offering incentives to the renewable energy industry lest they spur unprofitable growth. The best course of action is for the Federal Government to be a purchaser of renewable energy. The renewable energy industry needs customers - not subsidies.