Future of renewable energy uncertain as tax breaks fade

Feb 9, 2012

It's not looking good for subsidies for renewable energy.

A 30 percent upfront tax credit for commercial renewable power projects known as the 1603 program expired at the end of 2011.

Another 30 percent credit for wind projects, that's a part of the long-debated payroll tax bill, is scheduled to expire at the end of 2012.

And while there are still a host of incentives offered by states and the federal government that remain unaffected, the question is inevitable:

Is the federal government preparing to cut loose the renewable power industry?

Delays, layoffs

The possibility of losing the wind farms incentive has caused a pause in that industry, according to Carol Murphy, of the Alliance for Clean Energy New York.

"We've seen projects put on hold," says Murphy. "We've also seen a number of companies that are member companies of ours laying a large number of people off."

To wit: This month, the Iberdrola Renewables announced 50 layoffs, with uncertainty about the expiring wind credit taking the blame.

New York City-based Everpower is also putting on hold a new wind farm in the Southern Tier town of Allegany. That wind farm is facing a lawsuit brought by locals, but what's really stymied the project, says company's CEO, Jim Spencer, is the unclear future of federal tax breaks.

"These are multi-million dollar projects, you need to know that that tax credit is going to be available well into the future," Spencer says.

Perfect competition

A 2011 report [PDF] by San Francisco venture capital firm DBL Investors makes clear the connection between federal subsidies and the dominance of specific energy sources.

From land grants to timber companies, to an entire railroad system laid out to transport coal, energy industries have always had healthy help getting off the ground.

A telling passage from the report, entitled "What Would Jefferson Do?," quotes a 1981 Department of Energy report:

Some argue that the consumer can purchase warmth or work or mobility at less cost by means of coal or oil or nuclear energy than by means of sunshine or wind or biomass. The argument concludes that this fact, in and of itself, relegates renewable energy resources to a small place in the national energy budget. The argument would be valid if energy prices were set in perfectly competitive markets. They are not. The costs of energy production have been underwritten unevenly among energy resources by the Federal Government.

Catch that? The markets aren't "perfectly competitive."

It was true then, and it's true now. The report notes that in their first 15 years of existence, the oil and gas industries took home five times more in subsidies than renewables netted in their first 15 years.

But compare that with data collected by the Congressional Research Service, which shows that between 2010 and 2014, renewable energy will take home $49.2 billion in tax incentives, while fossil fuels will only net $12.2 billion.  

So when it comes to competition, renewables have the momentum - but fossil fuels have a century-long lead.

Renewable support under fire

In a September hearing of the House Oversight Committee, California Republican Darrell Issa portrayed federal support for renewable power as a waste of money.

"Looking back on the Obama green energy record three years and billions of taxpayer dollars later, the American taxpayers have received very little return on the president's signature investment," said Issa.

The increased scrutiny comes after the high profile failure of solar company Solyndra, a startup developing new solar technology, but Issa's focus was on the premise of support for renewable energy.

President Obama relied on a false pretense – that subsidizing green energy, as other nations such as Spain, Germany and Japan did would result in good, high-wage jobs when in actuality, nations such as Spain, Italy, Denmark, Germany and the UK have struggled with job destruction, higher energy cost, and loss of taxpayer dollars as a result of pursuing such policies.

Maureen Reno, of the Union of Concerned Scientists, says that it is still far too early to expect that renewables will be able to compete with fossil fuels.

"Ideally, if you want to, say place a limit on how long you want to subsidize renewable energy, you'd want to subsidize it until what's called market transformation is complete," said Reno.

That would require the same kind of federal support that supported coal through the 19th century, and oil through the 20th century.

But despite the obstacles to gathering that kind of support, wind company CEO Jim Spencer, is optimistic about his industry's ability to rally.

"Costs have been falling pretty dramatically, so you know in the last 20 years, the cost of wind production has decreased by more than 100 percent - so wind is becoming much more competitive."