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Summary:

Now that President-elect Barack Obama has presented his economic stimulus plan — and set a goal of doubling clean energy output within three years — it’s time to delve into what wind and solar industry insiders say will be the most crucial incentive for boosting production: […]

Now that President-elect Barack Obama has presented his economic stimulus plan — and set a goal of doubling clean energy output within three years — it’s time to delve into what wind and solar industry insiders say will be the most crucial incentive for boosting production: refundable tax credits.

In October, industry officials applauded extensions of the investment tax credit for solar and the production tax credit for wind. But with turmoil in the financial sector have come calls to revise the incentive programs. Last week, the Solar Energy Industries Association and the American Wind Energy Association joined forces to push for refundable tax credits in an economic stimulus package. We’re likely to hear a lot more about it as Congress mulls Obama’s plan.

Why does this bit of tax policy matter so much to wind and solar? The recent investment banking shakeup has left energy companies competing for financing from a shrinking pool of tax-equity investors. These investors, which not too long ago counted among their top ranks AIG, Lehman Brothers, Wachovia and Morgan Stanley, basically buy tax credits from solar energy companies and wind turbine manufacturers. As the San Francisco Business Times explains, the firms then use the credits, or tax equity, to shelter otherwise taxable income.

Why don’t clean energy companies take advantage of tax credits directly? Non-refundable tax credits can reduce a company’s tax liability to zero — but not below. (Negative tax liability essentially means you get a check from the U.S. Treasury.) So solar and wind startups, many of which take years to become profitable, may not have enough taxable income to take full advantage of credits.

Refundable tax credits, on the other hand, can drop a company’s tax liability to less than zero. That means a startup can count on a check from the government to help them get going when clean power projects come online. In boom years, the Lehman Brothers of the world have typically provided that early investment. But many of today’s remaining investment banks have acquired troubled rivals. Since 2007, the number of active tax-equity investors has dropped to just five (down from around 20 in 2007), SEIA president and CEO Rhone Resch told reporters in a call on Friday. And recent acquisitions have brought big losses onto the books of major players like JP Morgan, which captured half of all U.S. wind deals in 2007, spurring them to rethink tax plans — and turn away from clean energy projects.

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  1. The high cost of gas this past year has seriously destroyed every budget from the average family to the largest of municipalities.The average family went broke at the pump alone, then added to the misery the higher cost of manufacturing and shipping was passed on to us at the checkout for every consumer product. School districts went broke keeping the busses on the road.One police dept in my area required officers to park their car for 15 minutes of every hour just to conserve .Lower prices are not here to stay.OPEC just announced another production cut.With all these bailouts in the billions why doesn’t our nation see the need to bail us out of our dependence on foreign oil? I just read a really interesting new book called The Manhattan Project of 2009 Energy Independence Now by Jeff Wilson.I never realized it would only cost the equivalent of 60 cents per gallon to charge and drive an electric car. Also,The electricity to charge the car could come from solar or wind generated electricity. If all gasoline cars, trucks, and suv’s instead had plug-in electric drive trains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota.What powerful resources we have been neglected. The last economic stimulus package cost 168 BILLION and did absolutely nothing to stimulate our economy or create jobs.Bail America out of its dependence on foreign oil. Wouldn’t that make more sense?

  2. Rise & Shine: January 12, 2009 Monday, January 12, 2009

    [...] & POLITICS Why Refundable Tax Credits are Important for Clean Power Last week, the Solar Energy Industries Association and the American Wind Energy Association joined [...]

  3. Refundable Tax Credits | Pay4Rides Monday, January 12, 2009

    [...] is an interesting story by Josie Garthwaite entitled “Why Refundable Tax Credits Are Important for Clean Power”.  This story makes a strong case for how refundable tax credits could boost production of [...]

  4. Environmental Capital – WSJ.com : Clean Energy: How Do You Jumpstart It? Wednesday, January 21, 2009

    [...] development shrank dramatically. That’s the main reason that the wind and solar lobbies called for “refundable tax credits” that would give companies credit even if they aren’t in the black. It’s a wonky point, but [...]

  5. Clean-Energy Industry Pushes for Tax Refunds In Stimulus « Earth2Tech Thursday, January 22, 2009

    [...] U.S. House of Representatives is set to consider next week is a provision that could provide the refundability that has been at the top of the clean-energy industry’s wish list. If it becomes law, the measure could enable the hard-won federal tax [...]

  6. Obama Signs the Stimulus: What’s in Store for Clean Energy « Earth2Tech Tuesday, February 17, 2009

    [...] “essential to sustaining growth.” What’s all the fuss about? As the number of tax equity investors has dwindled, energy developers increasingly need help in earlier stages, before they have enough income to take [...]

  7. Quick Federal Action Could Prevent “Raft” of Cleantech Bankruptcies: Report « Earth2Tech Wednesday, February 25, 2009

    [...] promised to move “swiftly and aggressively” to end the credit crunch — a major obstacle for wind and solar projects — and repeated his goal of doubling the country’s clean energy output within three [...]

  8. Clean Power Grants Step In to Fill Tax Credit Gap, But Problems Remain Wednesday, September 30, 2009

    [...] federal cash grants, which will enable renewable projects to get money in lieu of tax credits and were approved back in February, could definitely help fill the tax-equity gap. Eber said, [...]

  9. PG&E Puts Up $60M for SolarCity Installations Wednesday, January 20, 2010

    [...] of its kind between a utility holding company and a power provider. It’s more common for a bank to invest in tax equity — basically buying clean energy tax credits to shelter otherwise taxable [...]

  10. SolarCity Bags $21.5M for Solar Rooftops Wednesday, July 14, 2010

    [...] country’s largest solar market, but also in Arizona and Colorado. It’s much more common for a bank to invest in tax equity for solar rooftops — basically buying clean energy tax credits to shelter otherwise taxable [...]

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