Give Me Incentives, Or Give Me Death
2007-03-26
By Nick Hodge
Last week, Baltimore played host to the GreenTech Conference & Exposition--a convention geared towards facilities managers looking to make their buildings greener and more sustainable.
It was there, while attending a breakout session about energy rebates and incentives, that Mark Jewell, founder and president of RealWinWin, an energy efficiency consulting group, offered this query: Should the tail of incentives wag the dog of energy efficiency?
You would think not. But this is truly the scenario in which we currently find ourselves.
You see, as Washington finally starts to comprehend the looming energy crisis (provoked almost entirely by voters), new incentives are being enacted to establish alternative means of producing energy and increasing energy efficiency.
But these incentives have one major glitch.
They simply lack the duration needed for the market to fully respond.
Wagging the Solar Dog
For the sake of relevance, let's focus on the Energy Policy Act of 2005 (EPACT).
EPACT created a commercial and residential investment tax credit for fuel cells and solar energy systems. The incentive applies from January 1, 2006 through December 31, 2007, and has recently been given a one year extension.
The problem here is the amount of time the incentive is applicable. One year is hardly enough to satisfy the hunger of an industry with so much growth potential. It's like feeding a young Great Dane from a poodle's bowl.
And this doesn't do a whole heck of a lot to secure institutional confidence either.
Granted, big money outfits like Goldman Sachs and The BlackRock Group have poured millions into solar.
And Venture Capitalists pumped $378 million into solar just in 2006.
But many believe these numbers could triple--and even quadruple--if the tax credit is extended beyond one measly year.
You see, a lot of these guys are hesitant.
And they should be!
The solar market holds massive amounts of potential for investors. Increases in energy consumption and mandated decreases in dirty fuel sources provide the Pavlovian dinner bell. But until the costs of solar come down--dinner cannot be served.
However, many in the industry believe that within 8 years, with the continuation of the tax credit, these costs could come down far enough to allow the industry to operate competitively.
Because every solar panel purchased makes the next one cheaper.
In fact, each cumulative production doubling drops the price by about 20 percent.
At this rate, coupled with increasing energy costs across the board, solar will become competitive.
And if solar can be operated competitively…nothing will stop it.
That's why so many investors are hanging on the extension of this tax credit.
So the question is--will it happen?
It's hard to be 100% on this. But it is looking good.
Securing America's Energy Independence
The Securing America's Energy Independence Act of 2007 was introduced on January 17th. It calls for the extension of the solar tax credit for another 8 years--until 2017.
Passing this bill would foster phenomenal growth in the solar industry. In fact, it's estimated that if passed, investment in solar energy would soar to $45 billion, and create 55,000 new jobs.
And let's face it, the industry and investors have already seen firsthand just how fast the market can grow when these kinds of initiatives are enacted.
Japanese PV production-which accounts for 49 percent of the world total-has benefited from a variety of government incentive programs. These include a budget allocation of 20.5 billion yen ($186 million) in 2003 for research and development, demonstration programs, market incentives, and net metering.
Japan has become the world leader in both production and installation of solar cells with the advent of these programs.
Germany, the second largest market for photovoltaics, became a dominant factor with the 100,000 Roofs Program, launched in late 1998, which provided 10-year low-interest loans for PV installation.
Germany has another program, initiated in 1999, which permits most consumer applications to receive 45.7 euro cents per kilowatt-hour ($.56/kWh) for solar-generated electricity sold back to the grid. The rising number of market implementation programs, as well as various regional incentive programs, provides a bright outlook for the solar industry in Germany.
Now investors that were able to tap the German and Japanese solar market early on have cleaned up.
Because the fact is, there's no denying that with long-term solar incentives in place, photovoltaic production increases.
Take a look:
As you can see, the U.S. has been flat lined here for more than a decade.
But with the extension of the solar tax credit, that's finally going to change.
And the revenue that'll be generated will dwarf anything the industry's ever seen.
Of course, some will shake their fists and curse any kind of tax-generated support for the solar industry. But certainly that's how Big Oil's been operating for decades. Why else do you think you're not paying $15 a gallon at the pump?
Regardless, if this extension happens, there's no denying that solar investors are going to clean up.
And really, that's what it all boils down to here, folks.
Making money!
So we'll continue to follow the progress of this tax credit extension at Green Chip Stocks .
And rest assured, as it moves closer and closer --we'll keep you posted.
Nick Hodge
energyandcapital.com |
