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Policy Outlook 2012: Don't Expect Much From Washington

Political turmoil has enveloped 2011, and it is expected to set the scene for the coming year. The late-August Solyndra bankruptcy news cast a dark mark on the Department of Energy (DOE) loan program, which is fueling an already fiery Washington D.C. climate. The heated political atmosphere has already affected a biofuels industry facing a $6 billion cut in tax breaks for ethanol producers. It also is poised to impact debates on the set-to-expire 1603 cash grant and the Production Tax Credit (PTC) for the wind, hydro, geothermal and biomass industries.

So what does this all mean for 2012?

Federal to State Focus Shift

Due to the uncertain political climate, the focus may change from building incentives at the federal level to individual states. The Solar Energy Industries Association (SEIA) plans to hone in on state markets, according to Rhone Resch, president and CEO of SEIA. "We are expanding into state policy...It's an election year, so we'll see limited work done by Congress. It will be very difficult for Republicans and Democrats to work together and push forward clean energy legislation. We have great opportunity at the state level."

Key states are expected to bolster growth throughout the U.S. California and New Jersey are obvious front-runners with their aggressive incentives, but innovative programs are popping up across the country.

"We really like what we are seeing in New York and Connecticut, [which] have not been traditional solar markets," said Robert Lahey, senior legislative analyst at Ardour Capital. Connecticut has established the first state-level "green bank." The Clean Energy Finance and Investment Authority will provide low-cost and/or increased financing to clean energy and energy efficiency projects. "We look for these states that haven't been markets in the past and become ones that can possibly serve as models in other states," said Lahey.

Out With the Old?

Though there is movement away from federal advancement for the time being, work continues to extend the 1603 grant. But some experts argue that the 1603 grant is no longer necessary for industry growth. While it was a key growth factor for a previously tight equity market, Lahey believes that there is enough new demand for continued market growth. "Keep in mind that while [the 1603 grant] was great, it was only good for a one- to two-year period. While the structure was friendly to the business community, the uncertainty and short period was not," said Lahey.

Lahey also believes that the future lies in Investment Tax Credits (ITC), which are reliably in place until 2016. These credits are available at 30 percent for solar, small wind (up to 100 kW) and fuel cells, and at 10 percent for geothermal systems, micro hydropower turbines and combined heat and power (CHP) systems, which include biomass. As extra incentive, a 30 percent credit, is available until 2013 for several geothermal and biomass systems, and until 2012 for wind systems of all sizes.

"The ITC is the most appropriate for a system as diverse as [the U.S.]. It doesn't kick-start demand like we saw in some Euro countries, but it also poses less risk and creates a more sustainable long-term market," said Lahey. "As system prices fall, so does the ultimate bill to the government, so the market doesn't overheat. The government doesn't have to intervene because [the ITC] adjusts to system costs."

Signs of Progress

Renewables need stability and certainty to move forward, and while the government is undergoing difficulties, it has developed a solar-specific plan in the West. The Solar Programmatic Environmental Impact Statement (PEIS) aims to set development on public land across California, Nevada, Arizona, Utah, Colorado and New Mexico. The plan was revised from last December after the Interior and Energy departments received more than 80,000 comments from developers and conservationists. It is now set to cover 287,000 acres of land across 17 zones and offers expedited, easier permitting due to previously studied wildlife threats and other resource concerns.

In a recent interview, SEIA's Resch said, "there are some significant areas of concern regarding the viability of a solar-energy zone approach," and the Solar PEIS will "set the rules of the game for project development over the next 20 years, and it is critical that we get it right."

But many have been clamoring for permitting easements. According to Matt Ziskin, senior director of marketing at Sunwize, permitting costs and time are some of the biggest obstacles to overcome for solar projects. "We went through our portfolio to determine how much it costs us to sell a system, and in each category prices went down - except for one, permitting. Costs actually went up," he said, "a national standard would actually make life easier for installers." Programs like Solar PEIS may help cut costs and move the industry forward at a faster rate.

Fong Wan, senior vice president for energy procurement at Pacific Gas and Electric Company, is encouraged by the Solar PEIS plan. He stated that it would likely bolster the industry and quickly move the U.S. toward achieving its renewable energy goals.

The Bottom Line

While some progress is being made, Lahey said we shouldn't expect much from Washington in 2012. "It's not just energy, most industries will not get a lot done with the election looming," said Lahey. "Industries need a permanent presence in Washington D.C. working with both Republicans and Democrats."

Despite this uncertain policy outlook, Resch holds a strong stance. "When I look at 2012, I think the greatest opportunity is to expand emerging...markets and create strong incentives," he said. "The most important thing that we need to do is continue the existing policies we have and provide some policy certainty for the industry that exists today [to] grow businesses and create jobs."

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