Senate Victory for Renewable Energy Tax Credit

An extension of the wind industry’s coveted tax credit, including its expansion to solar energy, cleared a major hurdle toward becoming law this week with the successful passage in the U.S. Senate of S. 1637, the so-called Corporate Tax Bill. In addition, solar energy also gained a 15% residential tax credit.

Washington, D.C. May 13, 2004 [] The bill’s initial purpose was to bring the U.S. into compliance with world trade regulations, but key renewable energy measures managed to catch a legislative ride. These measures joined an approximately US$14 billion in tax incentives that were originally contained in the stalled energy bill which has languished in the Congress since its defeat last fall. The corporate tax bill would repeal a tax break for exporters that has been deemed an illegal trade subsidy by the World Trade Organization (WTO). As a result of the WTO’s ruling, the European Union imposed a tariff on some U.S. goods now at 7% and slated to increase by one percentage point a month, up to a maximum of 17%. This stiff financial penalty for U.S. business is the key item pressuring Congress to pass the corporate tax bill this year, and is considered by many to be “must pass” legislation. The cloture motion (which effectively ends debate on a bill and forces a vote) succeeded by a vote of 92-5. Earlier, Sen. John McCain of Arizona introduced an amendment to strip the energy tax incentives from the bill, but that amendment was defeated, 13-85, with little debate. Most importantly for the wind power industry, the bill contains a full three-year extension (to December 31, 2006) of the Production Tax Credit (PTC) providing 1.8 cents per kWh (adjusted for inflation). Congress’s failure last year to extend it before its expiration in 2004 has thrown the wind power industry into the doldrums, stalling construction of many projects across the United States and forcing companies to lay-off workers and cut costs. A reinstated PTC would turn around the wind power industry immediately and give a solid boost to other renewable energy industries as well. “Today marked a huge step forward for the solar industry,” said Colin Murchie, Director of Government Affairs for the Solar Energy Industries Association (SEIA). The incentives for the solar industry include a first-in-a-generation 15% residential tax credit for photovoltaic (PV) and Solar water heating, as well as expansion of the PTC to solar in a manner that is usable for central solar power stations (Concentrated Solar Power or PV selling power through a third party.) The PTC will also be extended to geothermal, small irrigation hydro power, municipal solid waste, and additional forms of biomass. Much to the National Hydropower Association’s (NHA) chagrin, the only renewable energy left out of this package was so-called “incremental hydropower.” According to the NHA, The U.S. Department of Energy identified in 1999 approximately 4,300 MW of potential power that could be developed at existing hydropower facilities by increasing plant efficiency or adding capacity. This later became known as “incremental hydropower” in various versions of Section 45 PTC legislation introduced in Congress since 2001. “NHA is extremely disappointed that our calls for including a substantive role for hydropower in policies designed to encourage new renewable energy growth in the United States largely fell on deaf ears,” said Linda Church Ciocci, executive director of NHA. “Without financial incentives, a large amount of hydropower potential will continue to sit unused at a time when we clearly need more clean, domestic energy.” Despite the NHA’s loss, nearly everyone else in the renewable energy industry would agree passage of the Corporate Tax bill was a crucial legislative victory with the potential act as a financial catalyst for increased use of renewable energy during a time when both jobs and foreign energy are a major national concern. Success however, is far from certain. At the very least, it is still a ways off. Final action still requires U.S. House of Representatives passage of a similar bill, a conference committee to finalize differences between House and Senate versions of the bill, and one last vote in the House and Senate to approve the compromise bill before it would be ready for the President to sign into law.