Federal Solar Energy Bill Rewards State Leadership

This week U.S. Senator Lamar Alexander (R-Tennessee) proposed legislation aimed at providing cushioning for the tight natural gas market, and solar energy has a big role to play in the process. The bill includes strong solar provisions that reflect a new approach to promoting renewable energy throughout the U.S.

Part of the Senator’s “Natural Gas Price Reduction Act of 2005” is a five-year, 30 percent investment tax credit for both residential and commercial applications of solar energy technology. On its own, the tax credit is unlikely to be a major market mover, but combined with existing and future state incentives it could significantly expand deployment for solar power throughout the U.S. Success in terms of legislating requirements and incentives for solar and other renewable energy technologies has almost exclusively occurred at the state level. The federal government has done relatively little to promote renewable energy, leaving many policy experts to conclude that renewable energy advocacy’s best efforts should be concentrated at the state level. Federal legislation, after all, is often only enacted after particular policies become commonplace throughout U.S. states. What’s new about Sen. Alexander’s approach is that it’s specifically designed with state leadership in mind. The bill straddles a fine line between enacting effective federal incentives for solar while supporting the state-based push for renewable energy. “It’s not about telling states what to do, but in giving them a choice,” said Rhone Resch, president of the Solar Energy Industries Association, the solar industry’s trade association based in D.C. That 30 percent tax credit is taken after any existing state credits. The idea is that the Federal government plays a supportive role to states that are willing to invest in solar. This will not create a market on its own, says Resch, but it leverages existing state dollars further and creates an incentive in those states that are considering renewable energy legislation to go ahead. “It’s a newer model,” Resch said. “The real leadership on energy policy has come from the states, and this bill recognizes that leadership.” The five-year, 30 percent investment tax credit would be capped at $7,500 for residential solar PV and solar thermal projects, and be unlimited for commercial projects. A 10 percent investment tax credit currently exists for solar, but that’s not enough to stir the residential market. The credit is even less effective at inspiring investor confidence in commercial-scale Concentrated Solar Power (CSP) projects. With CPS projects in mind, Sen. Alexander’s bill includes a Production Tax Credit (PTC), just like the tax credit the wind power industry has available for 2005, that will provide a 1.8 cents / kWh tax credit for five years. Combined with the 30 percent investment tax credit during the same duration, a new round of CSP development could occur — most likely in the desert southwest. “This is necessary because this industry hasn’t build in a CSP plant in 15 years,” Resch said. “Combined, these incentives will reduce the risk of a project. Investors need assurance in capitol cost and a reduction in overall commodity price. It’s not permanent, but it creates a five year double credit window.” While these provisions are being hailed by the solar industry as some of the most exciting recent federal developments towards promoting renewable energy, they are at the beginning of a long, bumpy Congressional road. The endgame for legislation like this is that it will be included in a large, comprehensive energy bill, which will likely be debated and finalized throughout the summer. Sen. Alexander is Chairman of the Senate Subcommittee on Energy. As a prominent Republican floating a proposal in an energy bill process that’s controlled by Congressional Republicans, Sen. Alexander’s effort stands a better chance of navigating the congressional road. “What’s unique is that we have a Republican in a leadership position representing strong solar incentives,” Resch said. Ultimately, though, Senate Energy & Natural Resources Chairman Pete V. Domenici (R-New Mexico) will play a major role in whether portions of the Senator’s bill survives. So far, that’s clearly a possibility according to Sen. Domenici himself who already commented on Sen. Alexander’s proposal. “I…compliment [Sen. Alexander] for putting forth potential solutions to the looming natural gas crisis,” Sen. Domenici said. “I think some of his provisions should be included in the comprehensive energy bill we will mark-up in committee later this spring.” And that’s the crux, according to Resch. “Our challenge now is to make sure the solar provisions are part of the cream that gets skimmed off the top and put into the larger bill,” he said.

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