After decades of subsidizing fossil fuels, it’s clean energy’s turn to get bountiful federal support, President Obama said in his State of the Union address on Tuesday.
On this issue the president emphasized two goals. The first was to pass a federal clean energy standard to require utilities to buy a certain percentage of their electricity from cleaner sources by 2035; the second, to act on expiring tax credits and pass new ones, including a new $5 billion subsidy to prop up clean energy manufacturers.
The policies are meant to eliminate risk to private investors and accelerate the boom in renewable-power plant construction. Obama said they’ll help “double-down on a clean energy industry that’s never been more promising.”
But do the country’s clean energy advocates, analysts and investors agree? InsideClimate News asked several leading U.S. players to weigh in on the president’s policy choices.
A Clean Economy Jump-Start, but What About R&D?
Rhone Resch, president and CEO of the Solar Energy Industries Association, the trade group for the American solar industry, said the president’s calls for a clean energy mandate and tax breaks cut “to the heart of energy development overall.”
Traditional energy sectors, like oil and natural gas, have benefited from heavy support for nearly a century, so it’s only logical to similarly use public money to build a renewables sector with staying power, he said. For example, federal subsidies for oil and gas have averaged nearly $5 billion a year dating back to 1918, compared with $370 million a year for renewables between 1994 to 2009, according to a report from DBL Investors, a venture capital firm in San Francisco. (For the third year in a row, Obama has called on Congress to end subsidies to oil producers.)
Resch said long-term government support could bring down the price of renewable power so it can compete more easily. The cost of installing solar panels in the U.S. has already dropped nearly 30 percent since 2010, due mainly to temporary subsidies from the economic stimulus and the Section 1603 cash grant program.
“By having longer-term policies that provide stability for businesses to scale up both their manufacturing and their installations, we’ll see costs continue to come down—such that solar, wind and other technologies will be cost-competitive with fossil fuels,” he said.
Daniel J. Weiss, a senior fellow and director of climate strategy at the Center for American Progress, a liberal research organization, called the two policies “a jump-start for the clean energy economy.”
Like other clean energy supporters and industry executives, Weiss said tax breaks “level the playing field” between green technologies and conventional energy sources. A federal clean energy standard would guarantee market certainty and spur private sector investment, he said.
“That’s exactly what our economic competitors are doing in Germany and China,” Weiss added, echoing Obama’s warning that without greater federal support America would cede its wind, solar or advanced battery industries to manufacturers in those countries.
But Timothy Newell, a senior adviser at U.S. Renewables Group, a private equity firm that manages more than $750 million in assets, said that if the goal is to build the clean energy economy, then Obama missed a third, crucial component: to subsidize early-stage clean technology research and development.
“Investing in the basic research and technology, which will then ultimately be deployed by the private sector … is one of the most fundamental and successful roles of government in terms of building our economy,” Newell said. “Those three things together—as the legs of the stool, so to speak—form the foundation of policy support for the industry that’s needed.”
Frank Maisano, an energy and environmental expert at Bracewell & Giuliani, a law and lobbying firm in Washington, said he’s not optimistic that Obama’s approach can spur a renewables boom, especially in the short term. An abundant supply of natural gas, which is now the cheapest option for new power generation, is likely to steer energy developers away from renewables and toward the fossil fuel, he said.
As part of his energy goals, Obama announced plans to crank up natural gas development and urged Congress to pass tax credits for companies to convert trucks from diesel to natural gas.
Obama’s PTC Shout-Out Gives Wind Industry Hope
Natural gas could become an even better bargain if a critical wind industry tax break, known as the production tax credit, or PTC, is left to lapse at the end of this year.
The incentive gives wind operators 2.2 cents for every kilowatt-hour of electricity they produce and allows turbines to compete financially with coal plants. It was first enacted in 1992 but has lapsed several times—each time essentially paralyzing the industry and forcing job losses into the thousands, according to industry estimates.
The wind industry is furiously trying to get Congress to tack a four-year PTC extension on the payroll tax holiday bill, which Congress is expected to hammer out by the end of February.
The PTC was the only tax incentive Obama specified in his energy blueprint released after the State of the Union.
That’s no small thing, said Maisano. “The fact that [Obama] has made it an issue … means it actually have a good chance of making it across the finish line,” he said.
Resch of SEIA said the solar industry will try its luck at attaching the popular Treasury grant program to the payroll tax holiday bill. The stimulus-backed incentive, which expired on Dec. 31, allowed renewable energy developers to apply for a cash payment worth up to 30 percent their project costs.
The idea behind the program was to give developers access to upfront capital during the recession. It doled out more than $1.3 billion to some 6,300 solar projects over nearly three years, according to solar industry figures, helping to drive $4.5 billion in private investment and supporting more than 100,000 jobs.
However, given the Solyndra solar fallout its renewal is a longshot, though Resch said he sees renewed hope following the State of the Union. “Having the president highlight the value of these particular policies … elevates the discourse amongst Congressmen about including provisions like the 1603 program in the payroll tax extender bill in February,” he said.
As for the clean energy standard, even its biggest supporters, including the architect of the plan, Sen. Jeff Bingaman (D-N.M.), have noted that its prospects are bleak in the current Congress. “This is a difficult environment in which to get anything major done. We all recognize that,” said Bingaman, the Hill reported.
The senator said he will unveil a bill in early February that defines the standard for the first time.
Obama presented two clean energy initiatives he can enforce under his own executive authority without congressional action: issuing permits for renewable generation capacity on public lands—enough to power three million homes by the end of 2012—and securing renewable power for the U.S. Navy.
Weiss of the Center for American Progress said these initiatives could help make solar cheaper. “Once you start building a certain amount [of clean power]… you are able to have economies of scale, and the price comes down,” he said.
New Trade Unit Could Help Cleantech Manufacturers
Another proposal in the State of Union received less attention, but it could be a big benefit for clean energy manufacturers—the creation of a Trade Enforcement Unit to investigate “unfair trade practices” in places like China.
In recent months, American solar and wind energy companies have ramped up accusations that Beijing is illegally subsidizing Chinese cleantech companies in order to sell their goods in the United States for less than they cost to produce.
“It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized,” Obama said in his speech.
The president provided no details on how the trade unit would operate, or even if it would serve clean energy manufacturers.
But Timothy Brightbill, an attorney with Wiley Rein, a law firm in Washington, told InsideClimate News that the unit could create a powerful tool to protect U.S. green energy industries from the potentially harmful trade practices of overseas competitors.
Wiley Rein represents two major clean energy coalitions, the Coalition for American Solar Manufacturing and the Wind Tower Trade Coalition. Both groups have filed trade petitions with the U.S. Commerce Department and the U.S. International Trade Commission.
In its Oct. 19 complaint, the Coalition for American Solar Manufacturing, a group of 150 U.S. solar firms, said heavily subsidized Chinese firms were flooding the U.S. market with cheap solar panels, making it impossible for American companies to compete on their own turf. The Wind Tower Trade Coalition, made up of four manufacturers, has levied similar charges against Chinese and Vietnamese imports of steel towers for wind turbines.
Both cases could result in import penalties of hundreds of millions of dollars on Chinese solar panels and wind power parts.
Brightbill said the main benefit to U.S. cleantech manufacturers of the Trade Enforcement Unit is that it will enforce tariffs. Currently, it’s common to “see efforts [by Chinese companies] to circumvent any duties or tariffs that are put in place. Products that come from China show up labeled as made in another country,” he said.
Stricter enforcement means economic gains, Brightbill noted. “We think there’s great potential to increase U.S. jobs in this sector through better trade enforcement.”
Chinese manufacturers and trade officials have rebuffed such charges of foul play. They warn that the probes will raise costs for American solar and wind developers and damage U.S.-China cooperation on clean energy.