Renewables, subsidies and commitment

Renewable energy advocates have two long-standing concerns: existing government subsidies for fossil fuels and the lack of long-term government commitment to renewable energy and efficiency.

Substantial federal subsidies make traditional energy sources seem much less costly than they really are. To make efficiency and renewables more cost competitive, subsidies to traditional sources must be cut, or renewables must be subsidized at a similar rate.

In the realm of wind energy, renewable energy advocates have finally attained their dream as federal production tax credits make wind power a cost-competitive source of energy. They also make it an investors’ bonanza as investments can be depreciated for tax purposes within six years. Incentives have brought big financial interests such as Goldman Sachs and General Electric into the wind industry.

Financial incentives have produced a wind energy boom. When tax credits were not available in 2004, less than 400 megawatts were installed in the U.S. With production tax credits, available capacity is expected to increase by 2,000 megawatts this year. We are seeing signs of that boom in Illinois in counties long targeted for wind farms.

With such rapid growth, some construction problems and broken promises could arise. We’ve already seen some minor problems such as a tilting tower at one of the installations and generator failure at another.

Since problems increase costs, they may adversely impact lease payments and tax revenues depending on how the contracts are written.

While increased wind power is a worthwhile goal for many reasons, it remains a business venture. It is important for all involved to do their homework and get good legal advice.

The boom element raises concerns among us who lived through the last one. In the latest issue of Home Power, Chuck Marken reminds readers that federal tax credits had some adverse effects on the solar hot water industry in the 1980s. While only a few installers operated in an unscrupulous manner, it was enough to damage ongoing development of the industry. The on and off nature of tax credits led to the outlook in some of “make your money today before the tax credits disappear and don’t worry about tomorrow.”

While wind farms are booming, solar sales are decreasing due to a one-year moratorium on grants and rebates from the state. In partial response to suspended state support, Spire Solar Chicago has removed its assembling facilities from Chicago, although the sales and service staff remain. Solar Service, the major Illinois installer of solar hot water systems, which persisted as a small operation for more than 20 years, faces the difficult decision of what to do with its dozen employees now that state funding has been suspended.

Mark Burger of Spire has long lamented the short-term perspective of state and federal support for solar energy and how that contrasts to the 5- and 10-year programs implemented by Japan and Germany. When these governments set installation goals and funding commitments, they followed through on their plans. Their steady commitments have paid off. Japan and Germany are world leaders in solar energy.

Fortunately, all is not lost for solar energy. Federal tax credits start Jan. 1, 2006.

The short-term perspective of our political process is extremely frustrating. When judged from the perspective of dwindling energy supplies and global warming, it is irrational and depressing.

From the Nov. 23-29, 2005, issue

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