T. Boone Pickens has been expending a lot of energy boosting the "Pickens Plan" to invest in natural gas and wind power. He might get more mileage if he devoted some of that time to persuading Congress to extend the tax credits that have helped fuel growth in the alternative energy field. If the credits are allowed to expire at the end of the year, the wind and solar industries may end up being as limp as a ship's sails on becalmed seas.
Until now, the solar credits have required an annual renewal by Congress, but the top proposals currently being debated extend them for eight years. In typical Washington fashion, however, the bills are languishing.
Some companies are preparing for the possibility that the credits won't get passed. The CEO of SunPower
Our politicians like to talk a good game about helping wean us off our dependence on foreign fossil fuels, but they won't let something like that get in the way of good partisanship.
A sunny disposition
The solar tax credits give consumers a 30% rebate on the cost of installing a solar-energy system, so long as the system isn't going to be heating your swimming pool or hot tub. While the credit is currently capped at $2,000, the proposals would double that amount.
The solar industry grew 43% last year, adding 110 megawatts of new capacity. In sunny states like Arizona -- where it gets 300 days of sun a year -- utilities are under the gun to produce 15% of their electricity from renewable sources by 2025. Solar energy would obviously be a key part of achieving that goal.
A wind-swept opportunity
Since having individual windmills apparently isn't a popular solution, the wind industry has been benefiting from a production tax credit (PTC) that provides a 1.9-cent per kilowatt-hour (kWh) benefit for the first 10 years of a facility's operation. The PTC has had more of a spotty history, having been around longer, and is also subject to lapses in congressional authorization. The maturity of the industry is demonstrated by the fact that one-third of all power capacity added in the U.S. last year -- more than 5,200 megawatts -- was from wind, while it's been growing at a 29% average annual rate since 2003.
Not only are General Electric
Give credit where it's due
A tax credit is generally more valuable than an equivalent tax deduction, because credits reduce your tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed. Beginning in 2006, consumers were able to itemize their alternative energy purchases on their federal income tax forms, lowering the total amount of tax they owe the government.
Energizing the bottom line
Investors would also be wise to note that if the credits are not passed, investments in these companies might not be as attractive as they otherwise would be, as demand might take a hit. Solar stocks plummeted when Germany considered fiddling with its incentives, and Spain is doing likewise. If the U.S. joins the chorus of countries eliminating subsidies, residential and commercial consumers might not be willing to bear the full cost of installing alternative energy systems.