Alternative Energy: A Look Under the Hood

It's been a while since I've posted on this. Mostly that's because of real life, but also a lack of good sourcing. After a long time looking, I finally found a pretty concise description of how wind and solar energy developments were financed, and how they are going to be financed in the near future. Please read this very carefully if you care about the topic.

Here is the key graph for "the old way" it worked:

"This is how it worked: Large financial institutions like AIG, Wachovia, J.P. Morgan, Wells Fargo, Lehman Brothers and others would buy federal tax benefits from renewable energy startups that did not have enough taxable income to use the credits on their own.

In other words, big financial firms traded financing to offset tax liability. So-called tax-equity investors would bankroll a solar or wind project in exchange for a tax shelter, which was effectively pinned to profits. The system worked as long as Congress renewed the federal investment and production tax credits that granted developers a range of incentives, and it was widely viewed as a essential avenue within the renewable energy development community.

No more. The system, like other schemes crafted by insiders, has crumbled as AIG, Lehman and others have collapsed. The big boys no longer have cash to bankroll projects or the means to pull the profits to get credits, so the tax-equity space has turned into a financial dead zone."

Obviously that method is no longer "operational".....

So enter the American Reinvestment and Recovery Act of 2009 (aka,the first stimulus bill):

"Under the previous investment tax credit, renewable energy developers could apply a 30 percent credit only to profits as a deduction. But the stimulus, for a period of two years, has made it possible to get back the 30 percent as cash, under a grant program to be administered by the Treasury Department."

In other words, what had been credits against profits are now direct grants. No profits needed.* But what is (and always was) needed is hard targets for renewables, this is called a "renewable energy standard" or RES.

"The federal stimulus package turned what could have been a disastrous 2009 for the wind industry into its best year ever.

But industry promoters warn that things could get bleak again if Congress does not enact a "renewable energy standard" that orders power companies to use a set percentage of power generated by wind, sun or other renewable sources.

"We thought we were going to lose half our industry," said Denise Bode, CEO of the American Wind Energy Association. "Then the Recovery Act came along, and we were able to create jobs."

Wind farm installations created 1,500 to 2,000 construction, operations and maintenance jobs, according to AWEA. But the uncertainty of federal policy caused manufacturing to drop off and cost an equivalent loss of jobs in that portion of the industry.

The wind industry installed more than 9,900 megawatts of generating capacity, AWEA said. The association says that is enough to serve more than 2.4 million homes, about as many as there are in Washington state. Bode said that meant the United States should edge China for the lead in wind power installation for 2009.

Before the stimulus passed, the industry was projecting that wind power development could drop by as much as 50 percent compared to 2008. The renewable portion of the $787 billion legislation created construction, operations and maintenance, and management jobs, according to AWEA."

The number they use of 1500-2000 construction, operations and maintenance jobs is unrealistically low. Unless they really meant per project. Without wind development, and in my tiny sector, and in my tiny area I personally know well over a hundred people who would not have jobs. The ancillary employment involved in siting, planning, building, maintaining, even one wind farm is absolutely huge. Energy, of one kind or another has been a huge (only?) growth sector of the construction industry.

Via the descriptively named Renewable Energy Tax Credit Resource Center you can read the manufacturing projects which were granted funds as part of the stimulus act, 2.3 billion of it. And that is where things get confusing, because, yes Virginia, nuclear is considered renewable....

Anyway, here is more heavy reading regarding "Community Wind" if you are interested. I would advise printing it out and reading over breakfast. But here is a key graf from that document's executive summary:

More importantly and to the point of this report, the financial crisis spawned two major stimulus
packages in the U.S. that, in combination, have fundamentally reshaped the federal policy landscape for wind power in general, and for community wind projects in particular. Most notably, qualifying wind projects can now, for a limited time only, choose either a 30% investment tax credit (ITC) or a 30% cash grant in lieu of the production tax credit (PTC) that wind has historically received. To qualify for the 30% ITC, projects must be placed in service by the end of 2012. To qualify for the 30% cash grant, projects must either be operational by the
end of 2010, or else must begin construction by then and be placed in service by the end of 2012. It stands to reason that community wind, which has had more difficulty using the PTC than has commercial wind, may benefit disproportionately from this newfound ability to choose among these federal incentives. This report confirms this hypothesis. On the basis of face value alone, the 30% ITC or cash grant – both of which depend on the size of the investment rather than on
the quantity of power produced – will be worth more than the PTC to most community wind projects, which on average may cost more or generate less than their commercial counterparts.

Community Wind is much less efficient to construct and impliment due to the economies of scale that wind developers have confronted from the outset. Hence, I am not a fan of Community Wind, which I think is a bamboozle for local communities. But what do I know.....

* And since nobody anticipated anyone making a profit last year, that was a good call.