Tax credit expiry endangers wind, solar expansion

WASHINGTON (Reuters) - Growth of a nascent industry to build and install clean energy sources, like windmills and solar cells, could be stunted if Congress doesn’t extend tax incentives set to expire next year, industry officials and lawmakers said on Wednesday.

File photo shows a power-generating windmill turbine operates in a wind farm on Backbone Mountain near Thomas, West Virginia, Aug. 28, 2006. Growth of a nascent U.S. industry to build and install clean energy sources, like windmills and solar cells, could be stunted if Congress doesn't extend tax incentives set to expire next year, industry officials and lawmakers said on Wednesday. REUTERS/Jonathan Ernst

Democrats last week dropped a $21.5 billion package of tax incentives from a broad energy bill after Republicans and the White House threatened to block it.

Without the tax credits set to expire at the end of 2008, homeowners and businesses will hesitate to invest in the new technologies, industry officials warn. Manufacturing plants for solar and wind power components will also be endangered, they said.

The credits are “absolutely critical for making a market in the United States,” said Rhone Resch, president of the Solar Energy Industries Association. “What will happen is you will see solar installations start to drop off in the second quarter of 2008 if they are not extended.”

Congressional action in the early part of 2008 is needed “to keep investors from getting nervous,” said Greg Wetstone, governmental affairs director for the American Wind Energy Association.

“It would be hard to imagine a worse time for the United States to effectively shift away from the one policy that’s now in place that reinforces renewable energy,” Wetstone said.

Renewable sources are only a tiny slice of current U.S. power generation but could grow quickly in coming years as costs fall and global warming concerns encourage their use.

Leaders in both the Senate and House of Representatives vow to revisit the tax incentives next year, but so far have advanced no definite plans.

“We’re going to be back and we’re going to get that vote more quickly than you think,” Senate Majority Leader Harry Reid said on Tuesday.

Extending the incentives would be a big boost to solar producers like SunPower and First Solar, whose customers would be able to claim a 30 percent investment tax credit for installing solar arrays.

Manufacturers like Vestas of Denmark, the world’s biggest maker of wind turbines, would continue to receive a boost if a production tax credit is extended.

The White House objected to the tax package because it was mostly funded by revoking tax incentives from big oil and gas producers like Exxon Mobil Corp.

Not only solar panels but utility-scale solar thermal projects will be stymied, said John O’Donnell, vice president of solar thermal developer Ausra Inc, who wants a longer period of tax incentives than had been included in the failed bill to foster domestic manufacturing plants.

“It takes three to five years to permit, finance and build a project,” said O’Donnell.

In the past, wind and solar tax incentives have been saved in the waning months before they expire. O’Donnell said the lack of long-term assurance of incentives is forcing companies to make solar manufacturing plants outside the United States.

Sen. Jeff Bingaman, chairman of the Senate Energy Committee, said that the White House’s objections to the renewable incentives are a de-facto tax on the industry.

The tax credits expire about three weeks before President George W. Bush is set to leave office, “which doesn’t seem to me to be a great legacy,” Bingaman told Reuters in an interview.

U.S. photovoltaic installations could drop by 50 percent in 2008 if the credits aren’t extended, Resch said.

“If there is any threat of the tax credits expiring you will see projects start to drop off in the second quarter,” he said.

That’s after installation of photovoltaic systems jumped 80 percent in 2007 to 250 megawatts, he said.

Additional reporting by Bernie Woodall in Los Angeles; Editing by Marguerita Choy