Congress Walks Out on Renewable Energy

Incentives for clean power fizzle, while oil tax breaks remain in place.

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When Congress abandoned the tax part of its energy bill yesterday under pressure from the White House, lawmakers and the president may have sentenced some of the most ambitious clean-energy projects out there to a grim walk through the "valley of death."

That's how Dan Reicher, who heads up's climate change initiative, refers to the struggle that alternative energy faces to get financing to turn ideas into reality. I talked to Reicher a few weeks ago for a cover story about all of the Silicon Valley venture capital pouring into ambitious renewable-energy ideas.

Reicher was quick to point out that "downstream from the venture world is the world of project finance," and that means trying to persuade Wall Street to take the risk in lending money for big, expensive projects with technology that has never been tried before. "We don't focus enough on how you take these exciting technologies that are indeed advances and get them deployed in very, very large scale," Reicher said. It's at this point, in this valley, that ideas of a new energy future can die.

Big financial institutions want to see that alternative energy projects have the benefit of government subsidies before they will lend money; they view them as too risky otherwise. European countries have major, long-term clean-energy subsidies that have encouraged renewable projects on vistas with far less wind and sun than is available here in the United States. But the major federal subsidy here, an income tax credit for the production of electricity that amounts to 2 cents per kilowatt hour, has historically been approved by Congress in a herky-jerky fashion—only for a year or two at a time. It is set to expire at the end of next year.

Fred Morse, a senior adviser to the Spanish energy firm Abengoa, which has developed the first commercial concentrating solar thermal power plant in the European Union and would like to take its technology to the U.S. Southwest, also talked to me about the amazing potential for this form of big renewable energy this fall. But Morse soon was talking about frustration over the production tax credit.

"Congress, in its brilliance, gave us something that is almost useless," he says. "You can't negotiate with utilities, then get financing, then permit a site, then build a plant, and turn it on in two years."

The energy tax plan that the House passed last week and that hung in the balance in the Senate yesterday would have extended the production tax credit until Jan. 1, 2011—long enough that it might have made a difference to solar thermal projects in planning right now.

It would have made a difference also to new, enhanced geothermal and tidal and wave energy projects underway, as well as good, old-fashioned wind power. Even though most wind projects don't take as long as these cutting-edge renewable energy ideas, the American Wind Energy Association always notes a dramatic downturn in the industry eight months before the production tax credit expires. Wind developers also rush to complete projects before deadline, making them smaller, with a higher cost per kilowatt hour for consumers. A four-year planning horizon would have helped.

But yesterday, under threat of a certain veto by President Bush, the Senate failed by one vote to pass the energy bill with a tax package. Facing an electorate angry about $3-per-gallon gasoline, the Senate abandoned the tax plan and passed an energy bill focused mainly on getting cars to get better gas mileage.

Extension of the clean energy production tax credit would have cost $6.22 billion over 10 years. Lest you think that the White House and Congress were merely being fiscally responsible, keep in mind the primary reason for the veto threat and legislative failure. They wanted to preserve $13.5 billion in tax breaks that Congress gave the oil industry in 2004 and 2005.

Oil gets to keep its tax breaks. New renewable energy projects face a walk, without Washington's support for now, through the finance valley of death.