Wind, solar energy built on temporary tax breaks

WASHINGTON -- Congress is putting the short-term future of renewable energy companies in jeopardy even as the presidential candidates and most lawmakers hail windmills, solar panels and biofuels as long-term solutions to high gasoline prices and global warming.

Some $500 million in investment and production tax credits will expire Dec. 31 unless Congress renews them. Without that help, solar and wind power companies say they will reverse planned expansions and, in many cases, cut payrolls and capital investment.

Schott Solar has visions of quadrupling its operation in Albuquerque, N.M., to reach 1,500 jobs and $500 million in investment. But the investment tax credit, company spokesman Brian Lynch said, is what makes solar power cost-competitive. Without it, expansion plans must be reconsidered.

"We don't want to build a giant factory that the market doesn't need or want," Lynch said.

The Solar Energy Industries Association says some 20 utility-scale solar power plants, many in California and together capable of producing power for a million homes, are at risk because of the uncertainty in Congress.

Proponents of wind power, a nascent industry that relies on skittish investors, are in a similar predicament. Greg Wetstone of the American Wind Energy Association says his group is predicting a loss of 76,000 jobs and $11.4 billion in investment if Congress allows its production tax credit to expire.

"Investors like to know what tax policies apply when they are putting millions of dollars down on a project. There's a pretty clear history that these projects are less likely to go forward without a credit," he said.

Congress let the credit expire in 2000, 2002 and 2004. In those three years, wind capacity installation dropped 93 percent, 73 percent and 77 percent, respectively, from the previous year.

Navigant Consulting, which advises on renewable energy technology, estimated that investments in wind and solar power in 2009 would amount to $26.6 billion with the credits; that would fall to $7 billion without them.

The credits are expected to total $334 million, according to congressional estimates.

"These companies are shutting down projects, firing people and it's Congress's fault," said Sen. Jeff Bingaman, D-N.M., chairman of the Senate Energy and Natural Resources Committee.

Investment tax credits, available to homeowners and businesses that invest in solar power equipment, and the production tax credit, based on kilowatt hours of energy produced by wind, geothermal, biomass and other renewables, are only two of dozens of temporary tax breaks that die out after a year or two if Congress does not revive them.

This year Congress is considering tax-extenders worth more than $50 billion over the next decade. The production tax credit would cost $7 billion and two solar investment credits would cost $2.7 billion over 10 years.

In addition to breaks for renewable energy and energy conservation, several dozen other tax breaks are targeted to businesses and individuals. They include people paying state and local sales taxes; parents with higher education tuition costs; and teachers with out-of-pocket expenses.

Almost all the provisions are popular. But Senate Republicans have blocked consideration of tax-extender plans by Senate Finance Committee chairman Max Baucus, D-Mont. GOP lawmakers are protesting efforts to offset the costs with other taxes or other items attached to the proposals. In the House, conservative Democrats promise to block any extension that adds to the deficit.

That's nothing new.

In 2006, Congress did not come together on a tax-extender deal until December, forcing the Internal Revenue Service to delay processing returns claiming several of the tax breaks. In 2007 Congress never agreed on extenders and again waited until December, causing more IRS disruption, to settle another annual tax crisis, the alternative minimum tax.

That tax was, enacted 40 years ago, was supposed to keep a tiny number of very rich people from avoiding taxes. But it never was adjusted for inflation and now reaches into the pockets of 4 million people, mainly upper middle-income. Millions more are threatened every year until Congress steps in, usually at the last possible moment. The Baucus bill has provisions to keep those affected by the tax from growing to 25 million, at a cost of $61 billion over the next decade.

"A big part of the problem is uncertainty," said Marie Lee, a tax analyst with the American Electronics Association. "Our companies are getting tired of this game."

The biggest concern for high-tech companies and manufacturers is the research and development credit, which expired at the end of last year. Some 17,700 corporations claimed $6.6 billion in credits in 2005, according to a recent study by Ernst & Young LLP. About 70 percent of that went to pay wages of scientists and engineers.

The credit has been allowed to expire 13 times since it was adopted in 1981. One repercussion, said Monica McGuire, executive secretary of the R&D Credit Coalition, is that more companies are taking their research dollars overseas.

"It's a global race for R&D dollars," she said, and the odds are not good when at least 20 developed nations offer tax incentives and the United States currently has nothing.

Putting expiration dates on tax breaks is a useful budget gimmick for lawmakers seeking to mask the growing federal budget deficit.

Because they are set to expire at a certain date by law, they do not count as revenue losses after that date even though most people assume Congress eventually will act to extend them. The Bush tax cuts of 2001 and 2003 are the biggest extenders of all in this respect. Trillions of dollars will be added to the federal debt if Congress chooses to make them permanent after they are set to expire in 2010.

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On the Net:

Summary of the latest Senate extender bill: http://finance.senate.gov/sitepages/leg/leg072408S.3335.pdf

Schott Solar: www.schott.com/solar

Solar Energy Industries Association: http://www.seia.org/

American Wind Energy Association: http://www.awea.org/

R&D Credit Coalition: www.investinamericasfuture.org/