Solar Industry Lobbies Senate for Manufacturing Tax Credit, Cash Grant

By Ucilia Wang

Several U.S. Senators have introduced a bill to provide a tax incentive to solar energy equipment manufacturers in a bid to create new jobs.

The Solar Manufacturing Jobs Creation Act, introduced by Sens. Debbie Stabenow, D-Mich. and Robert Menendez, D-N.J., would give manufacturers access to a cash grant program created by the stimulus package this year to help finance solar power installations.

Makers of components such as silicon wafers, solar cells and evacuated tubes for solar water heaters already are eligible to receive a 30 percent manufacturing tax credit for building new factories or expanding existing ones.

This manufacturing tax credit also originated from the American Recovery and Reinvestment Act (ARRA). The U.S. Department of Energy and the Internal Revenue Service are reviewing the first batch of applications, and plan to make decisions by Jan. 15. Recipients will have four years to complete their factory plans.

The act capped the program at $2.3 billion, and makes the tax credit available not only to solar equipment makers, but also manufacturers of equipment for wind, geothermal and other renewable electricity, as well as energy storage, biofuels and electric car components (see program description).

Solar companies are worried that they will only get a small slice of this manufacturing tax credit program. So the Solar Energy Industries Association is now lobbying lawmakers to allow manufacturers to take advantage of an investment tax credit program.

The investment tax credit is meant to offset 30 percent of the cost of building a solar and other renewable energy generation project. Last fall, Congress extended the investment tax credit by eight years, so it's set to end in 2016.

The ARRA, passed in February this year, allows developers to get a cash grant instead of the investment tax credit. The cash grant goes to energy projects that are brought online in 2009 and 2010, or if the project construction begin before Jan. 1, 2011.

The Solar Manufacturing Jobs Creation Act would allow factory owners to apply for the investment tax credit until the program sunsets in 2016. It also would allow the manufacturers to take advantage of the short-term cash grant program.

The cash grant program so far has benefited largely wind farm developers. The government has doled out a little over $1 billion from the program so far, and the majority of that money has gone to large wind companies such as Spain-based Iberdrola (IBDRY.PK).

Making the cash grant program available to manufacturers could benefit quite a few solar companies that have announced plans to build or expand factories in the United States. They include Suntech Power (STP), SunPower (SPWRA), Clairvoyant Energy, Suniva and SolarWorld (SRWRF.PK).

Building factories in the United States would reduce the costs of shipping solar cells and panels from factories overseas. But a big reason for setting up manufacturing here is to take advantage of any "Buy American" policies that might be adopted by local or federal governments.

The ARRA already has such a provision that applies to public projects, such as installing solar panels on government buildings.

The United States was once the top producer of solar cells. But manufacturing has shifted to Asia because production costs are lower there and governments provide lucrative incentives. Large U.S. manufacturers such as First Solar and SunPower are primarily making products in Malaysia, the Philippines and Germany.

Japan, China and Taiwan had about 45 percent of the world's solar panel production capacity in 2008, according to GTM Research. The United States had 7 percent. Whether the United States can offer similar or better incentives to keep manufacturing cost effective over long run remains to be seen.

Some companies are shifting manufacturing out of the United States because production costs have become too high. Evergreen Solar (ESLR), for one, plans to move solar panel assembly to China. General Electric (GE) is closing its only solar panel factory in the United States.

Comments

[Windsun33:]

There should be a clue in there someplace.

If companies need more tax credits to stay in the US, does that not indicate that their taxes are too high in the first place?

Nov 12 12:13 PM

[jerrydd:]

These RE subsidies need to slowly decrease over 5 yrs, not increase. The main subsidies needing to be paid for are the socialized costs of oil and coal in a fossil fuel tax. The beauty of it is Iran, Russia, oil dictators will pay for most of it by lower oil prices that will result from our lower oil use, importing.

The revenue should go to 3 equal places, a tax cut, loans and help switching to more eff cars, EV's, PHEV's and NG for trucks and semi's. The final 1/3 should be to pay down the deficit that those subsidies were a large part in making.

If these costs were in them then no RE subsidies would be needed other than loans for home/building owners to install RE where it is far more cost effective and payback is far faster because they don't have land, transmission lines, overhead or stockholder costs.

Subsidies for fossil fuels is what has got us in this mess and it's time to cut all the corporate welfare out so a real free market can work. Then RE because it doesn't need fuel will easily be the low cost energy source.

Nov 13 11:47 AM

[SubsidyEye:]

"Subsidies for fossil fuels is what has got us in this mess and it's time to cut all the corporate welfare out so a real free market can work. Then RE because it doesn't need fuel will easily be the low cost energy source."

Agreed: eliminate subsidies to fossil fuels. But it is unlikely that cutting those subsidies would be sufficient to flip the basic market equation in favor of renewable energy. For one, per unit of energy, the subsidies to fossil fuels in the United States are much, much smaller than the cost gap between fossil fuels and renewable energy. (It is a different story in countries that heavily subsidize or regulate the end-user prices of energy.) Second, the prices of fossil fuels sold in the United States are already pegged to international prices. The reduction in domestic production that would result from the elimination of subsidies to fossil fuels would not be enough to substantially raise the world prices for coal and oil (and, by extension, natural gas) and hence we shouldn't expect domestic prices to rise all that much.

What WOULD make a difference would be to both eliminate subsidies AND raise taxes on fossil fuels. Whether tied to carbon or to other pollutants (note: coal-fired power plants already pay for SO2-emission permits), raising taxes on fuels closer to those already imposed even by poorer countries, like Turkey (not to mention Australia, Japan and European countries), could make a big difference. So would reducing corporate and private income taxes (which should be part of any package of increasing fuel taxes).

Put that altogether, and some forms of renewable energy might be able to compete with fossil fuels. But there will be many others -- e.g., algae-based biodiesel or bio-jet -- that will remain much more expensive for many years to come.

Nov 14 07:16 AM