Lifting the Expiration Date on the Future of Renewable Energy

18 Feb

For the most part, the nation has embraced a move to more renewable sources of energy. There are state mandates to increase the consumption of renewable energy, temporary tax credits and incentives, and local subsidies for renewable power generation. But as environmentalists, policy wonks, and decision-makers begin to rack up cheerleaders for renewable energy, we need to ensure that our policies promote the sustained growth of renewable energy industries while contributing to the economic health of our communities. So far, the story of renewable energy in the U.S. has been one of fits and starts. It’s time to look at how we can provide predictable incentives for sustainable energy production.

Since its inception in 1992, the Production Tax Credit for Renewable Energy has provided a tax incentive for sustainable energy producers. For the wind energy industry, it is estimated that the Tax Credit reduces the costs of developing wind farms by a third; which is great, unless that subsidy vanishes every couple of years. While the Production Tax Credit was first passed in 1992, it has been allowed to expire on four occasions and has been extended on a short-term basis five times. At the end of 2012, the Credit was set to expire once again, causing major wind farm developers to pull the plug on projects in the works. Manufacturers and developers began laying off workers and halted plans for future ventures, leading some to speculate about the demise of wind energy. But, true to form, Congress intervened at the last hour, passing a year-long extension of the tax credit as part of the fiscal cliff deal. While this is a win for renewable energy producers, some believe that it came too late to undo the economic damage that had already been wrought by speculation.

It’s clear that the renewable energy production sector is subject to a boom and bust cycle due in no small part to the short-term nature of these tax credits. While the non-renewable energy sector has relied on predictable tax breaks, nascent renewable energy producers are left to the whims of Congress. If we’re going to embrace a strategy that emphasizes sustainable energy, it’s clear that we need to shift our spending priorities when it comes to energy production. But aside from reprioritizing spending priorities  at the federal level, there are things that can be done at the local level to help induce renewable energy production on a small scale.

One idea that has been gaining traction is implementing feed-in-tariff programs. This type of program provides an incentive to install renewable energy production devices (e.g. solar panels and wind turbines) by allowing the government and utilities to buy energy from the device installers. Most programs require the government (or a utility) to enter into long-term contracts to buy power at a pre-determined price from small renewable energy producers. For the homeowner or business owner contemplating installation of solar panels, the long-term contract and a promised rate of return make the initial investment less financially burdensome.

This idea, hatched in the U.S. back in the ‘70s, has taken off in Europe. Most notably, Germany’s feed in tariff program has supported more than 70 percent of renewable energy production in the country, making Germany – a place that gets about as much sun as Seattle – a world leader in solar energy production.

In the U.S., Gainesville and Sacramento have had feed in tariff programs for a while, but Los Angeles recently became the largest U.S. city to give the feed-in tariff program a try. Under the new program, LA’s Department of Water and Power will purchase energy from small and medium-scale solar photovoltaic projects that produce between 30 and 999 kilowatts (meaning that, for now, the solar panels perched on your roof probably won’t qualify). The program was launched in February and touted as a way to help the City meet its goal of receiving 25 percent of its energy from renewable sources by 2016.

And there are other tools to drive renewable energy production at the local level. Distributed generation, which allows for small-scale decentralized energy generation, and net metering, which allows ratepayers to sell back excess energy to their utility, are other examples of financial incentives that enable citizens to invest in the renewable energy future. While we sort out our energy spending priorities at the national scale, there’s still plenty that can be accomplished at the local level.

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