Green Power Forecast: Partly Cloudy -- For the Short Term
The sagging economy continues taking its toll on renewable energy spending, with solar and wind projects across the country shutting down or getting delayed as financiers reassess the benefits of investing in new energy technology as their bottom lines shrink. The lower price of oil isn't helping.
When oil prices spiked last summer, investment in any renewable energy project seemed like a prudent, and even necessary decision. Within months, however, the cost of oil dropped, the economy tanked, and priorities shifted.
"Any time conventional energy prices drop, it impacts renewable energy spending," notes Ying Wu, senior analyst for Lux Research, a New York-based emerging technologies research firm. "Solar is more expensive now that fossil fuel prices have gone back down."
That spells doom for business owners and investors looking for short-term returns on their investments, but those taking a long view are more likely to see renewable energy as a worthwhile, especially with the American Recovery and Reinvestment Act of 2009 stimulus package offering billions in green power incentives which, in some cases, may offset up to 50 percent of some renewable energy installations.
Tight credit, however, remains an obstacle.
"For companies that have already made an investment in solar projects, such as Yahoo and Wal-Mart, they will probably continue to make solar part of their energy mix," says Wu. "But companies that were just beginning to look at investing in renewable energy are slowing down, and financing for unfunded projects is getting delayed."
Though several solar companies have announced major layoffs because of collapsed financing, Monique Hanis, spokesperson for the Washington, D.C.-based Solar Energy Industry Association, believes the stimulus package, signed by President Barack Obama three weeks ago, will help turn things around. The measure includes $16.8 billion for the Department of Energy Office of Energy Efficiency and Renewable Energy (EERE), a nearly tenfold increase.
Three Reasons Why Renewable Energy is Worth a Second Look
• New federal tax incentives make renewable energy projects more beneficial than ever. Analysts suggest you can offset up to half of the total cost of the project by taking advantage of these incentives.
• Many states offer further tax incentives and grants to promote renewable energy growth. Speak to your local utility company to identify resources, partnerships and other opportunities to offset the cost of renewable projects.
• Despite the fact that fossil fuel costs have dropped, pending climate change legislation and an uncertain economy could spell price volatility. Investing in renewable energy is an excellent way to hedge your costs.
"We expect provisions in the bill to stimulate demand, open up financing and create jobs," she says. "We are hopeful that the renewable energy grants, removing a penalty for subsidized financing, and loan guarantees will help free up the credit and investment markets and that the manufacturing tax credit will scale up U.S. manufacturing, which will keep prices coming down."
Lux analyst Johanna Schmidtke agrees. "The final stimulus bill offered a range of incentives for renewable energy," she says, pointing out the $6 billion earmarked to support loan guarantees for renewable energy and electric transmission technologies. The funds are expected to guarantee more than $60 billion in loans.
"That should encourage greater investment from private sector companies who can benefit from these grants," she says. "It should generate a big uptick in renewable energy generation."
Even before the stimulus bill was signed, certain regions still showed enthusiasm for solar energy, Hanis said. In California, for example, the number of grant applications for business and residential solar projects hit record highs in the last five months of 2008. And while she expects that interest to wane in '09, she thinks it will be temporary and localized.
"You'll still see activity where there are federal and state incentives for solar," she says. Along with California, she expects progress to continue in Pennsylvania, Ohio and New Jersey, where government programs to support solar investment remain strong.
"I got a call from a manufacturing company in Pennsylvania just yesterday that is still moving forward with a solar water heating project," she says. "And they are very excited about it."
She notes that several major businesses are also showing strong public commitment to solar, despite the economy. For example:
-- Global retailer Wal-Mart announced in January that its Mexican unit installed 1,056 photovoltaic panels on the roof of the Bodega Aurrera Aguascalientes retail center in the city of Aguascalientes in central Mexico.
-- Kohl's, the specialty clothing retailer based in Menomonee Falls, Wis., is currently converting four of its nine stores in Oregon to solar power, and also has solar projects underway in California, Connecticut, Maryland, New Jersey and Wisconsin.
-- As part of achieving its pre-certified LEED Gold status for all new store construction, Office Depot will install photovoltaic solar arrays to offset 11 percent of the building's total annual energy costs, and will include active solar tracking skylights that provide light to than 75 percent of the store. These plans will be implemented on every new store construction project going forward.
-- In the next redesign of its hybrid Prius automobile, automotive manufacturer Toyota plans to install solar panels on the vehicle's roof. The panels will power the air conditioning system and fuel its operation even when the main engine is turned off.
"There are definitely pockets of activity," she says of these and other initiatives. "But the larger projects will need additional funding to survive."
A Little Help from Uncle Sam
The new administration, along with the benefits included in the stimulus package, should boost all renewables industries, suggests Karlynn Cory, senior renewable energy analyst for the National Renewable Energy Laboratory (NREL), a renewable energy research and development lab in Golden, Colo.
"It was definitely a step in the right direction, and a lot of issues around liquidity and the tax market got addressed," she says.
One of the most promising additions was the extension of production tax credit (PTC) to 2012 for wind, and to 2013 for all other renewables. The PTC provides a 1.9-cent per kilowatt-hour (kWh) benefit for the first 10 years of a renewable energy facility's operation.
The extension also allows utilities and businesses already paying the alternative minimum tax (AMT) to take advantage of that credit, which creates greater incentives to invest in renewable energy. In the past, those companies that took advantage of the AMT were not eligible.
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