The Federal Energy Bill:  What does it mean for Renewables?

by Rich Dana

President Bush signed omnibus energy legislation on August 8th, 2005, four years after his initial request for an energy bill. During those four years, the house and senate debated a plethora of energy issues and deadlocked several times on contentious items like arctic drilling, revitalizing the nuclear industry, and the use of MTBE and ethanol.

In a time of high energy prices and a war in the oil-rich middle east, no one in Washington wanted to be seen as voting against an energy bill, and the result was a heavily compromised piece of legislation that does very little to move the nation toward it's goals of energy independence, lower energy prices and a cleaner environment.

As in the case of most omnibus legislation, the attempt to shove all energy-related issues into one giant bill resulted in a hodge-podge of giveaways. Since there is something in the bill for everyone to dislike, legislators needed to be rewarded in return for the votes necessary for passage, and the formula was fine-tuned to create a bill that had something in it for everyone.

For Iowa's legislators, that meant ethanol.  The bill requires refiners to raise the amount of ethanol used in gasoline from 4 billion gallons to 7.5 billion gallons a year. According to supporters, this will mean new jobs for rural areas, more money or farmers, and a cleaner environment - opponents say it is merely a huge giveaway to large corporate agricultural interests.

Another victory for Iowa's legislators was the two year extension of Senator Grassley's wind energy PTC (production tax credit). The PTC, which was scheduled to expire on December 31, 2005, provides a 1.9 cent-per-kilowatt-hour (kWh) tax credit for electricity generated with wind turbines over the first ten years of a project’s operations, and is a critical factor in financing new wind farms.

There are also some incentives for solar - the bill increases the permanent 10 percent business energy credit for solar to 30% for two years. Eligible technologies include photovoltaics, solar water heaters, concentrating solar power, and solar hybrid lighting. The credit reverts back to the permanent 10 percent level after two years. The bill also establishes a 30 percent residential energy credit for solar for two years. For residential systems, the tax credit is capped at $2,000.

For vehicles, the legislation will provide up to $3,400 per vehicle in tax credits to consumers for purchase of energy-efficient hybrid, clean-diesel, and fuel-cell vehicles based on their fuel savings potential.

The major loss for renewable energy advocates was the exclusion of the senates 10% renewable electricity standard, which would have required increased use of clean energy nationwide and would have been a huge boost to Iowa's renewable industry. Despite their support in the conference committee for the RES, Senator Grassley and others from the senate were unable to convince house members to include the standard in the final bill.

Another significant problem for utility-scale renewable development was the amendment of PURPA. The Public Utility Regulatory Policies Act of 1978 (PURPA) was passed to help diversify the electric power industry.  PURPA required a utility to buy power from renewable energy and cogeneration plants when they can generate power less expensively than the utility, but the new amendment eliminates that requirement where FERC determines that competitive market conditions exist. Competitive markets may not support the long-term contracts that many renewable generators need to secure financing at affordable rates.

Looked at by themselves, these incentives for renewable energy would appear to be fairly significant. The tax breaks for renewable energy amount to over $2 billion. In comparison with the rest of the bill, we see another story emerge. The total cost of the energy bill, according to analysis from Taxpayers for Common Sense, is $85.1 billion, including huge subsidies for mature, highly profitable industries like coal and oil. The nuclear industry, which has been subsidized to the tune of over $66 billion over the last 50 years, will receive another $3.3 billion over the next 10 years. In addition, it authorizes loans for 50% of the construction costs of new reactors (which have historically run over-budget) and an indefinite extension of the Price-Anderson Act, which protects reactor operators from liability, and leaves the American taxpayers to pay for nuclear mishaps.

To add insult to injury, after the conference committee had approved a final version of the bill, then house majority leader Tom Delay managed to insert a $550 million provision for research into deep-water drilling at the Texas Energy Center in his home town of Sugar Land.

In the end, the energy bill is the product of the current atmosphere in Washington and, unfortunately, little else could be expected.  Energy is an issue where economic, environmental and national security issues collide, and the attempt to address "Energy" as a singular issue was doomed to failure (or at best mediocrity) before it began.

In terms of advancing renewable energy, was it worth the effort?  Industry groups like the American Wind Energy Association (AWEA) and the Solar Energy Industry Association (SEIA) applauded legislators for inclusion of their pieces of the pie, and remained mostly silent on the rest.

One thing is clear - the debate on "Energy" is not over. Political skirmishes will persist. Attempts on one side to open ANWR (artic national wildlife refuge) to drilling will continue, as will attempts on the other to increase CAFE (corporate average fuel economy) standards. "Energy" is the key to the future of our nation and our planet, but as always, "the devil is in the details".

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In Your Home:

• Consumers can receive a credit of up to 30% of the cost, or up to $2,000, for installing solar-powered hot-water systems used exclusively for purposes other than heating swimming pools and hot tubs.
• Consumers can receive tax credits up to $500 on the amount they spend to upgrade thermostats, to caulk leaks, or to stop energy waste.
• Consumers can receive up to $200 credit for installation of new exterior windows.
• Consumers can receive up to $300 credit for purchases of a highly efficient central air conditioner, heat pump or water heater.
• Consumers can receive up to $150 for installation of a highly efficient furnace or boiler.
• A new provision provides a 10% investment tax credit for expenditures with respect to improvements to building envelope. This allows credits for purchases of advanced main air circulating fans, natural gas, propane, or oil furnaces or hot water boilers, and other qualified energy efficient property.
• Tax credits for contractors who build energy-efficient homes and manufacturers who make energy-efficient appliances could lower prices for consumers.

For The Car:

• Starting in 2006, hybrid-car buyers and advanced lean-burn technology vehicles will be eligible for tax credits ranging from $1,700-$3,000. This credit is tied with two components: hybrids that save the most fuel compared with 2002 models, and the vehicle’s estimated lifetime fuel savings.
• The amount of credit for the purchase of a fuel cell vehicle is determined by a base credit amount that depends up on the weight class of the vehicle and in the case of automobiles or light trucks, an additional credit amount that depends upon the rated fuel economy of the vehicle compared to a base fuel economy.
• For fuel-cell-powered vehicles weighing less than 8,500 pounds, for instance, the base credit will be $8,000 - heavier vehicles will get bigger credits.
• Credits are offered for cars and light trucks that are more fuel-efficient than 2002 models. A tax credit gives the taxpayer a dollar-for-dollar reduction in his or her taxes.
• A provision permits taxpayers to claim a 30% credit for the cost of installing clean-fuel vehicle refueling property to be used in a trade or business of the taxpayer or installed at the principal residence of the taxpayer. Under the provision, clean fuels are considered any fuel at least 85% of the volume of which consists of ethanol, natural gas, compressed natural gas, liquefied petroleum gas, and hydrogen and any mixture of diesel fuel and biodiesel containing at least 20% biodiesel. This provision is effective for property placed in service 12/31/2005 and before 01/01/2010.

Top Ten Worst Provisions in the Energy Bill

according to Taxpayers for Common Sense

10. OCS inventory: Government sources estimate that a full inventory of America’s Outer Continental Shelf would cost the government billions of dollars. Inventories are a normal business expense that should be borne by private industry, not the general public.

9. Advanced Fuel Cycle Initiative: The conference report authorizes $580 million for this program to reprocess nuclear waste, which would reverse the Ford administration’s nonproliferation policies. What’s more, it wouldn’t even solve the nation’s nuclear waste problems; reprocessing also creates radioactive waste.

8. Clean Coal: Clean Coal has been criticized time and again by the GAO for mishandling taxpayer money. The energy bill rewards Clean Coal’s record of shoddy performance by giving the program another $1.8 billion.

7. Pipeline tax breaks for public utilities: The provision would give utilities a better tax treatment on their natural gas pipelines, thereby increasing shareholder earnings in the short-term – and since their rates are already set, they do not have to pass on these cost-savings to consumers.

This means that utility shareholders get a windfall profit, and taxpayers get stuck paying the bill. This tax break will cost taxpayers $1.02 billion over ten years.

6. The Healy clean coal plant loan guarantee: Taxpayers paid $117 million to make a coal power plant in Healy, Alaska, into a “clean coal” facility in the 1980’s, and now the plant is too expensive to operate. For the low price of $80 million, Healy is offering to change it right back to the way it was.

5. Idaho nuclear reactor: The bill would authorize $1.25 billion for the construction of a new nuclear plant in Idaho that would also produce hydrogen. While billed as a boon to the “hydrogen economy,” this is nothing more than an old-fashioned giveaway to the nuclear industry.

4. Nuclear production tax credit: The bill includes a 1.8 cent/kWh production tax credit for new nuclear plants that will cost taxpayers up to $6 billion.

3. Royalty holidays for oil and gas producers in the Gulf of Mexico: The President has made it crystal clear: with oil at $60 a barrel, companies don’t need incentives to explore for new sources – they already have all the incentive they need.

2. Irradiated Petroleum: In the late hours on Monday, the conference committee added to the bill a $250,000 study for “cold cracking” – that is, irradiating petroleum as a way of refining it. None of the conferees had ever heard of “cold cracking” before, yet most voted for it anyway. There is no reason why oil companies, now reaping billions in profits this year, should

not bear the costs of researching this impractical program themselves.

and the most wasteful provision...

1. The Ultra-Deepwater Slush Fund: This provision, added after the deadline at Monday’s marathon conference session, will spend $1.55 billion, including $550 million in guaranteed money, to a new fund designed to benefit the Texas Energy Center in Sugar Land.