If America Wants Energy Innovation, It Will Have to Help Fund It

Nancy Pfund Makes the Case for Energy Innovation Subsidies

Renewableenergy.com
February 13, 2013

DBL Part­ners’ Man­ag­ing Part­ner, Nan­cy Pfund and co-author Katie Plich­ta land­ed in today’s Renew​ableEn​er​gy​.com with a time­ly byline in sup­port of clean-ener­gy sub­si­dies.  Ener­gy ini­tia­tives have been a sta­ple in our coun­try’s growth for more than 200 years.  It’s time to extend think­ing along con­ven­tion­al lines like coal and nat­ur­al gas to renew­ables.  This is some­thing both Democ­rats AND Repub­li­cans have got­ten behind, and the good clean ener­gy projects does for the coun­try is too sig­nif­i­cant to ignore.  The orig­i­nal arti­cle can be found here.

Despite over­whelm­ing evi­dence that the growth of the clean tech indus­try ben­e­fits work­ers in red and blue states alike — Texas alone employs more clean tech work­ers than there are coal work­ers in the entire coun­try — some in Wash­ing­ton still argue that clean tech sub­si­dies are a mar­ket dis­tor­tion that Amer­i­ca can­not afford.

Such oppo­nents for­get that America’s sup­port for ener­gy inno­va­tion has helped dri­ve our country’s growth for more than 200 years. A recent report I co-authored with Ben Healey — “What Would Jef­fer­son Do?” —  shows how cur­rent renew­able ener­gy sub­si­dies com­pare to the his­tor­i­cal norm for emerg­ing sources of ener­gy:

  • As a per­cent­age of infla­tion-adjust­ed fed­er­al spend­ing, nuclear sub­si­dies account­ed for more than 1 per­cent of the fed­er­al bud­get over their first 15 years. Oil and gas sub­si­dies made up 0.5 per­cent of the total bud­get. Renew­able sub­si­dies, in con­trast, have con­sti­tut­ed only about 0.1 per­cent.
  • In infla­tion-adjust­ed dol­lars, nuclear spend­ing aver­aged $3.3 bil­lion over the first 15 years of sub­sidy life. O&G sub­si­dies aver­aged $1.8 bil­lion. Renew­ables aver­aged less than $0.4 bil­lion.

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Rec­og­niz­ing the pow­er of ener­gy inno­va­tion to cre­ate high qual­i­ty jobs, promi­nent Repub­li­can gov­er­nors have pushed pol­i­tics aside to cham­pi­on clean tech.  For­mer Gov­er­nor Haley Bar­bour of Mis­sis­sip­pi, for exam­ple, was called by the New York Times “the dri­ving force” behind Mississippi’s endeav­ors to become a clean tech leader. Repub­li­can Gov­er­nor Chris Christie of New Jer­sey not only man­dat­ed solar pur­chas­es by state util­i­ties, but he also signed a law call­ing for the per­cent­age of pow­er derived from solar in the state to dou­ble. At the time of sign­ing he said “Hav­ing renew­able ener­gy in our state, hav­ing it be a larg­er part of our port­fo­lio, cre­at­ing jobs, is not a Repub­li­can issue or Demo­c­ra­t­ic issue. It’s an issue that the peo­ple of our state demand we work on togeth­er.”

Clean tech inno­va­tion ben­e­fits every­one, but for clean tech to sur­vive, cer­tain poli­cies sup­port­ing long-term invest­ment in clean tech must be imple­ment­ed at both the fed­er­al and state lev­els:

  • The Solar Invest­ment Tax Cred­it (ITC) must remain in place or be phased out grad­u­al­ly, rather than drop­ping off a cliff in 2016.

As a 30 per­cent tax cred­it on solar sys­tems for both com­mer­cial and res­i­den­tial prop­er­ties, the ITC has great­ly con­tributed to the 76 per­cent growth rate the solar indus­try has expe­ri­enced since 2006. Despite its impor­tance, the ITC faces auto­mat­ic reduc­tion to 10% at the end of 2016. Such a steep and sud­den drop would dis­rupt the solar industry’s steadi­ly improv­ing eco­nom­ics rel­a­tive to oth­er, also sub­si­dized, ener­gy sources.

  • Tax leg­is­la­tion should be redraft­ed to per­mit clean tech-relat­ed Mas­ter Lim­it­ed Part­ner­ships and solar REITs, to lev­el the play­ing field with oil, gas and coal invest­ments.

The tax code should per­mit the for­ma­tion of Mas­ter Lim­it­ed Part­ner­ships (MLPs) — a pub­licly trad­ed cor­po­rate struc­ture that is taxed like a part­ner­ship — for ener­gy port­fo­lios own­ing and financ­ing renew­able ener­gy and bio­fu­el projects. MLPs are already per­mit­ted for port­fo­lios con­sist­ing of oil, gas and coal invest­ments, so it’s time to lev­el the play­ing field and low­er the cost of financ­ing clean ener­gy projects. The pro­posed solu­tion, the “MLP Par­i­ty Act” (S.3275), died in com­mit­tee last year, but it is like­ly to be rein­tro­duced. Sim­i­lar­ly, an expan­sion of the def­i­n­i­tion of Real Estate Invest­ment Trusts (REITs) to include solar instal­la­tions as a form of real prop­er­ty would great­ly expand the pool of cap­i­tal avail­able for solar projects.

  • The Pro­duc­tion Tax Cred­it should be extend­ed on a longer term basis.

Fed­er­al poli­cies dri­ve pri­vate invest­ment many times over.  The Pro­duc­tion Tax Cred­it (PTC) is a prime exam­ple. The PTC has played a cru­cial role in the devel­op­ment of wind ener­gy in the U.S. since its incep­tion in 1992, yet Con­gress has allowed the PTC to sun­set four times. Accord­ing to the Amer­i­can Wind Ener­gy Asso­ci­a­tion, 60 per­cent of a wind turbine’s val­ue is now pro­duced in Amer­i­ca, com­pared to 25 per­cent pri­or to 2005. While the cred­it sur­vived the fis­cal cliff, wind investors were left skit­tish while debates car­ried on in Wash­ing­ton. In extend­ing the cred­it, 75,000 wind pow­er jobs were saved. The exten­sion gave cer­tain­ty and secu­ri­ty to the wind pow­er indus­try, but not much, since the PTC is due to expire again at the end of this year. A longer term plan for this impor­tant indus­try is need­ed.

Red and blue states alike ben­e­fit from the devel­op­ment of clean tech. Leg­is­la­tors at the state lev­el have real­ized this and many have tak­en up the flag of pro­mot­ing clean tech with­in their juris­dic­tion. The indus­try still faces severe chal­lenges though, and fed­er­al pol­i­cy is need­ed to dri­ve ener­gy inno­va­tion for­ward, a role it has played for cen­turies.

Nan­cy Pfund is a Man­ag­ing Part­ner of DBL Part­ners, a “Dou­ble Bot­tom Line” ven­ture cap­i­tal firm based in San Fran­cis­co. Katie Plich­ta is a JD/​MBA can­di­date at Stan­ford Uni­ver­si­ty and cur­rent­ly with DBL Part­ners as a Stan­ford GSB Impact Labs Asso­ciate.

Hear Nan­cy Pfund speak dur­ing the ple­nary ses­sion of Solar Pow­er-Gen, tak­ing place on Feb­ru­ary 14th, 2013 in San Diego.  More infor­ma­tion about the show can be found here.