Statements On Introduced Bills And Joint Resolutions

Floor Speech

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By Mrs. FEINSTEIN (for herself and Mr. MERKLEY):

S. 2899. A bill to amend the American Recovery and Reinvestment Act of 2009 and the Internal Revenue Code of 1986 to provide incentives for the development of solar energy; to the Committee on Finance.

Mrs. FEINSTEIN. Mr. President, I rise to introduce the Renewable Energy Incentive Act of 2009, which is cosponsored by Senator JEFF MERKLEY.

This act would extend, expand, and improve existing tax incentives and grant programs for renewable energy, especially for solar energy.

Provisions of this act are widely supported by public power utilities, environmental groups, renewable energy companies, renewable energy industry associations, and labor unions.

These include, for example: the American Public Power Association; the Solar Energy Industries Association; the Los Angeles Department of Water and Power; the Northern California Power Agency; the Southern California Public Power Agency; the Large Public Power Council, LPPC; solar companies including Brightsource, Solyndra, Tessera Solar, and Stirling Energy Systems and many others.

First, the bill would allow renewable energy companies to claim grants from the Treasury department, in lieu of renewable energy tax credits, through 2012 instead of 2010.

Second, it would permit public power utilities to claim these same Treasury Grants.

Third, it expands the solar investment tax credit to include manufacturing equipment and solar water heaters for commercial and community pools.

Finally, it establishes a new tax credit for solar companies who consolidate and develop disturbed private land instead of developing our more pristine public lands.

The most significant provision in this bill would extend the Treasury Grants Program established in the stimulus by two years, allowing renewable energy developers to continue claiming these grants.

Section 1603 of the American Recovery and Reinvestment Act established ``payments in lieu of tax credits for specified energy property'' in order to support renewable energy development.

The program allows renewable energy developers to take grants, or payments, from the Treasury department instead of claiming tax credits in order to help build projects that require a great deal of capital upfront.

The provision has reduced the impact of the financial crisis on renewable energy development.

Before the grants program was established, most renewable energy developers had to partner with profitable banks, or ``tax equity partners,'' in order to take advantage of renewable energy tax incentives.

These big financial institutions would apply tax credits against their large profits, taking a cut for themselves along the way.

But in 2008, when financial sector profits sank, the $8 billion ``tax equity'' market largely evaporated.

Renewable energy development ground to a halt because developers could not find tax equity partners.

Major players in the space, such as AIG and Lehman Brothers, disappeared. The banks that still had profits began demanding a much higher cut.

That's when Congress stepped in.

The stimulus created the Treasury Grants, which allow developers to claim their tax benefits directly, instead of partnering with profitable banks.

The U.S. wind industry installed 1,649 megawatts of new capacity in the third quarter of this year alone, a boost from the previous two quarters and in excess of 2008 levels. Experts credit the Treasury grants program.

Solar is also getting back on track. For instance, SunEdison used a Treasury grant in lieu of tax credits to accelerate construction of an 18 megawatt photovoltaic array--one of the largest in the U.S.

The firm's CEO told the press: ``That could not have been done without this program.''

The Treasury program is also allowing renewable energy developers to attract significantly more debt backing for projects than would otherwise be possible, according to recent statements by the managing director of energy investments at J.P. Morgan Capital.

But the grants program is set to expire in 2010, far before most utility scale solar projects will begin construction or financial analysts predict tax equity markets will recover.

If the grant program is not extended, bank profits will again become the limiting factor on renewable energy development in the U.S., and that makes no sense.

That is why I propose to extend the program two years.

This legislation would also level the playing field between public power and for-profit companies by allowing public power utilities to receive Treasury Grants for renewable energy projects.

Public power utilities serve 45 million American consumers, but they are currently prohibited from receiving grants for their renewable energy development.

The basis for this prohibition is that public power utilities are tax exempt, non-profit corporations owned by local governments, who therefore have not been able to claim tax credits directly on their income tax returns.

But excluding public power from the grants program does not make sense.

Congress created the Treasury grants program specifically to assist firms that lacked the ability to claim the full benefits of renewable energy tax incentives.

If we are going to allow for-profit companies to claim these direct grants, why would we exclude our non-profit public power utilities?

So leveling the playing field for public power is fair.

This provision is also necessary to protect our local community utility companies who want to deploy renewable energy.

The federal grants make building renewable energy projects cost effective for rate payers.

Because public power utilities lack access to these grants, they are now frequently establishing complex financial arrangements with private developers in order to build renewable energy projects that qualify for federal help.

This is in direct conflict with public power's historic, proven business model as a vertically integrated, non-profit.

It requires our cities and towns to negotiate unnecessarily complex deals with Wall Street.

Let me give you an example.

Turlock Irrigation District, TID, a public power utility in my state, decided to build a 137 megawatt wind farm in 2007.

They wanted to build and own.

But to make it cost effective, Turlock signed a contract to buy the power, but a tax equity partner would ``own'' the project and receive the benefit of the federal production tax credit.

The contract was extremely complex and costly, requiring the participation of an investment bank to find a tax equity partner, an equity group to be the tax equity partner, legal counsel for the equity group, experts to provide risk advice and engineering advice to the equity group; bond counsel to provide renewable asset specialists; an operator to run the plant for the equity group; and an asset manager, to advise the equity group on the performance of the operator.

After 2 years and millions of dollars spent trying to finalize this deal, Turlock learned that the supposedly profitable equity partner, American International Group, AIG, wasn't profitable at all.

AIG backed out and the entire deal collapsed.

After much analysis, Turlock Irrigation District decided to own and operate the wind farm, giving up on receiving any Federal support.

Larry Weis, the General Manager, explained in a letter to me:

The bottom line is that TID made a business decision to forego working with a private developer to develop a project, because the complexity of the deal and the dollars spent to arrange it meant that much of the value of the tax credit would go to the equity partners and not pass through to our consumers. Given the facts and the absence of a comparable incentive for consumer-owned utilities, TID made the best choice it could under the circumstances, even though it means our customers will pay more.

This legislation is necessary to prevent other public power utilities from being forced to make this difficult, unnecessary choice.

Public power utilities deserve access to renewable energy incentives comparable to those awarded to the private sector, and this legislation will assure that happens.

This legislation also expands the solar investment tax credit to include manufacturing equipment and solar water heaters for commercial and community pools.

The bill would allow equipment that makes solar panels to qualify for the 30 percent solar investment tax credit.

Solar panel manufacturing is moving offshore, to Germany and Asia, where support is considerable.

This financial incentive could jumpstart solar manufacturing in this country, and could lead to thousands of new jobs, such as those being created at Solyndra's new factory in Fremont, CA. Or those proposed by Applied Materials at their proposed facility near Los Angeles.

The bill would allow commercial pool solar hot water heaters to qualify for the solar tax credit.

Approximately 189,000 commercial pools nationwide--at hotels/motels, health clubs, and schools--use fossil fuel or electricity to heat an estimated 27 billion gallons of water.

If the heating systems were replaced with solar hot water systems, there would be 1.23 million metric tonnes of carbon dioxide emissions avoided annually.

That is the equivalent of taking 237,000 cars off the road.

In California, which has 26 percent of all commercial pools in the U.S., this provision could significantly reduce pollution.

Finally, the legislation would establish a new tax credit for the purchase, consolidation, and use of multiple, 100 acre or less blocks of high solarity, disturbed private lands for solar development.

Solar developers have focused development proposals on pristine public land because it is very difficult, costly, and time intensive to consolidate large blocks of disturbed private land from many different owners.

This tax credit will financially reward those firms that are willing to go through the trouble of land consolidation, thereby making the increased burden of private lands development more appealing.

Over the last few years, the renewable energy industry has grown dramatically.

Last year the U.S. added more new capacity to produce renewable electricity than it did to produce electricity from natural gas.

A great deal of this growth can be attributed to our renewable energy tax policies.

This legislation, I believe, would continue this growth into the future.

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