U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

26–380 2006

TAX CREDITS FOR ELECTRICITY PRODUCTION 

FROM RENEWABLE SOURCES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

FIRST SESSION 

MAY 24, 2005 

Serial No. 109–47 

Printed for the use of the Committee on Ways and Means 

( 


jcorcoran on PROD1PC62 with HEARING
ii 

COMMITTEE ON WAYS AND MEANS 

BILL THOMAS, California, Chairman 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

BOB BEAUPREZ, Colorado 

MELISSA A. HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

DEVIN NUNES, California 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

ALLISON H. GILES, Chief of Staff 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

DAVE CAMP, Michigan, Chairman 

JERRY WELLER, Illinois 

MARK FOLEY, Florida 

THOMAS M. REYNOLDS, New York 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

MELISSA A. HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

MICHAEL R. MCNULTY, New York 

LLOYD DOGGETT, Texas 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


jcorcoran on PROD1PC62 with HEARING
iii 

C O N T E N T S 

Page 

Advisory announcing the hearing ........................................................................... 2 

WITNESSES 

U.S. Department of Energy, Energy Information Administration, Howard 

Gruenspecht, Deputy Administrator .................................................................. 5 

CalEnergy Operating Corporation, Vince Signorotti ............................................ 42 

Carlson Small Power Consultants, William Carlson ............................................ 32 

DTE Biomass Energy, Inc. and the Solid Waste Association of North America, 

Curtis T. Ranger .................................................................................................. 35 

FPL Energy, Dean Gosselin .................................................................................... 24 

Integrated Waste Services Association, and American Ref-Fuel Company, Michael Norris .......................................................................................................... 39 

Sharp Electronics, and Solar Energy Industries Association, Chris O’Brien ..... 47 

SUBMISSIONS FOR THE RECORD 

Brairton, Michael, American Public Power Association, statement .................... 60 

Davey, Christopher, Solar Mission Technologies, Inc., Missoula, MT, letter ..... 63 

Edison Electric Institute, statement ...................................................................... 64 

Elefant, Carolyn, Ocean Renewable Energy Coalition, Potomac, MD, statement ...................................................................................................................... 65 

English, Glenn, National Rural Electric Cooperative Association, Arlington, 

VA, statement ....................................................................................................... 67 

Geothermal Energy Association, statement .......................................................... 69 

Independent Wind Power Association, statement ................................................. 74 

Koenig, David, American Forest & Paper Association, statement ...................... 75 

Kolodziej, Richard, American Biogas Alliance, statement ................................... 76 

Kunz, Daniel and Douglas Glaspey, U S Geothermal Inc, Boise, ID, joint 

letter ...................................................................................................................... 79

Long, Gary, Public Service of New Hampshire, Manchester, NH, letter ............ 80 

Market Street Energy Company, Llc, Saint Paul, MN, statement ...................... 81 

Meyer, Richard, Ocean Energy Council, Inc., Royal Palm Beach, FL, statement ...................................................................................................................... 82 

Pomeroy, Hon. Earl, a Representative in Congress from the State of North 

Dakota, statement ................................................................................................ 83 

Rosenberg, David, Technology Transfer Partners, Chicago, IL, letter ................ 84 

Smith, Ronald, Verdant Power Llc, Arlington, VA, letter .................................... 84 

Stover, Mark R., statement ..................................................................................... 85 

Wolff, Pat, American Farm Bureau Federation, statement ................................. 87 


jcorcoran on PROD1PC62 with HEARING

jcorcoran on PROD1PC62 with HEARING
(1) 

TAX CREDITS FOR ELECTRICITY 

PRODUCTION FROM RENEWABLE SOURCES 

TUESDAY, MAY 24, 2005 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON SELECT REVENUE MEASURES, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:03 p.m., in room 

1100, Longworth House Office Building, Hon. Dave Camp (Chairman of the Subcommittee), presiding. 

[The advisory announcing the hearing follows:] 


jcorcoran on PROD1PC62 with HEARING
2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON SELECT REVENUE MEASURES 

FOR IMMEDIATE RELEASE CONTACT: (202) 226–5911 

May 16, 2005 

No. SRM–2 

Camp Announces Hearing on 

Tax Credits for Electricity Production 

from Renewable Sources 

Congressman Dave Camp (R–MI), Chairman, Subcommittee on Select Revenue 

Measures of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on Federal tax credits for electricity production from 

renewable sources. The hearing will take place on Tuesday, May 24, 2005, in 

the main Committee hearing room, 1100 Longworth House Office Building, 

beginning at 2:00 p.m. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Subcommittee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

In 1992, Congress passed the Energy Policy Act of 1992 (P.L. 102–486) which established an inflation-adjusted tax credit (Section 45 of the Internal Revenue Code) 

of 1.5 cents per kWh for electricity produced from certain renewable sources, specifically qualified wind and closed-loop biomass plants. This provision has been extended and modified several times. Most recently in the American Jobs Creation Act 

of 2004 (P.L. 108–357), the credit was expanded to include electricity produced from 

open-loop biomass, geothermal, solar, small irrigation and municipal solid waste. 

The credit will not, without extension of current law, be available for output from 

qualified facilities placed in service after 2005. 

In announcing the hearing, Chairman Camp stated, ‘‘This hearing will provide us 

with the opportunity to examine Section 45 of the Internal Revenue Code and the 

impact tax credits have had on the production of energy from renewable sources.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on the history of the renewable production tax credit and 

its effects on the retail electricity market. The Subcommittee will assess the economic efficiency of current tax policy for renewable energy production and its efficacy in promoting economically viable new energy technology. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘109th Congress’’ from the menu entitled, 

‘‘Hearing Archives’’ (http://waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the onVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
3 

line instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Thursday, June 

23, 2005. Finally, please note that due to the change in House mail policy, the U.S. 

Capitol Police will refuse sealed-package deliveries to all House Office Buildings. 

For questions, or if you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations 

on whose behalf the witness appears. A supplemental sheet must accompany each 

submission listing the name, company, address, telephone and fax numbers of each 

witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman CAMP. The hearing will come to order. I ask our 

guests to please find seats. The Subcommittee on Select Revenue 

Measures hearing will begin, and the purpose of today’s hearing is 

to examine the Production Tax Credit, commonly known as the 

PTC, or the section 45 credit, based on the section of the Internal 

Revenue Code in which it is found. 

Congress enacted the PTC in 1992 to provide an incentive for 

producing electricity from certain renewable sources. The PTC 

originally provided 1.5 cents per kilowatt hour of electricity produced from certain renewable sources, specifically qualified wind 

and closed-loop biomass plants. Over the years, Congress has expanded the variety of renewable energy sources eligible for the 

PTC. Currently, several new renewables, such as solar, geothermal, 

and open-loop biomass, have been included in the credit. 

Other potential sources of power have sought inclusion or higher 

credit amounts. In fact, the trend appears to be that energy sources 

previously covered by other tax incentives, such as investment 

credits, are now seeking to be included in the PTC. Congress needs 


jcorcoran on PROD1PC62 with HEARING
4 

to periodically assess the current economics of renewables production and the efficacy of the PTC in promoting both the use of renewables and the development of new technologies. Today’s hearing will be part of the Subcommittee’s examination of these issues. 

The Subcommittee will first hear from Dr. Howard Gruenspecht, 

representing the Department of Energy’s Energy Information Administration. He will discuss the competitiveness of renewables eligible for the PTC and perspectives on how the structure of the 

credit may affect adoption of these new technologies. 

The Subcommittee will then hear from representatives of the renewables industries currently covered by section 45. 

The goal of this hearing is to determine what the PTC has accomplished or might accomplish. We need to understand the economics of renewable energy sources and the prospects for expanding their market share. With the PTC scheduled to expire at the 

end of this year, I look forward to hearing our witnesses discuss 

just how effective this tax incentive is in promoting renewable 

power. 

I yield to the ranking Member of the Subcommittee, Congressman McNulty, for an opening statement. 

Mr. MCNULTY. Thank you, Mr. Chairman. I am happy to be 

here with you, Mr. Gruenspecht, and the others who will testify 

later. 

Mr. Chairman, if I could ask consent to place in the record an 

opening statement by a Member of the full Committee who is not 

a Member of the Social Security, Earl Pomeroy. I would appreciate 

that. 

Chairman CAMP. Without objection. 

Mr. MCNULTY. I would like to ask for permission for all Members to submit statements for the record. 

Chairman CAMP. Without objection. 

Mr. MCNULTY. Thank you, Mr. Chairman. I look forward to today’s hearing on the effectiveness of Tax Code section 45 in the 

production of electricity from renewable sources. 

It is timely that the Select Revenue Measures Subcommittee consider this issue given that the tax credit for renewable resources 

expires at the end of 2005. It is my hope that the Subcommittee 

will find time to consider other critically important tax provisions 

which expire at the end of this year, for example, individual Alternative Minimum Tax Relief and the Welfare to Work and Work Opportunity tax credit. 

The production of electricity through renewable energy sources, 

such as biomass, solar, wind, and geothermal, continues to involve 

cutting-edge industries with creative technologies. It is important 

that our tax system support efficient energy production systems 

and long-range energy conservation measures. Renewable energy 

sources provide an opportunity for investing in new technologies 

and a better energy future for our children. 

Mr. Chairman, I commend you for holding this hearing. I thank 

all of the witnesses for your valuable insights and I look forward 

to working with all of you on these issues in the future. Thank you. 

Chairman CAMP. Thank you very much. 


jcorcoran on PROD1PC62 with HEARING
5 

Now, Dr. Gruenspecht, you have 5 minutes to summarize your 

statement. We have received your written testimony, but you may 

begin at any time. Thank you for being here. 

STATEMENT OF HOWARD GRUENSPECHT, DEPUTY ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF ENERGY 

Dr. GRUENSPECHT. Thank you, Chairman Camp and Members 

of the Subcommittee. I appreciate the opportunity to appear before 

you today to discuss the economics of renewable energy electricity 

generating technologies that are eligible for the section 45 Production Tax Credit. 

The Energy Information Administration is a statistical and analytical agency within the U.S. Department of Energy. We don’t take 

positions on policy issues, but we do produce data, analyses, and 

forecasts that are meant to assist policy makers in their deliberations. Because we have an element of statutory independence, 

EIA’s views should not be construed as representing those of the 

Department of Energy or the Administration. 

The information I am providing today is based on our outlook for 

domestic energy consumption, supply, and prices through 2025. 

These projections are meant to represent likely futures, not exact 

predictions. Projections of energy markets are highly uncertain, as 

we have all seen recently, and are subject to many random events 

that cannot be foreseen. In addition, long-term trends in technology, economic growth, and energy resources may evolve along 

unanticipated paths. We do examine a number of alternative cases 

to address some of these uncertainties. 

In 2003, renewable energy generation altogether accounted for 

9.4 percent of total electricity generation. Over three-quarters of 

that amount was conventional hydroelectric power, which is not eligible for the PTC. The technologies currently eligible for the PTC 

accounted for 2.2 percent of total electricity generation, as illustrated in Figure 1 of my written testimony. While the combined 

generation of these technologies is projected to more than double 

by 2025, their share of total generation is projected to remain relatively small, at 3.2 percent. 

One way that we often compare generating technologies is to estimate their levelized cost, which represents the discounted per kilowatt hour cost of building and operating a plant. Table 1 in my 

written testimony compares the projected levelized costs in 2010 for 

various generating technologies. A glossary attached to my testimony explains some of the terms I am using. 

As shown in the table, pulverized coal, geothermal, and natural 

gas combined cycle plants have the lowest projected levelized cost. 

Solar, thermal, and photovoltaic technologies have much higher 

levelized costs. Wind and open-loop biomass fall in the middle. 

Levelized costs alone do not determine market outcomes, and let 

me briefly touch on some of the issues that most affect the potential use of renewable generation. 

Resource limitations are one issue. For example, while the table 

shows that levelized costs of geothermal are competitive with new 

coal plants, there are very few geothermal sites with costs as atVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
6 

tractive as those in the table and they tend to be located in remote 

areas. Remaining sites are more expensive. 

Again, for wind, there is a lot of resource, but the quality and 

location are important considerations. Some of the best resources 

are located in areas that are relatively remote or hard to develop. 

A fuel availability is another issue, especially for biomass. The 

supply of low-cost biomass fuel is limited, and because biomass fuel 

has a lower energy content per unit of volume than coal, transportation costs generally rule out moving biomass over long distances. 

Wind and solar are intermittent energy sources. When the wind 

is not blowing or the sun is not shining, they can’t generate electricity. When these technologies are developed, additional capacity 

may have to be added to back them up, adding system costs that 

are not reflected in the levelized cost table. 

Transmission cost and availability also varies by technology. All 

technologies require some investment to interconnect with the 

transmission grid, but these costs can be higher for some renewables because of their relatively remote locations and small plant 

sizes, and it is especially true for intermittent technologies because 

of their low utilization rates. 

Now let me offer some observations on the impact of the PTC 

itself. There is no question that the availability of the PTC increases the economic attractiveness of eligible technologies. Its primary impact to date has been to stimulate wind. For solar, the benefit provided by the PTC is not large enough to result in its significant expected market penetration. In fact, because of high capital 

costs and low capacity factors, the PTC is less valuable to solar 

technologies than the Investment Tax Credit, which they can take 

instead. 

We have done some sensitivity analysis that looks at the impact 

of a long-term extension of the PTC. That is not meant to represent 

any expectation about future policy decisions. Wind power shows 

the largest projected gain, followed by geothermal, landfill gas and 

biomass. 

We also ran a test case in which all the eligible renewables were 

given the same PTC as wind for an extended period. As you know, 

some of the others receive less. In that case, wind and biomass 

were still the major beneficiaries. 

Let me close by citing some other factors that influence the penetration of renewable technology. It is not just the PTC that matters, it is other market or policy developments. We looked at a scenario that significantly raised projected natural gas prices and 

total additions of renewable capacity nearly doubled and their 

share of total generation in 2025 increased by a third. Biomass and 

wind were the big gainers. 

We ran some scenarios that incorporate recent rules or legislative proposals to regulate emissions of sulfur dioxide, nitrogen oxides, and mercury. Those policies did not appear to have a major 

impact on the penetration of renewables. However, as discussed in 

my written testimony, we did find that significant restrictions on 

emissions of greenhouse gasses would result in much greater use 

of PTC-eligible technologies. 

There is also an interaction between the PTC and State programs to stimulate renewables. We found that many States have 


jcorcoran on PROD1PC62 with HEARING
7 

included provisions in their State programs, Renewable Portfolio 

Standards, mandates that limit the funding levels or the costs they 

are willing to impose. That means since the PTC lowers funding 

levels or costs, it reduces the likelihood that those provisions get 

triggered. 

Finally, we have also, in response to a request from Congress, 

looked at analyses of proposals for national Renewable Portfolio 

Standards. Again, these analyses suggest that a Federal RPS could 

stimulate the development of new renewable capacity. However, 

the stated percentage targets in those programs are often not 

achieved because of a similar cap provision that limits the price of 

renewable tradable credits. If the PTC and RPS programs were 

both in effect, the credit price caps are less likely to limit the deployment of renewable technologies. 

That concludes my testimony, Mr. Chairman, and I would be 

glad to answer any questions that you or other Members of the 

Subcommittee might have. Thank you. 

[The prepared statement of Mr. Gruenspecht follows:] 

Statement of Howard Gruenspecht, Deputy Administrator, Energy 

Information Administration, U.S. Department of Energy 

Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to 

appear before you today to discuss the economics of renewable energy electricity 

generating technologies that are eligible for the Section 45 production tax credit 

(PTC). 

The Energy Information Administration (EIA) is a statistical and analytical agency within the U.S. Department of Energy. We are charged with providing objective, 

timely, and relevant data, analyses, and projections for the use of the Congress, the 

Administration, and the public. We do not take positions on policy issues, but we 

do produce data, analysis, and forecasts that are meant to assist policy makers in 

their deliberations. Because we have an element of statutory independence with respect to our data, analyses, and forecasting, our views are strictly those of EIA and 

should not be construed as representing those of the Department of Energy or the 

Administration. However, EIA’s baseline projections on energy trends are widely 

used by government agencies, the private sector, and academia for their own energy 

analyses. 

Much of the information I am providing today comes from our Annual Energy 

Outlook 2005 (AEO2005) which provides projections and analysis of domestic energy 

consumption, supply, and prices through 2025. The AEO2005 is based on Federal 

and State laws and regulations in effect as of late 2004. With respect to electricity 

generated from renewable energy, AEO2005 includes the extension and broadening 

of the PTC through December 31, 2005, that was included in the Working Families 

Tax Relief Act of 2004 (P.L. 108–311) and the American Jobs Creation Act of 2004 

(P.L. 108–357). 

The projections in the AEO2005 are not meant to be exact predictions of the future but represent likely energy futures, given technological and demographic 

trends, current laws and regulations, and consumer behavior as derived from known 

data. EIA recognizes that projections of energy markets are highly uncertain and 

subject to many random events that cannot be foreseen, such as weather, political 

disruptions, and technological breakthroughs. In addition to these phenomena, longterm trends in technology development, economic growth, and energy resources may 

evolve along a different path than expected in the projections. The AEO2005 includes several alternative cases intended to examine some of these uncertainties. 

Renewable Generation Today 

In today’s market, renewable generation accounts for 9.4 percent of total generation; over three-quarters of it comes from hydroelectric facilities (Figure 1). The 

technologies currently eligible for the PTC account for a small share of total electricity generation. In 2003, the combined generation of geothermal, photovoltaic (see 

attached Glossary), solar thermal, biomass, municipal solid waste, and wind plants 

accounted for 2.2 percent of total U.S. electricity generation. Among these renewable 

sources, biomass generation, mainly from industrial facilities, accounts for over 44 

percent of the total, followed by municipal solid waste (26 percent), geothermal (16 


jcorcoran on PROD1PC62 with HEARING
8 

percent), wind (13 percent), and the grid-connected solar technologies (1 percent). 

While their combined generation is projected to more than double by 2025, their 

share of total generation will remain small, at 3.2 percent. 

Economics of Renewable Generating Technologies 

Many factors affect the relative economics of various electricity generating technologies. Such factors include the costs of licensing, permitting, and constructing 

each plant (often referred to as the overnight construction costs), the time required 

to build each plant, the costs of financing the construction, the projected cost of the 

fuel (if any) needed to operate the plant, and other operations and maintenance 

costs associated with running the plant once it is built. Because the contribution of 

each of these cost components differs from technology to technology, it is difficult 

to look at any one factor to determine which technology is best for a given set of 

circumstances. 

One approach that is often used to compare disparate technologies is to estimate 

their levelized costs. Levelized costs represent the discounted per-kilowatthour costs 

of building and operating a plant at its typical operating rate (i.e., capacity factor). 

Table 1 compares the projected levelized costs to develop the next plant in 2010 

for various grid-connected utility-scale renewable technologies to those for pulverized coal, natural gas combined-cycle, and nuclear plants. The values in the table 

represent the discounted costs of building and operating each technology for 20 

years. They include the costs of building the plant, staffing and maintaining the 

plant, and purchasing the needed fuel each year for 20 years. As shown, pulverized 

coal plants have the lowest projected levelized costs, followed by geothermal and 

then natural gas combined-cycle plants. Solar thermal and photovoltaic technologies 

tend to be much more expensive than other options, while wind and open-loop biomass are in the middle. 

Table 1. National Average Levelized Generation Costs for New 

Plants in 2010 

Technology 

Levelized 

Costs (2003 

cents per 

kilowatthour) 

Pulverized Coal 4 .3 

Geothermal 4 .4 


jcorcoran on PROD1PC62 with HEARINGInsert 26380A.001
9 

Table 1. National Average Levelized Generation Costs for New 

Plants in 2010—Continued 

Technology 

Levelized 

Costs (2003 

cents per 

kilowatthour) 

Natural Gas Combined-Cycle 4 .7 

Wind 4 .8 

Open-Loop Biomass 5 .1 

Nuclear* 6 .0 

Solar Thermal 12 .6 

Photovoltaic 21 .0 

*The time required to license, permit, and construct a new nuclear plant makes it impossible to bring one 

on line by 2010. The costs shown are for a plant beginning operation in 2013. 

Excludes transmission costs and impact of PTC. 

Source: National Energy Modeling System run, aeo2005.d102004a. 

When reviewing this table, one might ask why the costs are so different and why 

we are not seeing greater penetration of geothermal plants. Furthermore, given the 

costs shown, why has so much natural gas capacity been added in recent years? 

While pulverized coal plants are expensive to build—typically twice as costly as a 

natural gas combined-cycle plant—there is an ample supply of fairly low-cost coal 

and the plants can operate nearly around the clock with annual capacity factors exceeding 80 percent. Because they can be operated so intensively, the recovery of 

their high construction costs can be spread over a large amount of electricity production, making their per-kilowatthour levelized costs relatively low. In contrast, photovoltaic and solar thermal plants, which are even more expensive to build than coal 

plants on a per-kilowatt of capacity basis, cannot be operated very intensively. Their 

potential utilization is limited by the availability of the sun and their annual capacity factors are generally between 25 and 33 percent. Unlike coal plants, the levelized 

costs for natural gas combined-cycle plants are driven by their fuel costs, rather 

than their construction costs. If a plant is to be operated intensively—what is referred to as baseload operation—the higher fuel costs for natural gas plants tend 

to make them less economical than coal plants. On the other hand, if a plant will 

be operated only occasionally (i.e., peaking operation) or moderately, such as on hot 

summer days when electricity usage is high, the very low construction costs of natural gas plants make them an attractive option. 

For nuclear plants, relatively high construction costs, high operation and maintenance costs, and long planning and construction periods all contribute to their higher levelized costs. For geothermal plants, high construction costs and the site-specific characteristics of the geothermal resource are the key drivers of their levelized 

costs. At the best sites, their levelized costs can be competitive with new coal plants, 

but there are only a few sites with costs as attractive as those in Table 1, and they 

tend to be located in remote areas in the far western region of the country. Once 

those low cost sites are developed, the remaining sites are much more expensive. 

The levelized costs for open-loop biomass technologies are most influenced by their 

high capital costs and the availability of low-cost fuel. When low-cost fuels are available, they can be reasonably competitive, but the supply of such fuels is limited. Because biomass is dispersed and has a much lower energy density per unit of volume 

than coal, transportation costs generally rule out moving biomass over long distances. The size of plants using biomass can be limited by amount of biomass that 

can be produced at nearby locations. 

For wind, the key levelized cost drivers are the construction costs of the plants 

and the quality of the wind resource. The wind resource in the country is quite 

large, but some of the best resources are located in areas where their development 

is restricted or in relatively remote areas where significant transmission upgrades 

would be needed to access them. 

Two further cautions should be raised about comparing the levelized costs of wind 

and solar plants to other technologies. Wind and solar technologies are often referred to as intermittent technologies. Unlike the other technologies in the table, 

their generation is only available when their resources are available. They can not 

be called upon whenever needed. When the wind is not blowing or the sun is not 


jcorcoran on PROD1PC62 with HEARING
10 

shining, they cannot generate electricity. As a result, when these technologies are 

developed, additional capacity may have to be added to back them up and ensure 

that consumers’ electricity needs can be met at all times. The need to add backup 

capacity for intermittent resources adds system costs that are not reflected in their 

levelized costs. The levelized costs shown in the table also do not include the costs 

of transmission investments needed to support the capacity additions. All technologies require some investment to interconnect to the transmission grid, but these 

costs can be higher for some renewables because of their relatively remote locations 

and, for the intermittent technologies, the per-kilowatthour transmission costs can 

be high because of their lower generation. 

Impact on the PTC 

The availability of the PTC through December 31, 2005, makes the eligible renewable technologies more economically attractive than shown in Table 1. For example, 

the full 10-year PTC available for wind plants lowers their projected levelized costs 

by about 2 cents per kilowatthour. The levelized value of the PTC is larger than 

the nominal value of the PTC because it is an after-tax credit. 

For solar technologies, the benefit provided by the PTC does not appear to be 

large enough to cause a significant change in market penetration. In fact, because 

their annual output is so limited, the PTC is less valuable to them than the 10-percent investment tax credit for which they are also eligible. For geothermal and biomass technologies, planning and construction periods are so long that it would be 

impossible for a new plant to be developed in time to take advantage of the current 

credit. Even for wind technology, only those plants that are well along in their development cycle will be able to enter service in time to qualify for the credit. Shortterm extensions of the PTC are likely to have limited impact on qualifying technologies like biomass and geothermal, which have relatively long development periods, even if the credit were large enough to make them economical. Throughout the 

history of the PTC, its primary impact has been to stimulate the development of 

wind plants, albeit with the limitations mentioned above. 

As stated previously, the AEO2005 reference case assumes the PTC will expire 

in December 2005, as provided for in current law. In the AEO2005, EIA also has 

examined the potential impact of a longer-term extension of the current PTC. The 

only qualifying technology not represented in the extension case was closed-loop biomass. Because of the long establishment times and relative expense of energy crops, 

it was assumed that no dedicated, closed-loop biomass would be able to take advantage of the extended credit. The PTC extension case is not meant to represent any 

expectation about future policy decisions regarding the PTC. 

In the AEO2005 PTC extension case, wind power continues to show the largest 

projected gains, although landfill gas, geothermal, and biomass are also projected 

to experience some capacity expansion. Installed wind capacity in 2015 is almost 63 

gigawatts in the PTC extension case, compared to 9.3 gigawatts in the reference 

case. In 2015, geothermal capacity in the PTC extension case is 3.2 gigawatts, compared to 2.7 gigawatts in the reference case. Biomass capacity in 2015 is 3.4 

gigawatts in the PTC extension case, compared to 2.1 gigawatts in the reference 

case. In a test case where it is assumed that all of the eligible renewables were 

given the PTC now available to new wind plants for an extended period, wind and 

biomass technologies showed the largest growth. 

Other Factors Influencing Renewables 

Other important factors that could impact the future of PTC-eligible renewable 

technologies include changes in fossil fuel prices, particularly for natural gas, 

changes in environmental policies, and changes in other Federal or State policies. 

The AEO2005 includes a case where it is assumed that natural gas supply options 

are more restricted than in the reference case. The key impact of these supply restrictions is higher natural gas prices, making other generating options, including 

renewables, more economically attractive. In the restricted natural gas supply case, 

the wellhead price of natural gas in 2025 reaches $6.29 per thousand cubic feet 

(2003 dollars), 31 percent higher than the $4.79 per thousand cubic feet price in the 

reference case. These higher natural gas prices cause a shift to increased use of coal 

and renewables for electricity generation, while natural gas generation is lower. 

Total additions of renewable capacity in the restricted natural gas supply case are 

nearly double the level seen in the reference case, and the share of generation accounted for by the renewable technologies eligible for the PTC increases to 4.1 percent, nearly one-third higher than the 3.2-percent share in the reference case. Biomass, wind, and to a lesser degree, geothermal show the greatest increases in response to the higher natural gas prices. 


jcorcoran on PROD1PC62 with HEARING
11 

The AEO2005 also included a case examining the impact of the Environmental 

Protection Agency’s (EPA) proposed Clean Air Interstate Rule (CAIR) which has 

now been finalized. The CAIR calls for the power sector to significantly reduce its 

emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx). In the AEO2005 alternative case, the CAIR was found to have insignificant impacts on renewable generation. Similarly, in a recent analysis prepared in response to a request from Senators 

James Inhofe and George Voinovich, the potential impact of EPA’s proposed Clean 

Air Mercury Rule (CAMR) together with CAIR was examined. Again, it was found 

to have only small impacts on renewable generation. 

In contrast to these findings, several EIA analyses have shown that renewable 

generation could be strongly impacted by environmental legislation calling for significant reductions in greenhouse gas emissions. For example, in June 2003, at the 

request of Senators Inhofe, McCain, and Lieberman, an analysis of S. 139, the Climate Stewardship Act of 2003, was prepared. S. 139 called for a two-phase reduction in greenhouse gas emissions for most sectors of the U.S. economy. The first 

phase called for reductions to the 2000 greenhouse gas emissions level, while the 

second phase called for reductions to the 1990 greenhouse gas emissions level. In 

our analysis, the greenhouse gas cap and trade program called for in S. 139 significantly increases the cost of using fossil fuel technologies that emit greenhouse gases, 

which encourages increased use of renewables, nuclear, and carbon capture and sequestration technologies. In that analysis, total additions of renewable capacity were 

more than 10 times the level seen in the AEO2005 reference case, and the share 

of generation accounted for by the renewable technologies eligible for the PTC increased to 16.8 percent, more than 5 times the level seen in the reference case. 

Again, biomass, wind, and geothermal showed the greatest increases in response to 

the greenhouse gas cap and trade program. 

State programs to stimulate renewables, such as power generation standards or 

mandates, could also influence the impact of Federal PTC changes. In a review of 

State programs through December 31, 2003, EIA found that the Federal PTC and 

State renewable programs tend to complement one another. Many of the States 

have provisions in their renewable programs that limit their funding or the costs 

they are willing to impose. As a result, the impacts of the State programs likely 

would be lower without the Federal PTC to reduce the costs of renewables. 

Discussions surrounding Federal energy legislation have included proposals for 

the implementation of a national renewable portfolio standard (RPS) requiring that 

a certain percentage of all electricity generation or sales come from designated renewable energy sources. EIA has no position on these proposals, but we have prepared several analyses of RPS proposals in recent years in response to requests 

from Congress. These analyses suggest that such an RPS could stimulate the development of new renewable generating capacity. However, the stated percentage targets in these proposals are often not achieved because provisions that cap the price 

of tradable renewable credits are triggered. If the PTC and RPS programs were both 

in effect, such provisions are less likely to come into play as a factor would limit 

the development of new renewable generating capacity. 

This concludes my testimony, Mr. Chairman. I would be glad to answer any questions you and the other Members may have. 

Glossary 

Closed-loop biomass. A closed-loop process is defined as a process in which 

power is generated using feedstocks that are grown specifically for the purpose of 

energy production. Many varieties of energy crops are being considered including 

hybrid willow, switchgrass, and hybrid poplar. 

Combined-cycle. An electric generating technology in which electricity is produced from otherwise lost waste heat exiting from one or more natural gas (combustion) turbines. The exiting heat is routed to a conventional boiler or to a heat recovery steam generator for utilization by a steam turbine in the production of electricity. This process increases the efficiency of the electric generating unit. 

Gigawatt. 1,000,000 kilowatts or 1,000 megawatts. 

Kilowatt. A unit of electricity generating capacity equal to 1000 watts. 

Kilowatthour. The amount of electricity generated by operating a 1-kilowatt generator at full load for 1 hour. 

Megawatt. 1,000 kilowatts. 

Open-loop biomass. An open-loop process is defined as a process in which power 

is generated using feedstocks that are a waste stream. Examples of such feedstocks 

include: agricultural residues (corn stover, wheat straw), forestry residues (logging 

residues, dead wood), and urban wood waste/mill residues (pallets, construction 

waste). 


jcorcoran on PROD1PC62 with HEARING
12 

Photovoltaic. Direct conversion of sunlight to electricity through use of photoconversion cells, typically using conducting layers of crystalline silicon cells. 

Solar thermal. Conversion of sunlight to electricity by concentrating sunlight to 

heat water or other medium (like molten salt) for use as a preheater for the boiler 

fluid of a steam turbine. Sunlight may be concentrated on tubes (trough thermal), 

points (dish), or tower focal points. 

f 

Chairman CAMP. Thank you, Dr. Gruenspecht, for that testimony. I have a couple of questions I would like to start off with. 

Some have suggested that increasing the amount of renewablesgenerated power will help reduce America’s dependence on foreign 

oil. Is that true, and what is your opinion on that? 

Dr. GRUENSPECHT. Well—— 

Chairman CAMP. Then, second, how will an increase in renewables affect dependence in America on natural gas? 

Dr. GRUENSPECHT. In 2003, I think oil-fired generation was 

only about three percent of total generation and it is not expected 

to be an important source of generation in the future. Only about 

3 percent of our total petroleum is used for electric generation. This 

is a big change from the 1970s, when about 10 percent of our total 

petroleum use was used for electric generation. So, there is probably not that large a relationship between using more of any particular fuel and backing out oil. 

Natural gas is somewhat different. Natural gas is a growing 

source of generation, and as you know, many new plants have been 

constructed that burn natural gas. In several analyses, we found 

that programs to stimulate renewable electricity generation could 

reduce natural gas use. When we did that analysis I mentioned 

about the Federal Renewable Portfolio Standard, we found that 

natural gas generation in 2025 would be 3.6 percent lower than it 

would be in our base case, and natural gas wellhead prices were 

reduced somewhat. So, I would say more of an effect on natural 

gas, less of an effect on oil would be the short answer. 

Chairman CAMP. At least 19 States and the District of Columbia 

have implemented Renewable Portfolio Standards, and these standards generally require a certain percentage of power sold within 

the State be derived from renewable sources. Does it make sense 

to have a tax credit and a mandate for production at the same 

time? Does it make sense to subsidize activities that are mandated? 

Dr. GRUENSPECHT. Tough question. I guess as I mentioned in 

my testimony, there are many variations in the general program 

design and specific program details across the States that have programs, and I mentioned the fact that some of the States have cost 

caps, and clearly the cost caps are less likely to come into play if 

the Federal PTC is available. 

So, there is something to be—I guess I would not say that because there are State programs, the PTC would have no impact. 

Whether it makes sense or not is really a policy matter to be addressed as to who should bear the costs, the consumer, as a consumer of electricity, the consumer as a taxpayer or the State. 

Chairman CAMP. Well, I guess my question is does the tax credit distort choices among renewables in those States that have the 

Renewable Portfolio Standards? 


jcorcoran on PROD1PC62 with HEARING
13 

Dr. GRUENSPECHT. It probably does have an effect. I mean, in 

our levelized cost numbers, the value of the full credit that wind 

and closed-loop biomass gets, the 10 years, the full amount of the 

credit, compared to some of the other technologies get a half-value 

full-life credit that is worth half as much, and some of them get 

a half-value half-life credit, which is worth 30 percent as much. So, 

there is no question that those differences can affect the choices 

among the technologies. 

That said, wind is the technology that has been most prominent, 

and wind, even in our table, happens to be among the lowest-cost 

renewable technologies. So, I say there is some potential for distortion in the mix of technologies, but wind would do well under any 

circumstances, as it is doing now. 

Chairman CAMP. Lastly, with regard to natural gas, what is the 

potential contribution to the overall U.S. energy supply by landfill 

gas? 

Dr. GRUENSPECHT. I do not have that off the top of my head. 

Can I get back to you on the record for that? 

Chairman CAMP. Yes. If you could submit that later in writing, 

that would be helpful. 

Dr. GRUENSPECHT. Thank you. 

Chairman CAMP. I just wonder, I mean, maybe this is something you want to follow up on, but how the PTC affects the creation of new landfill facilities in terms of the number and economics of those projects. If you could give the Committee that information, that would be helpful, as well. 

Dr. GRUENSPECHT. Okay. I know that, initially, some of the 

landfill gas facilities were responding to EPA requirements and it 

is really only later, I think, with the extension and the expansion 

of the PTC that that has become an issue. But I will get back to 

you. 

Chairman CAMP. Any significant barriers to entry for those facilities that you know of, if you could include that in your comments. 

Dr. GRUENSPECHT. Okay. Thank you. 

Chairman CAMP. Thank you. Thank you very much. 

Mr. McNulty may inquire. 

Mr. MCNULTY. Mr. Chairman, Congresswoman Tubbs Jones is 

a Member of the Social Security Subcommittee, as well. They are 

meeting right now. With your permission, I am going to allow her 

to go first on our side. 

Chairman CAMP. No objection. Ms. Tubbs Jones may be recognized for 5 minutes. 

Ms. TUBBS JONES. Thank you, Mr. Chairman, and to my second fairy godfather on this Committee, thank you, Mike McNulty, 

for yielding to me. 

I wanted to take this opportunity to express on the record my 

support for the extension of this credit, and I wonder, Mr. 

Gruenspecht, have we put a dollar number on this credit, and if we 

have, specifically what it is, what the dollar value of these tax credits are. If, in fact, we have, are you able to say to the American 

public, they are getting on top of that credit this value for it? 

Dr. GRUENSPECHT. I would not venture into revenue estimation matters which are in the purview of the Committee. 


jcorcoran on PROD1PC62 with HEARING
14 

Ms. TUBBS JONES. Okay. 

Dr. GRUENSPECHT. In terms of the levelized cost of renewables, which I discussed in my testimony, the credit does make a 

big difference. For wind, for example, it makes about a two cent per 

kilowatt hour difference in the levelized cost of technology, lowering it from 4.8 or so down to the neighborhood of three cents per 

kilowatt hour. So, that makes a substantial difference. 

Ms. TUBBS JONES. I am not trying to give you our job of revenue. I was just curious—— 

Dr. GRUENSPECHT. Okay. Yes. 

Ms. TUBBS JONES. I think it is a great selling point for the 

credit to be able to discuss that, but let me go on and ask you 

something else. The credit previously has been extended for 1 year. 

Now, it is asked for 2 years. Do you believe that we would get a 

greater bang for our buck if, in fact, the credit was extended for 

a longer period of time or not? 

Dr. GRUENSPECHT. I think short-term extensions make it hard 

for certain technologies to benefit from the credit because the 

project development cycle for those technologies is long relative to 

the period of extension. So, if the credit is extended for a short period of time, it is very hard to get the project in and get it in service. 

Ms. TUBBS JONES. So, your answer is yes? 

Dr. GRUENSPECHT. Well, my answer is it is a policy call, but 

clearly, certain technologies have a hard time making use of the 

short-term extension. The other side of it is obviously the revenue 

costs and the fact that market conditions can change over time. 

Ms. TUBBS JONES. What would you suggest would be a reasonable period of time for the extension, then? Come on, you can answer. We won’t hurt you. 

Dr. GRUENSPECHT. No, no, I know you won’t hurt me— 

[Laughter.]—but it is really not the role of the Energy Information 

Administration to take a position on that. 

Ms. TUBBS JONES. You are a great employee of the Federal 

Government. 

Dr. GRUENSPECHT. I am a bureaucrat when it comes to these 

types of issues, but again, it is really a trade-off between what the 

different technologies can use, on the one hand, and I guess you 

guys have to worry about the revenue costs and you need to worry 

about possible changes in market conditions. 

When we looked at long-term extensions, we did see, for instance, more biomass coming in. Again, we did that as a sensitivity 

analysis. Biomass has a harder time coming in with short-term extensions because you can’t get the projects done. 

Ms. TUBBS JONES. Got you. So, in other words, in some instances, if we have a longer credit involved, we might have greater 

return on some of the research or work that has been done. 

Dr. GRUENSPECHT. You could certainly get more types of 

projects in. 

Ms. TUBBS JONES. Mr. Chairman, I thank you and the Committee for allowing me to speak up, and to the second panel, please 

know that it is not that I don’t want to hear you, but I have got 

to work on Social Security for the people in my Congressional district. 


jcorcoran on PROD1PC62 with HEARING
15 

I yield back my time. Thank you, Chairman Camp and Mike. 

Chairman CAMP. Thank you very much. 

Mr. Foley may inquire. 

Mr. FOLEY. Thank you, Mr. Chairman. I was interested in listening to your description of the various sources of energy, and I 

recognized in all of them there are some variables, some 

vulnerabilities, reliabilities, possibly. But at the end of the day, following up on what Mr. Camp mentioned, it is trying to free ourselves from being held hostage by what I believe are other nations, 

whether it is the Saudi Arabian royalty or Chavez in Venezuela. 

We seem to have a thirst, an unquenchable thirst for crude oil, and 

these technologies, in my view, seem to be the only way to ratchet 

backward. 

Yesterday, General Electric had a two-page ad in USA Today and 

it basically illuminated the fact that one wind energy unit can supply the energy electricity for 440 households. Now, obviously that 

is probably under optimum circumstances and a number of other 

things, but I don’t think General Electric would spend that kind of 

money just touting fantasy. 

My hope is that we can use the constructive dialog of the tax element, Tax Code. It may not be the most perfect way in which to 

enhance or create development, but it seems to be one of the only 

ways for companies, like Florida Power and Light in my district, 

to venture out and embark on this opportunity. I think with a combination of those features, certainly there is inherent in these products diversity. 

Landfills, we are finding ourselves at capacity in so many places, 

and to take that excess capacity and to make it something else 

seems to be on the cutting edge, methane, whether it is sugar cane 

in my case in the Glades with biomass. It is getting rid of a product 

we have no other places for. 

So, when you do the analysis, not just counting dollars and tax 

credits, isn’t it a way with the multitude of platforms we are approaching to reduce significantly our dependency? 

Dr. GRUENSPECHT. Again, it is—we don’t use that much oil for 

electric power generation. We do use natural gas, and natural gas, 

we would be increasingly reliant on imports over time. 

I think you are correct in noting that there is a wide variety of 

resources and that different areas of the country have different resources. So, the top wind areas for generation right now would be 

California, Texas, Iowa, Minnesota. North Dakota, South Dakota 

have resources there. For biomass, you have the Midwest that has 

a lot of agricultural residue. The West and the Northeast and the 

Southeast have forestry resources that can be used for biomass. 

Landfill gas, which you mentioned, a lot of urban areas with landfills have significant landfill gas resources. Geothermal is located 

mostly in the West. 

So, with the variety of renewable resources, you do have different 

parts of the country that have each one. I left out solar. Solar is 

obviously most attractive in the Southwest, where you have clear 

skies and good insulation. 

So, I guess the variety of renewable resources are available 

throughout the country. It is hard to back out oil, because not 


jcorcoran on PROD1PC62 with HEARING
16 

much oil is used. There is more opportunity to back out natural 

gas. 

Mr. FOLEY. Why has solar energy failed, really, in consumer demand? 

Dr. GRUENSPECHT. Well, our analysis shows that it is pretty 

expensive. The Production Tax Credit is simply not enough to bring 

solar in, whereas some of the other technologies that are closer to 

conventional technologies and costs can be stimulated by policies 

like the Production Tax Credit. So, I would say with solar, it has 

been mostly a cost issue, although there are attractive applications 

for solar in certain niches—remote power, the highway signs you 

see. 

So, again, there is an opportunity for some niche power, but in 

terms of connecting to the electric grid, I think the costs right now 

are too high. Those costs might be brought down in the future, but 

for the foreseeable future, solar is much more expensive per kilowatt hour than the other resources we are talking about here. 

Mr. FOLEY. Have you looked at the hydrogen fuel cell technology for houses? 

Dr. GRUENSPECHT. I have not. 

Mr. FOLEY. Have you all analyzed them for vehicles? 

Dr. GRUENSPECHT. We do look at them for vehicles. We don’t 

see a lot of market-driven penetration of those technologies. The 

penetration of those technologies in our outlooks is driven mostly 

by the mandates that exist in various parts of the country, for example, California, for those technologies. On a cost basis, those are 

not competitive. 

Remember, hydrogen has to come from somewhere. Hydrogen is 

an energy carrier. It is not a fuel. It is not a primary fuel. Hydrogen is like electricity. So, taking account of the need to create the 

hydrogen and then to transport it, which has some challenges, and 

the cost of the fuel cell, we don’t see the economics as being that 

attractive right now. 

Mr. FOLEY. Thank you. 

Chairman CAMP. Thank you very much. 

The gentleman from California, Mr. Herger, is a Member of the 

full Committee and would like to make a brief statement. 

Mr. HERGER. Thank you very much, Mr. Chairman. I thank you 

and our Ranking Member, Mr. McNulty, for allowing me to sit in 

on this Subcommittee and be able to make a statement. 

I requested to attend today’s hearing because renewable energy 

generation is such an important industry in my Northern California congressional district. In particular, my district contains 

more biomass power facilities than any other district in the United 

States Over the last two decades, biomass plants have made remarkable progress in how we handle our wastewood materials. 

To that end, I would like to welcome a member of the next panel, 

Mr. Bill Carlson, a constituent of mine, an expert on open-loop biomass. 

Much of the agricultural burning in the Sacramento and San 

Joaquin Valleys has been eliminated, with the materials sent for 

clean-up disposal in biomass plants. Perhaps most importantly, biomass plants are an integral part of proper forest management in 

our forested communities. 


jcorcoran on PROD1PC62 with HEARING
17 

I personally have a long interest in opening up the section 45 

wind and closed-loop biomass tax credit to open-loop biomass dating back to the introduction of H.R. 1731 in the 106th Congress. 

I was very pleased that we were able to incorporate many of these 

important changes in last year’s jobs bill, but the job of creating 

equity for the various renewables within section 45 is not yet complete. 

Again, Mr. Chairman, I thank you and I yield back the remainder of my time. 

Chairman CAMP. Thank you very much. 

Mr. McNulty? 

Mr. MCNULTY. Thank you, Mr. Gruenspecht. You an expert on 

these issues and I am going to ask you a more generic question. 

Just about every member who has spoken so far has talked about 

the need to reduce our dependence on foreign oil. I just want to get 

your feeling about whether we as a government are doing enough 

in that regard, and I don’t think you should feel constrained as a 

bureaucrat in answering that question, because as you should well 

know, the President has made a point of this in his last two State 

of the Union Addresses and has said we need to do a lot more in 

this area. He has particularly mentioned wind and some of the 

other renewables. 

Certainly, we are not going to do anything visionary today. We 

are talking about renewing something that already exists. I think 

we have to go beyond that and talk about other things that we 

should be doing in order to promote the production of renewables. 

So, I am not putting you on the spot as far as an Administration 

representative is concerned. The President is on the record in two 

State of the Union Addresses. I want to know if you think Congress 

is doing enough in responding to that call from the President to do 

more in this area, and if we are not, what else should we be doing? 

Dr. GRUENSPECHT. I guess I would say that the challenge is 

weighing the goal of reducing reliance on conventional sources of 

energy against the costs of alternative sources of energy. For the 

most part, conventional sources of energy have some significant 

economic advantages. They also raise some significant concerns, 

the ones you mentioned. The real—— 

Mr. MCNULTY. Cost concerns. 

Dr. GRUENSPECHT. Potentially, cost concerns, security concerns. But generally, they are still economically attractive relative 

to the alternatives. So, there may be a cost to be borne in moving 

away from conventional sources of energy and how much cost we 

are willing to bear to move how far is really a political choice. 

Mr. MCNULTY. That is why we have experts like you here, to 

give us guidance on that. What do you think about that? Do you 

think we are doing enough? 

Dr. GRUENSPECHT. Well, I think there are policies we could 

look at, both from the—on the demand side and on the supply side 

that would reduce our reliance on conventional energy—— 

Mr. MCNULTY. Could you expand on that a little bit more? 

Dr. GRUENSPECHT. I think there are some efforts to promote 

greater efficiency, perhaps some efforts to increase the use of renewable resources, and again, not just in electricity generation, in 

other uses, as well. But again, there are some costs associated with 


jcorcoran on PROD1PC62 with HEARING
18 

those and how much cost we are willing to bear is, I think, an important question. 

Mr. MCNULTY. Doctor, I don’t know if you could answer this 

now or give us the information later, but could you maybe describe 

to us in general terms, and then maybe you can give us some more 

specific information later on, about how the various renewables 

break down by State or geographic areas? 

Dr. GRUENSPECHT. Sure. I would be glad to do a little bit, and 

I can add to it later. In terms of the available resource or in terms 

of how much is generated right now, because you can look at it 

both ways. In terms of right—— 

Mr. MCNULTY. I would like to get information on both. 

Dr. GRUENSPECHT. Both? Okay. In terms of right now, I think 

the leading wind States would be California, Texas, Iowa, Minnesota—I am trying to look quickly down a list here—Washington, 

Wyoming, Kansas, Oregon. 

For wood and wood waste, you find that in a lot of places that 

have pulp and paper industries, which use a lot of biomass. That 

would be Georgia, Maine, California, Alabama, Kentucky. 

For municipal solid waste and landfill gas, which, again, under 

the present provisions are counted as eligible for at least reduced 

credit, Florida, New York, Pennsylvania, Massachusetts, Connecticut. 

So, again, as I described in response to an earlier answer, different regions of the country tend to have different resources that 

qualify for this. Again, there are some States that don’t have much 

right now from the wind, say South Dakota, North Dakota that 

have very good wind potential. But again, some of that potential 

is very far away from markets. So, there is a trade-off there. 

But I think that is a pretty good description, and I could certainly provide you a lot more detail for the record. 

Mr. MCNULTY. We would appreciate that. Thank you, Doctor. 

Chairman CAMP. Thank you very much. 

Mr. Thompson from California may inquire. 

Mr. THOMPSON. Thank you very much, Mr. Chairman. 

I would like to get you to talk a little bit about the PTC, the Production Tax Credit, and specifically how it relates to geothermal. 

I am told by the geothermal producers that a big part of their problem are the up-front costs that are associated with the development 

of geothermal energy, and that also that PTC gives them the ability to leverage funding in order to help meet these up-front costs. 

I want to know why we can’t or shouldn’t restructure the PTC 

to provide some long-term benefits to geothermal. In your testimony, you talk about the inability to do that in the short run, and 

I know the Administration has left that out of their proposal. Why 

couldn’t we and why shouldn’t we design it so we could continue 

to rely on geothermal and help them get to where they need to be? 

Dr. GRUENSPECHT. As I understand it, geothermal gets the 

full value of the credit, but only gets it for half the period of time. 

They get it for 5 years rather than 10 years. So, clearly, if they got 

more of a credit, it would be more advantageous to them. 

I think, though, for geothermal, and we discussed, I think, in response to one of the earlier questions the question of how long the 

extension is and how that affects different technologies. In addition 


jcorcoran on PROD1PC62 with HEARING
19 

to having a significant up-front cost, geothermal also takes a significant period of time to develop. So, the very short-term extensions that have become the norm in recent years may not provide 

a lot of opportunity for a technology like geothermal because you 

have got the extension, you add geothermal, you would think about 

starting your project, but you wouldn’t be able to get your project 

into service in time. So, geothermal, biomass, those type of technologies, they are affected by the short extension and put at a disadvantage relative to something that can be developed more rapidly, like wind. 

Mr. THOMPSON. So, how long would we have to extend it in 

order to allow geothermal to benefit—or not just geothermal, but 

the consumers? I think it is about 5 percent of the energy that is 

developed in California comes from geothermal, so it is more than 

just the industries. It is the consumers and the ratepayers. So, how 

long would it have to be extended in order to allow full benefit to 

accrue? 

Dr. GRUENSPECHT. I need to go back and check on what we 

built into our framework for the standard time it takes to develop 

a geothermal project. But another thing to keep in mind is that we 

don’t think that there is a whole lot of geothermal resource to be 

added, so a longer extension could bring some of that on. But unlike some of the other technologies that have what I will call flat 

supply curves, where you can maybe bring on a whole lot more, 

geothermal, you will be limited by the availability of the geothermal sites. 

In terms of the specific length of time that it takes to develop a 

geothermal project, I would like to go back and answer that for the 

record. 

Mr. THOMPSON. You can get us that information? 

Dr. GRUENSPECHT. I think we can get you our generic assumption. No two plants are alike, but there is no question that 

the period of development for geothermal projects is longer than a 

year or a year and a half, and that is typically what the extensions 

have been. 

Mr. THOMPSON. Thank you. Mr. Chairman, I yield back. 

Chairman CAMP. Thank you. 

The gentleman from Georgia, Mr. Linder, may inquire. 

Mr. LINDER. Thank you, Mr. Chairman. 

Dr. Gruenspecht, would any of these renewable sources of energy 

be available if we did not subsidize them? 

Dr. GRUENSPECHT. If you did not subsidize, it is a tricky question. I mean, we could ask more narrowly, if you do not have the 

PTC. There is a history of a variety of provisions in this country, 

going back, I guess, to 1978, the Public Utility Regulatory Policies 

Act, that had a policy that encouraged the interconnection of renewables, and in some States, those renewables were paid and 

avoided cost that was calculated in a pretty generous way, and that 

encouraged those technologies. So, some renewable capacity was 

brought on in response to those incentives. 

There are some Investment Tax Credits. There is also the PTC. 

I mean, to date, the PTC has really brought on wind in a big way. 

A significant fraction, you could say well over half of the wind genVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
20 

eration that we have could arguably be said to have been brought 

on by the PTC. 

Wind generation in 2003, I think was maybe between 11 and 12 

billion kilowatt hours out of a total of 87 billion kilowatt hours of 

generation of these non-hydro renewables. So, you had landfill gas. 

You had municipal solid waste. You have the industrial use of biomass in the pulp and paper industry, and they generate a significant amount of electricity. So, those technologies, I think it was not 

the PTC that brought those into being, but some of those may have 

been brought into being by some of the other incentives that we 

have. 

So, I am reluctant to say that absent all subsidies, you would be 

seeing all that renewable, non-hydro renewable generation in place. 

I imagine some of it would come in without any subsidy at all, but 

it is very hard to calculate that exact amount. 

Mr. LINDER. The non-hydro renewables is about 2 percent of 

our generation. 

Dr. GRUENSPECHT. About 2 percent of overall generation. 

Mr. LINDER. How much do we spend on all varying kinds of 

credits per year to generate two percent of our energy? 

Dr. GRUENSPECHT. I am not sure. I don’t have those figures, 

but I can get them for you and get them for the record. 

Mr. LINDER. Do we subsidize any tax credit or tax angle, anything to do with storage, to make it more efficient to store in battery systems, or to make it less costly on the power lines, where 

we lose about 20 percent of our electricity over lines? Are we doing 

anything on superconductivity? 

Dr. GRUENSPECHT. I think the Department of Energy has significant research activities in the area of superconductivity. I know 

they are working with several labs, universities, all working on reducing line losses. 

Just to give you some context, I think the difference between 

total generation and total consumption of electricity is about five 

or six percent, and that reflects line losses. Some of that is in 

transmission, the long-distance movement of high-voltage power. A 

lot of it is in distribution, the local movement of power. But there 

is no question that there is a significant line loss associated with 

moving power from the point of generation to the point of consumption and that superconductivity is one of the avenues that is being 

explored to deal with that. 

In terms of storage, I think there may also be some research activities there, but I am not aware of any tax subsidies for storage. 

Mr. LINDER. Thank you. Thank you, Mr. Chairman. 

Chairman CAMP. Thank you. 

The gentleman from Connecticut, Mr. Larson, may inquire. 

Mr. LARSON. Thank you, Chairman Camp and Ranking Member McNulty, for convening this conference. Dr. Gruenspecht, 

thank you for your service to the country. 

I just have a few questions here. First, could you clarify for me, 

what is the goal from—I know you collect data and statistics. What 

is the goal behind providing a tax credit? Is it primarily to create 

a cleaner environment or to provide a cheaper form of fuel? 

Dr. GRUENSPECHT. Again, it is hard for me to go back into the 

minds of the folks, and I guess this was from the Energy Policy Act 


jcorcoran on PROD1PC62 with HEARING
21 

1992, but I think there was some desire to encourage particular 

technologies and I think there is a belief that some of these technologies would get down the learning curve, if you will, as more 

units were deployed. The cost would be reduced. 

I think there had been some—this is really getting before my 

time, but there had been some bad experience with some investment credits for certain technologies where you received the credit 

for making the investment and how well the unit actually ran once 

it was put in place was of less concern. 

Mr. LARSON. But the public policy argument in order for government to become involved would either have to be a cheaper form 

of energy that would provide us or a more abundant source of energy that would wean us off of dependency on foreign sources, and 

a public policy objective of a cleaner environment by virtue of 

greenhouse gasses that are emitted. 

Dr. GRUENSPECHT. I think those are all motivations. 

Mr. LARSON. How much money do we spend in terms of tax incentives on an annual basis? 

Dr. GRUENSPECHT. I would have to get that for you for the 

record. 

Mr. LARSON. How much money do we spend in terms of R&D 

in that area? 

Dr. GRUENSPECHT. I would need to get that for you for the 

record, as well. 

Mr. LARSON. Would it surprise you that if we look at what we imported in oil alone last year, we spent more than $165 billion, 

and with the price now at about $50 on average, we are going to 

be over $200 billion in terms of oil? If you add to that the cost of 

the war in Iraq, that is upward to $400 billion in those areas alone. 

My question, I wanted to piggyback along the lines of the questions that were posed earlier by Mr. Foley with regard to hydrogen 

fuel cells. I understand that that is not a renewable, but what I 

don’t understand in terms of its meeting an objective policy goal, 

why that wouldn’t be also subject to receiving a tax incentive. 

Dr. GRUENSPECHT. Again, my sense is that the cost of hydrogen fuel cells is such that even if they were to be eligible for the 

PTC, it is my understanding that the PTC itself—— 

Mr. LARSON. Here we have the dog chasing its tail. 

Dr. GRUENSPECHT. I hear you. 

Mr. LARSON. So, we are going in this spiral where the cost of 

importing oil increases annually in a dramatic fashion, and yet we 

are diminishing ourselves in terms of the amount of money that we 

are willing to put into investment so that we can find a source, and 

we are targeting the most abundant source in the universe in hydrogen and we are not putting the money forward that is needed 

to bring these to fruition. 

I mean, we could put a man on the moon in 10 years, but we 

can’t figure out how to harness hydrogen? You have the Governor 

of California that has proposed an energy highway from British Columbia to Baja, California, and the Federal Government sits by 

here, the dog chasing its proverbial tail. Why is this so? With all 

the data and information that we have collected, the best thing 

that we can come up with is this incremental death by a thousand 

slashes, that we get nowhere and we are not putting nearly enough 


jcorcoran on PROD1PC62 with HEARING
22 

money into any form of incentive that is going to make a major 

breakthrough. Where is our investment in our infrastructure in 

that case? 

Dr. GRUENSPECHT. Well, again, I think the impact that the 

PTC would have for hydrogen would be very limited. It is also my 

understanding that the Federal Government effort in the hydrogen 

area is mostly through the R&D programs of the Department rather than through tax policy and tax incentives. So, the focus on hydrogen is on R&D. I believe the Administration is very committed 

to hydrogen R&D, particularly as it relates to vehicles. So, fuel 

cells obviously have stationary applications as well as vehicle applications, but there is tremendous amount of work underway. 

Mr. LARSON. There is no sense of urgency and it is extraordinarily frustrating to a number of Members of Congress, and I assure you my constituents in the Northeast, as we look out and we 

see spiraling costs and a government that is chasing its tail in 

Washington, D.C. 

Chairman CAMP. Thank you very much. 

The gentleman from Indiana, Mr. Chocola, may inquire. 

Mr. CHOCOLA. Thank you, Mr. Chairman. Dr. Gruenspecht, 

thanks for being here today. 

Just following up a little bit on Mr. Linder’s questions, I think 

you testified that about 2.2 percent of electric generation comes 

from renewable energy sources—— 

Dr. GRUENSPECHT. From the non-hydro renewable. The hydro 

is another seven percent or so, the large dams, but those are not 

eligible for the PTC. 

Mr. CHOCOLA. But those sources eligible for the PTC is about 

2.2—— 

Dr. GRUENSPECHT. About 2.2 percent now. 

Mr. CHOCOLA. It has been in place since 1992–1993? 

Dr. GRUENSPECHT. The PTC has been in place since—I think 

it was put in by the Energy Policy Act 1992, but it only applied 

to wind and closed-loop biomass. Over time, it has been expanded 

to many of these other sources. 

Mr. CHOCOLA. Have you or the Administration done any analysis of what the potential is of energy sources that qualify for the 

PTC if it is made permanently extended? Do you have any idea 

how much—— 

Dr. GRUENSPECHT. We have done, as I mentioned in my testimony, we have done the long-term sensitivity analyses of suppose 

you extended the PTC for a long period of time. What would it do? 

It does have a large impact on the amount of wind that gets added 

and it also has an impact on the amount of biomass that gets 

added. So, the wind and biomass are the big gainers. But again, 

it still remains a relatively small fraction of overall power generation. 

Mr. CHOCOLA. So, what percentage do you think it has the potential to get to? 

Dr. GRUENSPECHT. Well, the potential is high. I mean, it is 

just how far the PTC would get it. Let me cite the highest one that 

I am familiar with. In looking at some policies to control greenhouse gas emissions—I think it was a bill proposed by Senators 

McCain and Lieberman—we had these renewables that qualify for 


jcorcoran on PROD1PC62 with HEARING
23 

the PTC growing to over 16 percent of total electricity generation 

in 2025. In our base case, it grows from 2.2 percent to 3.2 percent. 

So, there are definitely scenarios of the world where you can get 

a much larger proportion of overall generation to come from these 

non-hydro renewables. 

But it isn’t just the PTC that does that. It is some other policies, 

as well. We also looked at a scenario with higher natural gas 

prices, and again, that increased the generation of these technologies significantly. So, it is really the size of the incentive that 

matters, it is the market environment that matters in terms of the 

price of natural gas, and it is the policy environment that matters. 

I guess it is all three of those together. But there certainly is some 

significant potential if those stars would all align in a certain way. 

Mr. CHOCOLA. Obviously, at least in part, the purpose of this 

hearing is to determine the effectiveness of the PTC. Have you or 

the Administration kind of outlined any criteria on how Congress 

should judge the effectiveness of it? 

Dr. GRUENSPECHT. We have not outlined those criteria. I 

think we have worked with some of the staff on the Joint Tax Committee who have asked us to look at certain things, do some analyses for them. But we have not independently outlined those criteria. 

Mr. CHOCOLA. Would you have any suggestions today on what 

we should consider? 

Dr. GRUENSPECHT. I think it is probably the standard issues 

that you look at for tax policy. You want to look at are there people 

who qualify for the credit who are getting paid for what they would 

do anyway? Is the program effective in its goals? I guess one has 

to decide what the goals are, and I think one of the other questioners listed a whole set of different goals, being emissions reduction, being technology cost reduction, being displacement of imported fuels. Depending, again, on what mix of goals you would 

have, we would be able to calculate impacts as to how those goals 

were affected. 

Mr. CHOCOLA. Thank you. Thank you, Mr. Chairman. I yield 

back. 

Chairman CAMP. Thank you very much. 

Thank you, Dr. Gruenspecht, for your testimony. This will conclude the first panel and we will begin the second panel. I appreciate very much your being here today. 

Dr. GRUENSPECHT. Thank you very much, Mr. Chairman. 

Chairman CAMP. The second panel today will include Mr. Dean 

Gosselin, Mr. William Carlson, Mr. Curtis Ranger, Mr. Michael 

Norris, Mr. Vince Signorotti, and Mr. Christopher O’Brien. 

Thank you all very much for being here. Before we begin, each 

of you will have 5 minutes. Your written statements, we have and 

will be part of the record. We would ask you to summarize your 

testimony in 5 minutes. 

Before we begin, Mr. Foley from Florida would like to make an 

introduction. 

Mr. FOLEY. Thank you, Mr. Chairman, and I would be delighted 

to introduce Dean Gosselin, who is the Vice President of Business 

Development for Florida-based FPL Energy, a subsidiary, along 

with Florida Power and Light, of the FPL Group. 


jcorcoran on PROD1PC62 with HEARING
24 

FPL Energy is a significant player in the development and use 

of alternative energy. It is among the Nation’s leading generators 

and producers of electricity from clean and renewable sources, such 

as natural gas, wind, solar, hydroelectric, and nuclear. In the wind 

energy generation in particular, FPL Energy produces more energy 

from wind than any other company in the United States. With 44 

wind farms in 15 States—California, Iowa, Minnesota, Pennsylvania, Texas, Washington, Kansas, New Mexico, North and South 

Dakota, Oklahoma, Oregon, Wisconsin, West Virginia, and Wyoming—its wind power portfolio consists of more than 2,700 net 

megawatts, making FPL Energy accountable for nearly 40 percent 

of the total wind energy generated in the United States in 2004. 

It is my pleasure to introduce Mr. Gosselin. 

STATEMENT OF DEAN GOSSELIN, VICE PRESIDENT, BUSINESS 

DEVELOPMENT, FPL ENERGY, LLC, JUNO BEACH, FLORIDA 

Mr. GOSSELIN. Thank you for the opportunity to address this 

House Ways and Means Subcommittee. My name is Dean Gosselin 

and I am Vice President of Business Development for Wind Power 

at FPL Energy. Thank you, Chairman Camp and Ranking Member 

McNulty, for the opportunity to speak with you today. Also, I would 

like to thank Mr. Foley, who has always been a supporter of the 

wind industry and under whom FPL is a constituent. 

FPL Energy is the largest owner and operator of wind energy facilities in the world, with more than 3,000 megawatts of wind turbines in operation and under construction in 15 States. FPL Energy is a subsidiary of the FPL Group, which is also the parent of 

Florida Power and Light Company, an investor-owned electric utility that serves approximately 4.1 million customers in Florida. 

FPL Energy is committed to clean energy sources and strongly 

believes that among all of the renewable energy technologies, wind 

energy is the most economically viable and has the greatest potential to add significant new clean electric power across a broad 

range of geographic regions in the United States. 

We ask that the House of Representatives take swift action to extend the Production Tax Credit for a long term. Without an extension of the Production Tax Credit, only a very insignificant amount 

of utility-scale wind power will be developed. 

For wind energy, the PTC currently provides an inflation-adjusted 1.9 cents per kilowatt hour tax credit for electricity produced 

by the wind for the first 10 years of a project’s life. The PTC stimulates new wind development by helping to drive down costs to consumers, making wind energy an economical and viable source of 

clean, renewable energy. 

The current cost of wind energy production varies between 5.5 

cents per kilowatt hour and 9.5 cents, prior to factoring in the PTC. 

The significant range in price exists because the cost depends on 

a number of independent variables: Location, turbine costs, access 

to transmission, labor costs, construction costs, and wind resource. 

Moreover, and most importantly, the on and off nature of the PTC 

has prevented the industry from realizing the manufacturing efficiencies that we would have expected would otherwise allow production costs for wind energy to continue to fall. 


jcorcoran on PROD1PC62 with HEARING
25 

Currently, inefficient peak production demands are being forced 

upon manufacturers during PTC extension periods, with subsequent cutbacks during PTC expiration periods. The entire supply 

chain is being whipsawed, adding significant costs due to inefficient 

planning, procurement, and supply deployment that would be 

eliminated if a long-term PTC extension was in effect. 

The most significant factor contributing to the remarkable reduction in U.S. wind energy production costs over the last two decades 

has been the dramatic improvement in turbine efficiency. With the 

support of the PTC, we anticipate that research and development 

will continue to drive down wind energy costs. Future generations 

of wind turbines are just one part of the solution. 

The industry also requires improved efficiencies in manufacturing. Approximately three-fourths of the capital costs of a wind 

project is represented in the cost of the turbine and the tower. Turbine and tower costs are substantially a function of the costs of 

their material, labor, and transportation component. The cost of 

steel is a major determinant of installed costs. If you would refer 

to Attachment 3 of my written comments, steel prices, you will see 

that steel prices have increased by more than 120 percent since 

early 2003. 

Additionally, because Europe continues as a predominant source 

of turbine components, the decline in the value of the dollar relative to the Euro is also a significant factor in increased installed 

costs. Since January 2002, the U.S. dollar has lost more than 30 

percent against the Euro, and in Attachment 4 of my written testimony, you will see a graph on that, as well. 

The industry has predicted that the PTC would lead to increased 

manufacturing efficiencies as more of the European component 

supply shifts to manufacturing in the U.S. However, the on and off 

nature of the PTC has precluded any significant shift in the supply 

to the U.S. The last 4 years illustrate the problem that the wind 

industry faces as a result of this on and off nature of the credit. 

Again, Attachment 2 of my written testimony has a graph, as well. 

In 2001, 1,696 megawatts of wind energy were installed. The 

credit expired at the end of 2001 and was not reinstated until late 

spring of 2002. Only 410 megawatts of wind energy were installed 

in 2002. In 2003, 1,687 megawatts of wind energy were installed. 

But in 2004, only 389 megawatts were installed after the credit 

lapsed at the end of 2003, not to be extended until much later in 

the year. We believe that this unpredictability leads to a 20 percent 

or greater inefficiency in energy production costs for the domestic 

wind energy market. 

The industry has often been asked, what will it take for the industry to survive on its own without the benefit of the Production 

Tax Credit? We are often reminded that at one time, the industry 

responded, give us 5 years and we will make it. Unfortunately, in 

this instance, two plus one plus one plus one does not necessarily 

equal five predictable years. Instead, it represents not the sum 

total of years the credit has been in place, but rather periods of uncertainty, when new wind construction stopped, jobs were eliminated, and costs were driven up. Business thrives on the known 

and fails on the unknown. The unpredictable nature of the credit 


jcorcoran on PROD1PC62 with HEARING
26 

1See Attachment 1, ‘‘The Benefits of Wind Energy.’’ 

2See Attachment 2, ‘‘Annual Wind Energy Capacity Additions,’’ which demonstrates the boom/ 

bust cycle of installed capacity that results from the expiration of the PTC. 

has prevented the needed investment in U.S.-based facilities that 

will drive economies of scale and efficiencies. 

Since its inception in 1992, the PTC has proven itself to be an 

excellent investment. It has done what it was designed to do, serving as a catalyst that has stimulated significant development in investment across the United States of the most viable renewable energy source, wind power. But the starts and stops associated with 

the short-term extensions have inhibited the success and have forestalled the long-term viability of the wind industry to stand alone 

without the PTC. 

The wind industry cannot transition to PTC independence unless 

Congress enacts a long-term extension. United States energy companies, including FPL Energy, will then do their part and make the 

investments necessary to ensure the long-term growth of wind energy in our National energy mix. Thank you. 

[The prepared statement of Mr. Gosselin follows:] 

Statement of Dean Gosselin, Vice President, FPL Energy, Juno Beach, 

Florida 

Introduction 

FPL Energy, LLC is the largest developer and operator of wind energy facilities 

in the nation with more than 3,000 megawatts of wind turbines in operation or 

under construction in fifteen states: California, Iowa, Kansas, Minnesota, New Mexico, North Dakota, Oklahoma, Oregon, Pennsylvania, South Dakota, Texas, Washington, West Virginia, Wisconsin and Wyoming. FPL Energy is a subsidiary of the 

FPL Group Inc., which is also the parent of Florida Power & Light Company, an 

investor-owned electric utility that serves approximately 4.1 million customers in 

Florida. 

FPL Energy is committed to clean energy sources and strongly believes that, 

among all of the renewable energy technologies, wind energy is the most economically viable and has the greatest potential to add significant new, clean electrical 

power across a broad range of geographic regions in the United States.1

Wind energy has long been both a bi-cameral and a bipartisan issue that has the 

broad support of both Republicans and Democrats in both the House and Senate. 

Further, the current Administration has included an extension of the PTC for wind 

in all of its budget proposals, and in its National Energy Policy. 

Despite this overwhelming support—as it has a number of times in the recent 

past—the PTC is again set to expire at the end of this year. As such, it is imperative 

that the House of Representatives takes not only swift action to extend the PTC, 

but also to extend it for a long term. Without an extension of the PTC, only a very 

insignificant amount of utility scale wind power will be developed in the United 

States after 2005.2

Background on the Wind Energy PTC 

The wind energy PTC, enacted as part of the Energy Policy Act of 1992, provides 

an inflation-adjusted 1.5 cents/kilowatt-hour (kWh) credit—now 1.9 cents—for electricity produced with wind equipment for the first ten years of a project’s life. The 

credit is only available if the wind equipment is located in the United States and 

electricity is generated and sold to a third party. The credit applies to electricity 

produced by a qualified wind energy facility placed in service before January 1, 

2006. 

Why the PTC Is Imperative to the Continued Growth of the Wind Energy Industry 

The Wind Energy PTC stimulates new wind development by helping 

drive down costs, making wind energy an economical and viable source 

of clean, renewable power 


jcorcoran on PROD1PC62 with HEARING
27 

3One megawatt (MW) (or 1,000 kw) of current technology installed wind capacity serves approximately 300 to 350 homes. 

The cost competitiveness of wind generated electric energy has increased dramatically since the inception of the industry in the early 1980’s. The wind turbine technology of the early 1980’s was in its infancy and the cost of wind energy was extremely high. Since that time, driven by the PTC, the wind industry has succeeded 

in reducing its production costs by a remarkable amount. As a result, with PTC, 

the cost of wind energy is much more competitive with fossil fuel generating 

sources. In 2001, FPL Energy testified before this Subcommittee. At the time, industry 

production costs had been reduced to approximately 4.5 cents/kWh prior to factoring 

in the PTC. With respect to the PTC and its effect on the industry, FPLE’s testimony stated the following: 

With the continued support of the PTC, the wind industry expects that its costs 

will continue to decline as wind turbine technology continues to improve and the 

industry is able to realize more efficient manufacturing economies of scale. 

Through further turbine development and manufacturing efficiencies, the wind 

energy industry anticipates that the cost of wind energy will continue to be reduced until wind can compete head-to-head with fossil fuels without the need for 

any incentives. 

This generally accepted assumption was not entirely correct. Technology has, indeed, improved. However, the production costs have actually increased since 2001 

due to, hopefully, temporary increases in material costs and the devaluation of the 

U.S. Dollar relative to the Euro. 

Consequently, the current cost of wind energy production is anywhere between 5.5 

cents/kWh and 9.5 cents/kWh prior to factoring in the PTC. The significant range 

in price exists because the cost depends on a number of independent variables—location, wind capacity factors, turbine costs, access to transmission, labor costs, construction costs, etc. Moreover, and most importantly, the on and off nature of the 

PTC has prevented the industry from realizing the manufacturing efficiencies that 

we had expected would otherwise allow production costs to continue to fall. 

Today, the most important factors in the wind industry are: (1) the improvements 

in technology, (2) rising installed costs, (3) the continued need for manufacturing efficiencies, and (4) the effect of the PTC on each of the above. 

Research & Development 

The most significant factor contributing to the remarkable reduction in U.S. wind 

energy production costs over the last two decades has been the dramatic improvement in turbine efficiency. Since the early 1980s, the industry has developed numerous generations of new and improved turbines, with each generation improving 

upon its predecessor. As a result, better blade designs, improved computer controls, 

and extended machine component lives have been achieved, which in turn have reduced the life-cycle costs of energy generated by wind turbines. Proven machine 

technology has evolved from the 50 kilowatt machines of twenty years ago to the 

3 megawatt machines of today that have the capacity to satisfy the energy demands 

of as many as 1000 homes.3 Moreover, new turbines in the range of 3 to 5 

megawatts are currently under testing and development; they are expected to further improve the technology’s efficiency and reduce wind power costs. 

With the support of the PTC, the wind industry anticipates that research and development will continue and wind energy costs will decline. These future generations of wind turbines are just one piece of the puzzle. Improved technology alone 

will not sufficiently lower costs to allow the industry to directly compete with fossil 

fuel generated power—the industry also requires improved efficiencies in manufacturing. 

Installed Costs 

Installed costs include material (steel, copper, and fiberglass) costs, labor costs, 

currency exchange rates, and tax incentives. These costs have increased from below 

$1,000/kW to install in 1999 to $1,100/kW in 2003, and up to $1,500/kW and higher 

in 2005. The cost will most likely continue to increase over the next few years. One 

should note that the majority of the demand on revenue of a wind project is associated with servicing the capital required to build a project. By comparison, gas-fired 

generation facilities require less than one quarter of revenues to service capital. 

Approximately three-fourths of the capital cost of a wind project is represented 

in the cost of the turbine and the tower. Turbine and tower costs are substantially 

a function of the costs of their material, labor, and transportation content. Thus, the 


jcorcoran on PROD1PC62 with HEARING
28 

4See Attachment 3, a chart delineating steel prices. 

5See Attachment 4, accompanying chart showing the Dollar against the Euro. 

cost of steel is a major determinant of installed costs. Steel prices have increased 

by more than 120% since March of 2003.4 Fiberglass (another key turbine component) costs have also risen dramatically with the increase of petroleum. 

Additionally, because Europe is still the predominant source of turbine components—even the principal domestic producers rely to a large extent on imported 

components—the decline in the value of the Dollar relative to the Euro is also a significant factor in increased installed costs. Since January 2002, the U.S. Dollar has 

lost 32.5 percent against the Euro.5

Another factor to explain the increased cost of production is the lapse of the bonus 

depreciation tax incentive. When in effect, bonus depreciation represented a value 

of approximately $3 per megawatt-hour (or 0.3 cents/kWh). Its lapse in January of 

2004 (except for certain binding contracts) effectively increased installed costs facing 

developers today. 

In comparison to the wind energy production of 5.5 cents/kWh and 9.5 cents/kWh, 

a modern gas fired combined cycle plant operating with a feedstock of $6.00/mmbtu 

natural gas at a 7500 mmbtu/MWh heat rate can produce a kilowatt-hour of electric 

energy for approximately 4.5 cents plus approximately 1.0 cent for capital cost recovery. 

Manufacturing Efficiencies 

As I stated earlier, the industry predicted that the PTC would lead to increased 

manufacturing efficiencies as more and more of the European companies committed 

to manufacturing in the U.S. However, the on again off again nature of the PTC 

has precluded any significant manufacturing efficiencies. 

The last four years illustrate the problem that the wind energy industry faces as 

a result of the on again-off again nature of the credit. In 2001, 1,696 MW of wind 

energy were installed. The credit expired at the end of 2001 and was not reinstated 

until late spring of 2002. Accordingly, only 410 MW of wind energy were installed 

in 2002. In 2003, 1,687 MW of wind energy were installed, but in 2004, only 389 

MW were installed after the credit lapsed at the end of 2003, not to be extended 

until much later in the year. 

Under these circumstances, it is difficult to persuade businesses to invest in the 

U.S.-based production capacity, the R&D programs, and even the management capability that will lead to persistent gains in productivity and increased efficiency in 

wind power energy production. Emblematic of this is that, at present, only GE and 

Mitsubishi currently price wind turbines in U.S. Dollars. Other major suppliers 

(e.g., Vestas, Siemens, Gamesa, Nordex, Enercon, and Suzlon) still predominantly 

price based on the Euro, indicating their inability to commit to U.S. manufacturing 

of equipment. While unfortunate, this is understandable, given the unpredictability 

of the credit. The current strength in the Euro versus the U.S. Dollar only amplifies 

the problems faced by domestic developers. 

We believe that this unpredictability leads to a 20% or greater inefficiency in energy production costs for the domestic wind energy market. These inefficiencies 

make the PTC an even more important revenue stream for wind developers: up to 

one third of a project’s value comes from the PTC; another third from power sales, 

and a third from the five year MACRS depreciable period. Unless and until the domestic industry can attain a level of sustained predictability that can justify needed 

investments in U.S.-based manufacturing capacity, it will continue to be dependent 

on the PTC. It should be noted that the rates of return on wind projects, typically 

9 to 12%, are very much in line with returns for conventional generating projects. 

Transmission Complications 

A final concern specific to wind energy developers are transmission costs. Windrich areas are typically far from load centers, often requiring transmission payments 

to multiple utilities (‘‘pancakes rates’’). The more congested the grid becomes, the 

more transmission costs increase. The cost can be anywhere from 0.3 to 0.5 cents/ 

kWh for each system crossed, sometimes totaling more than 1.0 cent/kWh to deliver 

power over the whole distance when transmission capacity is available. Obviously, 

when transmission is limited, wind developers can also encounter situations where 

there is zero available transmission capacity. 

Conclusion 

The industry has often been asked, ‘‘What will it take for the industry to survive 

on its own without the benefit of the PTC?’’ We are often reminded that, at one 

time, the industry response was, ‘‘Give us five years, and we will make it.’’ 


jcorcoran on PROD1PC62 with HEARING
29 

Unfortunately, in this instance 2 + 1 + 1 + 1 does not necessarily equal 5. Instead, 

it represents, not the sum total of years the credit has been in place, but rather 

the four periods of uncertainty when new wind construction all but stopped, jobs 

were terminated, and costs were exacerbated and subsequently remobilized. Business thrives on the known and fails on the unknown. The unpredictable nature of 

the credit has prevented the needed investment in the infrastructure that would facilitate economies of scale and efficiencies. In fact, the opposite effect occurs since 

businesses rush to complete projects and suppliers are forced to restart stopped 

manufacturing facilities and, thus, forced to recoup two years of costs in one year. 

Further, and just as important, the unpredictable nature of the world plays a dramatic role in all industries, but particularly in the energy industry. An increase in 

fossil fuel prices does not necessarily make wind energy more competitive, rather 

the increase leads to commensurate increases in materials, such as steel, fiberglass, 

oil, labor, and transport. Because there has been no long-term extension of the PTC, 

most of the technology and parts are imported from Europe. Of course, the U.S. Dollar’s slide against the Euro exacerbates this already difficult situation. And, without 

such an extension, this vicious cycle will not only not end, but may actually worsen. 

Since its inception in 1992, the PTC has proven itself to be an excellent investment by the Congress. It has done what it was designed to do and has served as 

a catalyst that has stimulated significant development and investment across the 

United States of the most viable renewable source of energy: wind power. But, the 

stops and starts associated with the short-term extensions have somewhat abrogated the success and have forestalled the long-term independent viability of the 

wind industry. The wind industry cannot transition to PTC independence unless 

Congress enacts a long-term extension. U.S. energy companies, including FPL Energy, will then do their part and make the investments necessary to ensure the 

long-term role of wind energy in our national energy mix. 

Benefits of Wind Energy 

Wind Power is Green Power That Can Contribute to the Reduction of 

Greenhouse emissions 

Wind-generated electricity is an environmentally friendly form of renewable energy that produces no greenhouse gas emissions or ground water pollution. In fact, 

a single 750KW wind turbine can displace, by replacing the combustion of fossil 

fuels, up to 1,500 tons of CO2 emissions per year. 

Significant reductions of greenhouse gas emissions in the United States can only 

be achieved through the combined use of many new, energy-efficient technologies, 

including those used for the production of renewable energy. The extension of the 

PTC will assure the continued availability of wind power as a clean, renewable energy source. 

Wind Power has Significant Economic Growth Potential 

Wind energy has the potential to play a meaningful role in meeting the growing 

electricity demand in the United States. Wind power projects currently operating 

across the country generate approximately 7,000MW (0.5% of America’s total generation) of electric power—enough energy to serve as many as 2.5 million homes. 

Wind will never—and probably should never—displace all other conventional generation sources, but it can—and should—be an essential component of a diverse generation portfolio, which will, of course, lessen our dependence on foreign oil and 

avoid harmful emissions. With an extension of the PTC and the appropriate commitment of resources to wind energy projects, the American Wind Energy Association 

estimates that wind energy could generate power to as many as 10 million homes 

by the end of the decade. 

Wind Power Projects Can Serve as a Valuable Source of Supplemental 

Income for Farmers and ranchers and New Economic Growth Opportunities for Rural Areas 

Some of America’s most productive farming and ranching regions are also some 

of the most promising areas for wind development. Since wind projects and farming 

and ranching are fully compatible—wind plants can operate with little or no displacement of crops or livestock—lease payments made by wind developers can serve 

as a valuable source of stable, additional income for ranchers and farmers. In Iowa, 

for example, existing wind farms currently pay well over $1,000,000/year in rent. 

Also, importantly, wind projects bring valuable new economic opportunities to 

areas, often rural, where wind projects are located, including increased local tax 

bases, new manufacturing opportunities and construction and ongoing operational 

and maintenance jobs. A 100 MW project, for example, requires an investment typiVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00033 Fmt 6633 Sfmt 6621 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
30 

cally amounting to nearly $150 million. In addition to the millions of dollars in revenue to the local economy, wind projects generally create an average of 150 new construction jobs with a peak need of 350 workers. For ongoing long-term operations, 

wind projects provide 8 to 15 new full-time jobs and 4 to 7 new part-time jobs. 

Continued Growth of Domestic Wind Industry Will Provide Economic 

Benefits to Other Sectors of the U.S. Economy 

In addition to the benefits cited above which wind plants provide for farmers, 

ranchers and the rural communities where wind farms are sited, the U.S. wind industry provides many economic benefits to other sectors of the U.S. economy. For 

example, FPL Energy had its steel wind towers manufactured in Texas, Louisiana, 

and North Dakota; wind turbines assembled in Florida, Illinois and California; 

transformers manufactured in Wisconsin and Pennsylvania; and wind turbine components manufactured in Georgia, Washington, Iowa and Colorado. 

International Growth Can Benefit the U.S. 

The global wind energy market has been growing at a remarkable rate over the 

last several years and is the world’s fastest growing energy technology. The growth 

of the market offers significant export opportunities for United States wind turbine 

and component manufacturers. The World Energy Council has estimated that new 

wind capacity worldwide will amount to $150 to $400 billion worth of new business 

over the next twenty years. The current worldwide market for wind turbines is approximately $5 billion per annum, and growing rapidly. Unfortunately, most of this 

manufacturing capacity, and its attendant job creation, is currently located in Europe. Experts estimate that as many as 157,000 new jobs could be created if United 

States wind energy equipment manufacturers are able to capture just 25% of the 

global wind equipment market over the next ten years. Only by the continued support of its domestic wind energy production through the long-term extension of the 

wind energy PTC can the United States hope to develop the technology and capability to effectively compete in this growing international market. 


jcorcoran on PROD1PC62 with HEARINGInsert 26380A.002
31 

f 

Chairman CAMP. Thank you very much, Mr. Gosselin. I do want 

to mention that all of your complete statements will be in the 

record, and if you could summarize. Next, Mr. William Carlson, 

who is a principal in Carlson Small Power Consultants. 


jcorcoran on PROD1PC62 with HEARINGInsert 26380A.003 Insert 26380A.004
32 

STATEMENT OF WILLIAM CARLSON, PRINCIPAL, CARLSON 

SMALL POWER CONSULTANTS, REDDING, CALIFORNIA, ON 

BEHALF OF USA BIOMASS POWER PRODUCERS ALLIANCE 

Mr. CARLSON. Thank you, Chairman Camp and Members of the 

Subcommittee We appreciate the opportunity to speak today and 

we thank you all for your leadership on this important topic. 

The USA Biomass Power Producers Alliance, who I represent, 

represents 65 of the Nation’s approximately 100 open-loop biomass 

power facilities. Each of the renewable technologies represented 

here today is valuable and we applaud Congress for expanding the 

section 45 credit in H.R. 4520 to incorporate a broad portfolio of renewable energy technologies. I advocate here that any extension of 

the tax credit be coupled with changes that mirror the rates and 

durations of the section 45 provisions included in last Congress’s 

energy bill. 

The section 45 tax credit expansion for open-loop biomass has 

sparked an interest in biomass not seen since the mid-1980s. Unfortunately, that interest is, as Mr. Greenspan would say, irrational exuberance. While the newly-enacted tax credit for open-loop 

biomass is very helpful to both new and existing plants, the current 

rate and duration of the credit will not fundamentally change 

biomass’s prospects. 

In a typical competition among renewables for utility contracts, 

biomass loses and will continue to lose as things stand. Most solicitations are dominated by technologies which receive higher tax 

credit rates and durations. New biomass plants can compete only 

if placed on equal footing with respect to the tax credit. 

Unlike other renewable technologies, biomass has costs and benefits related to its fuel supply. We gather, process, and transport 

our wood fuel at a cost of nearly three cents per kilowatt hour. 

However, biomass provides the public with very significant environmental benefits not achieved by other types of renewables, with 

a value estimated by the DOE at over 11 cents per kilowatt hour. 

We eliminate 96 percent of pollutants versus open-fuel burning, 

avoid landfill disposal, and aid in forest restoration and fire prevention. 

In other ways, we are typical of other renewables, with large capital and operating costs. Capital costs run up to $2,500 per kilowatt, or about 2.5 to three cents per kilowatt hour. Operating costs 

are 1.5 to 2.5 cents. Biomass has few economies of scale, since a 

large plant requires more fuel and thus a larger gathering area. It 

is a rare biomass plant producing power for less than seven cents, 

with most falling in the 7.5 to 8.5 cent range. 

In the current wholesale power market, rising natural gas prices 

have pushed prices to 4.5 to five cents per kilowatt hour in many 

areas of the country. Renewables are typically able to do slightly 

better, getting perhaps five to 5.5 cents. In New England, States 

have imposed aggressive Renewable Portfolio Standards, or RPSs, 

creating a market for renewable credits that give a higher premium over wholesale prices of three to five cents. This is why in 

Maine and New Hampshire, entrepreneurs are contemplating restarting several closed biomass plants. Elsewhere, there is interest 

in biomass, but few concrete proposals for new plants. 


jcorcoran on PROD1PC62 with HEARING
33 

There are only certain locales to sensibly site a plant, and then 

they must be spread so they don’t compete for fuel. Also, virtually 

no plant can be up and running before the expiration of the placedin-service date just 7 months from now. 

Some have overcome these challenges by utilizing the small pool 

of relocated existing equipment, obtaining a captive fuel supply, or 

by winning a biomass-only utility contract offering that addresses 

a serious local need, such as forest restoration. 

We forecast perhaps ten new biomass facilities over the next 5 

years. Any greater expansion of the biomass industry must weight 

equity with other renewables in terms of the credit level, duration, 

and a placed-in-service date extension. These are fundamental requirements for biomass to successfully compete against other renewables for market share. 

Existing plants, 30 percent of which are now closed, utilize the 

current credit to keep from closing. These plants typically have 

their energy priced at the utility’s avoided cost, which is a non-renewable lower-cost source, such as coal or natural gas. They face 

the end of their contracts and shortly having to bid into RPS auctions, but at the lowest credit level and with most having a current 

credit discounted by yet another 50 percent due to tax rules for facilities with past tax-exempt financing. 

We urge Congress to adopt a section 45 proposal like that offered 

by Chairman Thomas in last year’s House version of H.R. 6. There, 

existing open-loop plants receive two-thirds of the full credit for 5 

years, while new plants receive the full credit for the full ten-year 

duration. That proposal would create a vibrant biomass industry. 

Absent such a proposal and a placed-in-service date extension, the 

biomass industry will continue to struggle. 

When I appeared before this Subcommittee 4 years ago, I operated five biomass plants. Two of those plants have closed, along 

with about eight others nationally. 

Again, thank you for the opportunity, for your leadership, and for 

expanding section 45, and we urge you to support legislative 

changes to allow biomass to successfully compete alongside other 

renewable technologies. 

Finally, we have been contacted by Congressional offices subsequent to the publication of the JCT pamphlet for this hearing, 

which adds a fuel source that is not described in the Code or in 

the conference report under the misapprehension that our group 

may be advocating a legislative correction to add this fuel, lignin, 

to the list of eligible fuel types. For the record, we are not aware 

of any open-loop biomass facility operators advocating such a 

change. Thank you. 

[The prepared statement of Mr. Carlson follows:] 

Statement of William Carlson, Chairman, Carlson Small Power Consultants, 

Redding, California 

Chairman Camp, Ranking Member McNulty, and Members of the Subcommittee: 

Thank you for the invitation to testify today, and thank you all for your leadership and interest in this important topic. 

I appear today on behalf of the USA Biomass Power Producers Alliance 

(USABPPA), a trade organization that represents 65 of the nationwide total of approximately 100 open-loop biomass power facilities in the United States. (We do not 

represent facilities engaged in producing electricity from closed loop biomass or animal waste nutrients). We believe in the value of each of the renewable technologies 


jcorcoran on PROD1PC62 with HEARING
34 

represented here today, and we applaud the Committee and the Congress for expanding the Section 45 credit in last year’s American Jobs Creation Act to incorporate a broad and diversified portfolio of renewable energy industries. My purpose 

here is to advocate that any extension of the Section 45 tax credit be coupled with 

changes that mirror the rates and durations of the Section 45 provisions included 

in last Congress’s energy bill. 

Since its recent enactment, the Section 45 tax credit for electricity produced from 

open-loop biomass, combined with other renewable programs, has sparked a surge 

of interest in biomass not seen since the mid 1980’s. Unfortunately, much of that 

interest might well be described, as Mr. Greenspan said of the stock market, as ‘‘irrational exuberance.’’ While the newly enacted tax credit for electricity produced 

from open-loop biomass is very helpful to both new and existing plants, the rate of 

the credit, and the number of years that the credit is available to new facilities, will 

not fundamentally change the economics of biomass in the current energy markets. 

In a typical competition among renewables for contracts under a utility renewable 

Request for Proposal (RFP), open-loop biomass loses, and can be expected to continue to lose as things stand. Most RFP’s are dominated by Section 45 technologies 

which receive higher tax credit rates. In open competitions such as these, which are 

growing in popularity among utilities, the only chance that new biomass plants have 

to compete effectively is if Congress places them on an equal footing with respect 

to the Section 45 tax credit. 

Please allow me to explain the economics of our industry. Unlike other renewable 

energy technologies, open-loop biomass has costs and benefits that relate to its fuel 

supply. We must pay to gather, then process and transport our wood fuel to the 

plant site at a substantial cost, typically totaling the equivalent of 2.5—3.0 cents/ 

Kwh. Our fuel is especially expensive to transport to the plant because its energy 

density during transport is only about 1⁄3 that of coal. However, biomass provides 

the public with very significant environmental benefits that are not achieved by 

other types of renewable fuels. Combusting biomass fuel in a controlled setting 

eliminates 96 percent of pollutants versus open field burning, avoids landfill dumping, and aids in forest restoration and fire prevention. 

In other ways, biomass is typical of other renewables, having a large capital cost 

component and an ongoing operation and maintenance cost. In our case, capital 

costs run $2,000–2,500 per installed kilowatt, which equates to about 2.5–3 cents/ 

Kwh over a 20-year contract at today’s interest rates. Operating costs will run upwards of 2.5 cents/Kwh for a small plant and as low as 1.5 cents/Kwh for a very 

large plant. This technology has few economies of scale, however, since building a 

large plant increases the amount of fuel required, quickly exhausting nearby fuel 

sources and requiring the operator to pay higher prices for fuel trucked from farther 

away. It is a rare biomass plant that can produce power for less than 7 cents/Kwh 

with purchased fuel, with most falling in the 7.5–—8.5 cents/Kwh range. 

We must now relate these costs to the current electric power market, both for 

bulk wholesale power, and for renewables. Rising natural gas prices have raised the 

value of bulk power to the point where, in many areas of the country, the wholesale 

price is now 4.5–5 cents/Kwh. Renewables are typically able to do better than this 

in the market, getting perhaps 5–5.5 cents/Kwh. In certain markets, particularly 

New England, the states have imposed aggressive Renewable Portfolio Standards 

(RPS), creating a market for Renewable Energy Credits (RECs) that give a premium 

over bulk power prices of 3–5 cents/Kwh. This is why, in Maine and New Hampshire 

in particular, entrepreneurs are contemplating restarting a few closed biomass 

plants. The current Section 45 credit is also a factor in these restart decisions. 

Elsewhere in the country there is some interest in biomass, but very few concrete 

proposals to build new biomass plants. This is principally due to the fact that, unlike other technologies, there are only certain locales at which it makes sense to site 

an open-loop plant, and even there they must be spread out far enough that they 

don’t compete with each other for the same fuel. Also, even in the relatively small 

number of situations where the circumstances would support building a new facility, 

almost no one will be able to get a facility up and running before the expiration 

of the tax credit’s placed in service date at the end of this year. In a couple of instances, enterprising individuals have risen to these challenges by utilizing a small 

pool of existing equipment from closed plants that are being relocated, by obtaining 

a captive fuel supply for most of their needs, or by winning a ‘‘biomass only’’ utility 

contract offering designed to address a serious local need (forest restoration)—they 

are the exception, not the rule. 

Currently the industry forecasts the possible addition of a total of approximately 

10 new biomass facilities over the next five years. Any greater expansion of the biomass industry to address the nation’s energy and environmental problems under a 

new PURPA contract or in a state mandated RPS auction will not occur unless bioVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
35 

mass achieves equity with other renewables in terms of the credit level and duration, and the Section 45 credit placed in service date is extended. These changes are 

fundamental requirements for biomass to have a chance to successfully compete 

against other renewables for a share of an RPS. 

Existing plants, which have seen an erosion of their number by over 30 percent 

in the last 15 years, are utilizing the current credit to keep from closing. These 

plants typically have their energy priced at the utility’s avoided cost, which is usually a non-renewable lower cost alternative source, such as a coal or natural gas 

unit. While under contract, they are prohibited from participating in developing 

REC markets, but instead receive an earned capacity payment. Many of them face 

the prospect of their contracts ending and shortly having to bid into RPS auctions, 

but at the lowest level Section 45 credit, with the loss of their current capacity payment, and with a majority of the industry having their current Section 45 credit discounted by yet another 50% due to tax rules applied to facilities with past tax-exempt financing. 

USABPPA urges Congress to adopt a Section 45 proposal like that offered by 

Chairman Thomas in last year’s House version of H.R. 6, the energy bill. In that 

legislation, the existing open-loop plants received two-thirds of the full credit for 5 

years, while new plants received the full credit for the full 10-year duration. This 

level and duration of tax credit would create the conditions for a vibrant biomass 

power industry, tackling and solving many of the nation’s energy and environmental 

problems. Absent adoption of such a proposal, and without an extension of the 

placed in service date, the open-loop biomass industry will continue to struggle. 

When I last appeared before this subcommittee four years ago, I testified that I 

operated five biomass plants. Since that time, two of those plants have closed, along 

with approximately 8 others across the country. Again, I thank you for your leadership on this issue, I thank you for the recent expansion of Section 45 accomplished 

last year, and I urge you to support legislative changes that would allow open-loop 

biomass to successfully compete alongside other renewable technologies. 

f 

Chairman CAMP. Thank you very much, Mr. Carlson. Now, Mr. 

Curtis Ranger, who is President of DTE Biomass Energy from 

Michigan. You have 5 minutes. 

STATEMENT OF CURTIS T. RANGER, PRESIDENT, DTE BIOMASS ENERGY, ANN ARBOR, MICHIGAN, ON BEHALF OF THE 

SOLID WASTE ASSOCIATION OF NORTH AMERICA 

Mr. RANGER. Thank you, Mr. Chairman and Members of the 

Subcommittee. I am Curtis Ranger, President of DTE Biomass Energy of Ann Arbor, Michigan, and I appreciate your invitation to 

be here today on behalf of DTE. I am also representing the Solid 

Waste Association of North America, also known as SWANA. I 

have submitted a written statement on behalf of DTE and SWANA 

regarding the Federal tax credit support for electricity production 

from landfill gas and I would like to spend a few minutes elaborating on my written statement. 

We support the Administration’s fiscal year 2006 budget proposal 

which recommends a continued investment in the development of 

renewable energy resources. Federal tax credits, both section 29 

and 45, have spurred investments in projects that produce electricity from landfill gas. 

Congress has a history of supporting alternative energy resources. Through 1996, landfill gas was included as a fuel under 

section 29. These tax credits worked as Congress intended. According to the EPA, 380 landfill gas projects operate today. Most of 

these came to fruition under the section 29 tax credit. These 

projects generate over nine billion kilowatt hours of electricity per 

year and deliver over 73 billion cubic feet per year of landfill gas 


jcorcoran on PROD1PC62 with HEARING
36 

to direction use applications. This is equivalent to nearly 40 million 

barrels of oil. 

Many of these projects operate today without tax credit support. 

For example, DTE’s first project in Riverview, Michigan, used innovative landfill gas combustion turbine technology in 1988. This 

project’s tax credits expired in 2002, yet the facility continues to 

generate over 7,000 kilowatts of power daily. When the landfill 

closes in 2017, this facility will continue to supply the energy needs 

of nearly 5,000 Michigan homes well beyond 2030. 

A medium-sized landfill typically generates about 1,500 cubic 

feet per minute of methane gas. When collected and converted to 

electricity, that gas could supply 4,000 kilowatts of power and meet 

the electrical needs of over 3,000 American homes. Landfill gas 

projects use reciprocating engine generators or combustion turbines. Micro-turbine technologies are being used at smaller landfills in niche applications. Other technologies, like Sterling and Organic Rankine Cycle engines, and fuel cells are still in the development stage. 

A typically landfill gas-fired electric generating facility costs 

about $1,200 per kilowatt and has operating expenses of 1.8 cents 

per kilowatt hour. As described in the Joint Tax Committee’s report prepared for today’s hearing, electricity rates vary by region. 

Assuming electricity can be sold for 3.7 cents per kilowatt hour, an 

investor in such a facility might expect a 6.5 percent return on investment. With the current section 45 tax credit of 0.9 cents per 

kilowatt hour, that same facility might earn 10 percent. While interesting, that return is unlikely to spur many projects. 

On the other hand, if the rates were what the other renewables 

receive, for example, 1.8 cents per kilowatt hour, or if a ten-year 

credit period were provided, investors might expect returns between 12 and 15 percent. That would likely attract investments in 

new facilities with the fuel risk inherent to our landfill gas industry. 

Under the JOBS Act of 2004, Congress took another helpful step 

by recognizing landfill gas as a renewable energy resource. While 

we appreciate the continued tax credit support, the tight December 

31, 2005 deadline will restrict many opportunities. Previously, Congress recognized the long gestation period required for landfill gas 

projects. For example, under section 29 projects, our industry had 

up to 18 months to execute contracts and another 18 months to 

construct facilities. Currently, only well-advanced projects will 

meet the deadline. If Congress extends the deadline, more projects 

will come online. 

If landfill gas were afforded the same provisions as other renewable energy resources, such as a 5-year placed-in-service deadline 

and a ten-year tax credit period, Congress could help in the development of more projects. 

I want to thank the Chairman for his past support and I appreciate your Committee’s time in working with Treasury to ensure 

there was an understanding of the application of the anti-doubledip rule between section 29 and section 45 tax credits for landfill 

gas projects. Clarity on this matter will support investments and 

avoid issues during future audits with the IRS. 


jcorcoran on PROD1PC62 with HEARING
37 

In the case of emerging technologies, like landfill gas-fired microturbines, this tax credit support can be just the encouragement an 

investor needs. This tax incentive is not a windfall to landfill gas 

developers, but it would encourage us to make sizeable investments 

in certain areas of the country. 

Mr. Chairman, I appreciate this opportunity to present the views 

of DTE and SWANA. An extension of the deadline to construct new 

facilities is critical to ensure that Americans realize the energy and 

the environmental benefits available from landfill gas. Thank you. 

[The prepared statement of Mr. Ranger follows:] 

Statement of Curtis T. Ranger, President, DTE Biomass Energy, Inc. and 

the Solid Waste Association of North America, Ann Arbor, Michigan 

Mr. Chairman, and members of the subcommittee, I am Curtis Ranger, President 

of DTE Biomass Energy, Inc. (‘‘DTE’’) of Ann Arbor, Michigan. I appreciate your invitation to testify on behalf of DTE and the Solid Waste Association of North America (‘‘SWANA’’) regarding federal tax credit support of electricity production from 

landfill gas. I have been responsible for DTE’s landfill gas-to-energy business for 

over two decades, and I have served as Chairman of SWANA’s Advocacy Committee 

since 1999. SWANA is a national association of over 7,300 solid waste management 

professionals, companies and government agencies dedicated to advancing environmentally acceptable and economically sound municipal solid waste management 

practices. DTE is a member of SWANA and is a leading company in developing 

landfill gas-to-energy projects with 31 facilities in 14 states. 

We support the Administrations’ Fiscal Year 2006 budget proposal, which recommended a continued investment in the development of renewable energy resources as a means of bolstering our nation’s energy security. Federal tax credits, 

both Section 29 and Section 45, have spurred investments in projects that produce 

electricity from landfill gas, which is collected from decomposing organic waste in 

our nation’s municipal landfills. We commend you for holding this hearing on renewable energy policy to help educate Congress about how renewable energy resources can support our nation’s energy self-sufficiency goals and help achieve its 

important environmental goals. 

Congress has a long history of supporting the development of alternative energy 

resources. This support dates back to the non-conventional fuel tax credits originally 

enacted in 1980. Through 1996, Congress saw fit to include landfill gas as a fuel 

under the Internal Revenue Service (‘‘IRS’’) Section 29 Code and enacted several extensions for constructing landfill gas-to-energy projects. I am very pleased and 

proud to report to you that these tax credits have worked as Congress intended. According to the Landfill Methane Outreach Program (‘‘LMOP’’) of the Environmental 

Protection Agency (‘‘EPA’’) 380 landfill gas-to-energy projects operate today in an industry that was non-existent in the late 1970’s. Most of these projects came to fruition primarily due to the Section 29 tax credits. 

Today, these projects generate over 9 billion kilowatt-hours of electricity per year 

and deliver over 200 million cubic feet per day of landfill gas to direct-use applications. This amount of energy is equivalent to nearly 40 million barrels of foreign 

oil. 

Even more encouraging is the news that many of these projects, which were developed with tax credit support, still operate today without tax credit support. For example, the first Michigan project to use landfill gas-fired combustion turbine technology was installed by DTE in 1988 at the City of Riverview landfill. While the 

Riverview Project’s Section 29 tax credits expired in 2002, this facility continues to 

generate over 7,000 kilowatts of power daily, operating at a nearly 90% production 

capacity. When the landfill closes around 2017, this site will continue to supply the 

energy needs of nearly 5,000 Michigan homes and businesses well beyond the year 

2030. 

It all started largely because of the availability of landfill gas tax credits, which 

encouraged the project investors to take a chance on relatively unproven technology 

and uncertain fuel supplies. Similar stories have played out at many other landfill 

gas-to-energy projects in America. 

For example, a medium sized landfill typically generates over 1,200 cubic feet per 

minute of methane gas. When collected and converted to electricity, that landfill gas 

could annually provide 3,000 kilowatts of power, supplying the electrical needs of 

nearly 3,000 American homes. This electricity can be generated for on-site use or 

sold into the electrical grid through a variety of technologies, such as reciprocating 


jcorcoran on PROD1PC62 with HEARING
38 

engine generators, combustion turbines, micro-turbines, Stirling engines (external 

combustion engine), Organic Rankine Cycle engines, and fuel cells. Most landfill gas 

fired electric projects use reciprocating engine generators or combustion turbines, 

but micro-turbine technologies are being used at smaller landfills and in niche applications. Other technologies, like the Sterling and Organic Rankine Cycle engines 

and fuel cells are still in the development phase. A typical landfill gas-fired electric generating facility costs about $1,000,000 per 

megawatt to install with typical operations and maintenance (O&M) expenses averaging 1.8 cents per kilowatt-hour. As was described in the Joint Tax Committees 

report prepared for today’s hearing, electricity rates vary by region. As a result, the 

existing landfill gas credit encourages an attractive rate of return in some parts of 

the country. 

Given that all landfills generate methane, it makes environmental sense to capture and use the gas to generate electricity rather than waste it into the atmosphere. According to EPA estimates, each ton of methane captured and used in a 

landfill gas-to-energy project is equivalent to capturing 21 tons of carbon dioxide. 

That means the 380 existing landfill gas projects are reducing the nation’s greenhouse gas emissions by the equivalent of about 60.7 million metric tons of carbon 

dioxideper year. The EPA equates the greenhouse gas reduction benefits of a typical 

4 megawatt landfill gas project to the planting of over 60,000 acres of forest per 

year, or the removal of the annual carbon dioxide emissions from over 45,000 cars. 

Under the American Jobs Creation Act of 2004, Congress took another helpful 

step by recognizing landfill gas as a renewable energy resource, eligible for IRS Section 45 tax credits. While we appreciate the continued support, this effort to spur 

more landfill gas-to-electricity projects will fall short of its mark. The tight December 31, 2005 deadline provided in the JOBS Act restricted many opportunities for 

negotiating and executing contracts, designing and permitting facilities and procuring and installing equipment. In the past, Congress recognized the long gestation 

period required of landfill gas-to-energy projects. For example, under Section 29 

projects, our industry was afforded up to 18 months to execute the necessary contracts and then another 18 months to construct the facilities. Congress understood 

that the construction season in many parts of the country is limited to a few months 

each year. This factor alone has inhibited many new projects from moving forward 

under the existing timetable established for the Section 45 tax credits. 

Currently, only well advanced projects will meet the deadline for Section 45 tax 

credits provided in the JOBS Act. If the rest of the industry behaves like DTE, I 

suspect that less than 20 new, Section 45 tax credit eligible projects will be on-line 

by year-end. Simply put, many taxpayers are effectively precluded from pursuing 

landfill gas developments because they are unwilling to legally bind themselves to 

spending considerable resources on building new renewable energy projects with 

only a wing and a prayer’s chance of realizing tax credit benefits. 

If Congress enacts an extension of the current December 31, 2005 placed in service deadline many more projects could come on-line. Based upon the EPA estimates 

that over 500 landfill gas-to-energy projects can still be developed, and based upon 

DTE’s experience, extension of the construction deadline by three years would enable the landfill gas industry to build up to 150 more projects. Furthermore, if the 

landfill gas industry was afforded the same provisions as other renewable energy 

resources, such as, a 5 year placed in service deadline and a 10-year tax credit period, Congress could enable the development of most of the EPA’s 500 viable candidate sites. 

An extension of the construction period is extremely fair to all renewable energy 

project developers. The resulting new projects will not disrupt the retail electricity 

market due to their small, but still meaningful market shares. Congress would continue to demonstrate its support of sound public policy by encouraging the development of America’s energy resources that deliver significant environment benefits. 

Good public policy should dictate that all renewable energy projects should be treated equitably, including the rate of return on investment. 

Furthermore, I want to thank the Chairman for his past support of including 

landfill gas-to-electricity projects as qualifying facilities under Section 45. I also 

want to express my appreciation for your committee’s time in working with Treasury to ensure there was an understanding of the application of the anti-double dip 

rule between Section 29 and Section 45 tax credits for landfill gas-to-energy projects. 

Clarity on this matter will support investments and avoid issues during future audits with the IRS. 

DTE stands ready, willing and able to invest its fair share in new landfill gasto-electricity projects. While I realize that Congress must balance the cost of its tax 

incentives, the value of the Section 45 tax credit represents only 30% of the total 

project capital costs. In the case of emerging technologies like landfill gas-fired 


jcorcoran on PROD1PC62 with HEARING
39 

micro-turbines, this tax credit support can be just the encouragement an investor 

needs. While this tax incentive is not a windfall to landfill gas project developers, 

it does encourage us to make sizeable investments in certain areas of the country. 

The potential 150 new projects represent over $450 million in new capital that 

would create construction and operating jobs throughout the United States. The relatively small federal tax share would be more than offset by the new taxes generated from these projects and by the environmental benefits America would realize 

in using its own internal resources. 

Mr. Chairman, I do appreciate this opportunity to present the views of DTE and 

SWANA regarding the need for federal tax credits to support renewable energy production from landfill gas. An extension of the placed in service deadline for constructing new facilities under the Section 45 tax credit is critical to ensuring that 

America can realize the benefits available through landfill gas-to-electricity projects. 

If Congress confirms its support of landfill gas as a renewable energy, many landfill 

gas development companies will deliver on a promise to build environmentally beneficial projects that will help improve America’s reliance upon domestic energy resources. 

f 

Chairman CAMP. Thank you very much, Mr. Ranger. Now, Mr. 

Michael Norris, who is Director of Business Development for American Ref-Fuel Company. 

STATEMENT OF MICHAEL NORRIS, DIRECTOR OF BUSINESS 

DEVELOPMENT, AMERICAN REF-FUEL COMPANY, MONTVALE, NEW JERSEY, ON BEHALF OF THE INTEGRATED 

WASTE SERVICES ASSOCIATION 

Mr. NORRIS. Thank you, Mr. Chairman and Members of the 

Subcommittee. My name is Michael Norris and I serve as Business 

Development Manager for American Ref-Fuel. I am testifying today 

on behalf of the Integrated Waste Services Association, the national trade association for America’s waste energy industry. 

The IWSA was pleased to have our trash combustion facilities included as a qualified facility for purposes of receiving the section 

45 Production Tax Credit last year. Inclusion of waste-to-energy 

continues more than 20 years of recognition as a source of renewable energy under Federal law. The Federal Power Act, the Public 

Utility Regulatory Policies Act, the Federal Energy Regulatory 

Commission regulations, and the Biomass Research and Development Act of 2000 all recognize waste-to-energy power as renewable 

energy, as do 15 States, the U.S. Department of Energy, and the 

U.S. EPA. 

A tax credit for new waste-to-energy facilities or new generating 

units at existing facilities continues the Federal Government’s policy to encourage clean, renewable electricity and promotes energy 

diversity while helping cities meet challenges of trash disposal. 

Waste-to-energy facilities generate clean, renewable energy 

through the combustion of municipal solid waste in specially-designed power plants equipped with the most modern pollution control equipment in the power generation industry. Trash volume is 

reduced by 90 percent, therefore conserving landfill capacity. The 

remaining residue consistently meets strict EPA standards for 

reuse. America’s 89 waste-to-energy plants operate in 27 States 

and generate 2,700 megawatts of electricity while safely disposing 

of 95,000 tons a day of trash. 

Our industry meets the power needs of nearly 2.3 million homes 

and serves the trash disposal needs of more than 36 million people. 


jcorcoran on PROD1PC62 with HEARING
40 

The 30 million tons of trash combusted in our facilities each year 

has an energy value of 48 million barrels of crude oil worth more 

than $2 billion. 

America’s waste-to-energy facilities meet some of the most stringent environmental standards in the world and employ the most 

advanced emissions control equipment available. In February of 

2003, EPA wrote that America’s waste-to-energy plants produce 

electricity with less environmental impact than almost any other 

source of electricity. In addition, a study published by multiple authors, including an official from the EPA, determined that wasteto-energy technology annually avoids 33 million metric tons of carbon dioxide, a greenhouse gas that would otherwise be released 

into the atmosphere. 

I would like to provide you with a brief description of the economics of a typical waste-to-energy facility. The facility’s revenues 

come from two sources, fees paid by disposal of trash and fees paid 

by the facility generating energy. New facilities or new units at existing facilities require significant capital investment. A new unit 

is a new boiler unit built at an existing facility, which is oftentimes 

more economical and politically feasible than constructing a new 

facility. 

Take an example of an existing waste-to-energy plant that has 

two boilers. A facility might burn 1,500 tons a day of municipal 

solid waste and generate 40 megawatts of electricity. If a company 

adds a third boiler, a facility would be capable of disposing of 2,250 

tons a day of waste and 60 megawatts of energy. Construction of 

that 750-ton-a-day unit would cost about $120 million price tag, or 

about $6,000 a kilowatt. A greenfield plant of the same size could 

cost as much as $350 million. 

The combined electricity and disposal fee revenues will, on average, not be sufficient to cover the total cost of new waste-to-energy 

units. Added to these costs, of course, is an adequate return on investment that is required to justify the investment. In part, due to 

economic considerations, no new waste-to-energy facilities have 

been constructed in the past decade. An adequate Production Tax 

Credit will, in many cases, make up the shortfall and make 

projects feasible. We view the PTC as a much-needed tool that will 

make development of this form of clean, renewable electricity more 

economically viable. 

We urge Congress to extend the section 45 PTC, as it is set to 

expire at the end of the year. We would recommend changes to the 

tax credit that would greatly enhance our ability to develop new 

waste-to-energy capacity. The IWSA urges the Committee to make 

the tax credit applicable to energy generating new units built at existing facilities as well as newly-sited facilities. 

The IWSA also urges the Committee to extend the existing section 45 Production Tax Credit to apply to new facilities and units 

placed into service within 3 years of enactment and to make the 

credit available for 7 years after the facility has been placed into 

service. In addition, we recommend the Committee provide a credit 

amount that provides a level playingfield for all renewable technologies with respect to the rate of return on investment. 

We fully support the goals of Congress to provide the incentives 

for the development of renewables in order to diversify the Nation’s 


jcorcoran on PROD1PC62 with HEARING
41 

energy supply. We also provide that the PTC is one of the most effective tools to achieve this goal. 

I want to thank you for the opportunity to appear today. 

[The prepared statement of Mr. Norris follows:] 

Statement of Michael Norris, Director of Business Development, American 

Ref-Fuel Company, Montvale, New Jersey, on behalf of Integrated Waste 

Services Association 

Good afternoon, Mr. Chairman and members of the subcommittee. I would like 

to thank you for providing me with the opportunity to testify today. My name is 

Michael Norris, and I serve as Director of Business Development for American RefFuel Company. I am testifying today on behalf of the Integrated Waste Services Association (IWSA), the national trade association representing America’s waste-to-energy industry. IWSA and its members commend you for conducting this very important hearing on Section 45 renewable energy production tax credits, so that we may 

describe to you the importance of this tax credit for both the public and private sector members of the waste-to-energy industry. 

The IWSA was pleased to have our ‘‘trash combustion facilities’’ included as a 

qualified facility for purposes of receiving the Section 45 production tax credit last 

year. Inclusion of waste-to-energy continues more than twenty years of recognition 

as a source of renewable energy under federal law. The Federal Power Act, the Public Utility Regulatory Policies Act, the Federal Energy Regulatory Commission’s regulations, and the Biomass Research and Development Act of 2000 all recognize 

waste-to-energy power as renewable energy, as do fifteen states, the U.S. Department of Energy, and U.S. Environmental Protection Agency (EPA). 

A tax credit for new waste-to-energy facilities or new generating units at existing 

facilities continues the federal government’s policy to encourage clean, renewable 

electricity, and promotes energy diversity while helping cities meet the challenge of 

trash disposal. 

Waste-to-energy facilities generate clean, renewable energy through the combustion of municipal solid waste in specially designed power plants equipped with the 

most modern pollution control equipment in the power generation industry. Trash 

volume is reduced by 90%, thereby conserving landfill capacity. The remaining residue consistently meets strict EPA standards for reuse. America’s 89 waste-to-energy plants operate in 27 states and generate about 2,700 megawatts of electricity 

while safely disposing of 95,000 tons of trash each day. Our industry meets the 

power needs of nearly 2.3 million homes, and serves the trash disposal needs of 

more than 36 million people. The 30 million tons of trash combusted in our facilities 

each year has the energy value of 48 million barrels of crude oil worth more than 

$2 billion. The $10 billion waste-to-energy industry employs more than 6,000 American workers with annual wages in excess of $400 million. 

America’s waste-to-energy facilities meet some of the most stringent environmental standards in the world and employ the most advanced emissions control 

equipment available. In a February, 2003 letter, EPA wrote that America’s wasteto-energy plants produce electricity ‘‘with less environmental impact than almost 

any other source of electricity’’. In addition, a study published by multiple authors, 

including an official from EPA, determined that waste-to-energy technology annually avoids 33 million metric tons of carbon dioxide—a greenhouse gas that would 

otherwise be released into the atmosphere. 

I would like to provide a brief description of the economics of a typical waste-toenergy facility. A facility’s revenues come from two sources: 1) fees paid to dispose 

of the trash, and 2) fees paid to the facility for generating energy. New facilities 

or new generating units (boilers) built at existing facilities require significant capital 

investment. A new ‘‘unit’’ is a new boiler built at an existing facility, which is often 

times more economical and politically feasible than constructing a new facility. Take 

for example an existing waste-to-energy plant that has two boilers. Such a facility 

might burn 1,500 tons of municipal solid waste per day and generate 40 megawatts 

of electricity. If a company added a third boiler, that facility would be capable of 

disposing of 2,250 tons of waste per day and generate over 60 megawatts of energy. 

Construction of a 750 ton per day unit at an existing facility might carry a $120 

million price tag in capital. 

In the case of the construction of a typical new ‘‘greenfield’’ facility, the capital 

cost of, a facility that converts 2,250 tons of trash each day into 60 MW of electricity 

is approximately $350 million. The operations and maintenance cost without capital 

recovery approaches $28 million annually. 


jcorcoran on PROD1PC62 with HEARING
42 

The combined electricity and disposal fee revenues will, on average, not be sufficient to cover the total cost of a new waste-to-energy unit. Added to these costs, of 

course, is an adequate return on investment that is required to justify the investment. In part due to these economic considerations, no new waste-to-energy facilities have been constructed in the past decade. An adequate production tax credit 

(PTC) will, in many cases, make up for the shortfall and make projects feasible. We 

view the PTC as a much-needed tool that will make development of this form of 

clean, renewable electricity more economically viable. 

We urge Congress to extend the Section 45 PTC, which is set to expire at the end 

of the year. We would also recommend changes to the tax credit that would greatly 

enhance our ability to develop new waste-to-energy capacity. IWSA urges the Committee to make the tax credit applicable to electricity generated at new units built 

at either existing waste-to-energy facilities or newly sited facilities. Given the complexity of siting and permitting new facilities, it is likely that most new capacity 

in the industry will be added through the construction of new units at existing facilities. 

The IWSA also urges the Committee to extend the existing Section 45 production 

tax credit to apply to new facilities or units that are placed in service within three 

years of enactment and to make the credit available for seven years after the facility 

is placed in service. In addition, we recommend that the Committee provide a credit 

amount that provides a level playing field for all renewable technologies with respect to the rate of return on investment. 

We fully support the goal of Congress to provide incentives for the development 

of renewable energy in order to diversify the nation’s energy supply. We also believe 

that the PTC is one of the most effective tools to achieve this goal. The availability 

of the tax credit plays a critical role in determining whether or not new waste-toenergy capacity will be brought online and we urge you to construct the credit in 

a manner that maximizes its success of promoting new renewable capacity. 

Thank you for the opportunity to appear before you today, and I will be happy 

to answer any questions. 

f 

Chairman CAMP. Thank you very much, Mr. Norris. Now, we 

will have Mr. Vince Signorotti, which is Vice President for 

CalEnergy Operating Corporation. 

STATEMENT OF VINCE SIGNOROTTI, VICE PRESIDENT, REAL 

ESTATE ASSETS AND COMMUNITY RELATIONS, CALENERGY 

OPERATING CORPORATION, BRAWLEY, CALIFORNIA 

Mr. SIGNOROTTI. Thank you, Mr. Chairman and Members of 

the Committee. My name is Vince Signorotti. I am a Vice President 

for CalEnergy. With me today is Jonathan Weisgall with 

MidAmerican Energy Holdings, our parent company. 

CalEnergy generates 340 megawatts of clean, reliable, renewable 

geothermal electricity from ten plants near the Salton Sea in 

southern California, and the experts believe there is another 2,000 

megawatts of geothermal energy still in the ground at this location. 

Two weeks ago, the State granted us a license for a new 215- 

megawatt geothermal plant called Salton Sea 6. However, despite 

this approval and despite a 30-year fixed-price contract that we 

had signed for 95 percent of the output, these 2,000 megawatts will 

remain untapped in this reservoir if the geothermal Production Tax 

Credit is not extended in a viable manner. 

As a developer, I am alarmed by what I am seeing in the marketplace, especially the volatile and rising price for natural gas. Increasing the production of electricity from renewable resources is a 

sensible alternative to this concern. 

Production wells at our facilities extra super-heated fluids from 

deep underground reservoirs which is flashed into steam and used 

to create electricity. The fluid is then injected back into the resVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00046 Fmt 6633 Sfmt 6602 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
43 

ervoir, completing the closed-system process. Geothermal plants 

produce what is called baseload power, consistent energy production, 24 hours a day, 7 days a week. Geothermal energy is an important indigenous renewable resource. 

However, the industry faces serious challenges, primarily the 

high up-front capital cost of building a plant. For example, our 

costs are more than four time per megawatt higher than comparable natural gas-fired power plants. 

The output from Salton Sea 6 will make it the largest renewable 

energy project of any kind in the United States. It took us 5 years 

and over $8 million in development costs to reach this point and 

it will take an additional 28 months to build, a total of more than 

7 years from start to finish. Construction costs will exceed $700 

million, which would represent the single largest capital investment in Imperial County, the most economically disadvantaged 

area in California and one of the poorest in the country. 

The bottom line is this. We have a permit to build the plant, so 

we could break ground tomorrow. We have a customer, and we are 

prepared to move forward with financing and construction. But the 

project is not yet commercially viable. Put simply, obtaining a Production Tax Credit for this facility is the difference between an economically viable project and wishful thinking. 

The first issue we ask you to address is the eligibility period. For 

geothermal projects, the placed-in-service date should be extended 

for an appropriate term to make a PTC viable. Given the construction time of most geothermal plants, a one- or two-year eligibility 

period extension will do nothing to make our plant a reality and 

probably won’t help other geothermal developers. Three years is 

the minimum needed to benefit most geothermal developers, who 

must deal with the lead time challenges of planning, permitting, 

and construction. 

I, therefore, propose that you either extend the section 45 placedin-service date for at least 3 years or provide transition rules enabling new geothermal projects with binding contracts in place to 

qualify for a Production Tax Credit. 

The second issue is the duration of the PTC. We believe 

geothermals should receive the same ten-year term that is provided 

for wind. These improvements will result in better long-term planning and significant additional geothermal development. 

If Congress extends the PTC for geothermal energy in this manner, we will build Salton Sea Unit 6. It is that simple. It will greatly increase the odds of seeing Salton Sea Units 7, 8, and 9, because 

non-polluting baseload geothermal power is an attractive substitute 

for fossil fuel plants. 

Providing the geothermal industry with a PTC does not get us 

off the tax hook by any means. Geothermal plants pay more than 

three times more taxes than gas-fired plants pay on a per megawatt hour basis. This is largely the result of geothermal’s high capital and related infrastructure costs and the fact that a much higher percentage of our costs go to labor than a comparably-sized gas 

plant. In fact, over the next 30 years, even with the benefits of a 

PTC, Salton Sea 6 will still pay more than $300 million in Federal, 

State, and local taxes. 


jcorcoran on PROD1PC62 with HEARING
44 

1Speaker’s Task Force For Affordable Natural Gas ‘‘Final Summary of Finding,’’ September 

30, 3003, p. 6 (download at http://energycommerce.house.gov/NaturalGasTaskForce/scripts/ 

file.pl?file=findings.htm). 2See, e.g., Ryan Wiser et al., ‘‘Easing the Natural Gas Crisis: Reducing Natural Gas Prices 

through Increased Deployment of Renewable Energy and Energy Efficiency,’’ Lawrence Berkeley 

National Laboratory (January 2005) (LBNL–56756) (download at http://eetd.lbl.gov/ea/ems/reports/56756.pdf). 

If, as policy makers, you want to encourage more renewable energy development, you can impose a mandate, like a Renewable 

Portfolio Standard, or offer an incentive, like a PTC. As a businessman, I like incentives and the PTC fits that bill perfectly. First, it 

is output-based, so you get your reward only after making your investment and operating your plant. Second, you can take it to the 

bank. Third, a low-cost producer gets the biggest reward. 

In sum, then, geothermal energy provides reliable baseload 

power. It is virtually emissions-free, contributes to fuel diversity, is 

an indigenous, renewable fuel source, contributes to energy security, provides price stability, as seen by our 30-year fixed-price contract with our customer, and creates more jobs than a comparable 

fossil-fired plant. 

As President Bush has said, a key goal of comprehensive energy 

legislation must be to develop new sources of energy. The single 

best way to encourage new development of geothermal power is to 

extend the PTC together with a longer or modified placed-in-service 

date. That will do more to increase domestic production of geothermal energy than any previous government action. It would represent a huge win for the environment and, therefore, the country 

and all U.S. energy consumers. 

Thank you again for this opportunity, and at the appropriate 

time, I will be pleased to answer any questions. 

[The prepared statement of Mr. Signorotti follows:] 

Statement of Vince Signorotti, Vice President, CalEnergy Operating 

Corporation, Brawley, California 

Thank you, Mr. Chairman. My name is Vince Signorotti. I am a Vice President 

of CalEnergy Operating Corporation. I have lived in Imperial County, California for 

17 years and have worked in the geothermal industry for the past 24 years. 

CalEnergy is a subsidiary of MidAmerican Energy Holdings Company, an international energy company headquartered in Des Moines. With me today is Jonathan 

Weisgall, Vice President of Legislative and Regulatory Affairs for MidAmerican Energy. 

My company currently generates 340 megawatts of clean, reliable and renewable 

geothermal electricity for California’s energy consumers from our plants adjacent to 

the Salton Sea in the extreme southern part of the state. We believe there are six 

times this amount available, or another 2,000 more proven megawatts of geothermal 

energy that can be developed near the Salton Sea. In fact, just two weeks ago we 

received approval from the state for a new 215-megawatt geothermal plant, called 

Salton Sea Unit 6. However, despite this approval and despite a 30-year fixed price 

contract we have signed for 95% of the output, this power and the other 2,000-plus 

megawatts will remain untapped in this reservoir if the geothermal production tax 

credit is not extended in a viable manner. 

As a developer, what I’m seeing in the marketplace is volatile and rising natural 

gas prices and increasing concerns about climate change, clean air, job growth, and 

increased dependence on foreign sources of energy. Increasing the production of electricity from renewable energy addresses all of these problems head-on. As the 

Speaker’s Task Force For Affordable Natural Gas concluded, ‘‘A sound energy policy 

should encourage the development of renewables.’’ 1 Other recent studies show that 

reducing demand pressure on natural gas through increased use of clean, domestically-produced renewable energy can help bring down natural gas prices.2

Geothermal power, as the word implies, is energy that comes from heat in the 

earth. Production wells at our facilities extract the geothermal brine from underVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00048 Fmt 6633 Sfmt 6621 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
45 

3 A 2003 California Energy Commission study concluded that the capital costs of geothermal 

plants are four to six times higher per megawatt than natural gas plants. Final Staff Report, 

‘‘Comparative Cost of California Central Station Electricity Generation Technologies,’’ June 5, 

2003 (download at http://www.energy.ca.gov/reports/2003–06–06—100–03–001F.PDF). 

ground reservoirs. When that superheated brine reaches the surface, it flashes into 

steam, which turns a turbine to create electricity. These wells range in depth from 

5,000 to 9,500 feet below the earth’s surface. We then re-inject the brine back into 

the reservoir. Geothermal plants thus produce what is called baseload power: consistent energy production, 24 hours a day, seven days a week. In addition, a wellmanaged geothermal reservoir is a sustainable resource; there has been no measurable decrease in pressure in our Salton Sea geothermal reservoir since we started 

production in the early 1980s. 

Geothermal energy is a significant power producer, supplying about 5% of California’s electricity generation, 9% of northern Nevada’s, and 25% of Hawaii’s. However, 

the industry faces serious challenges, primarily the high up-front capital costs of 

building a geothermal plant. Our costs are more than four times per megawatt higher than comparable natural gas-fired power plants.3 In addition, we typically sign 

long-term (20- to 30-year) fixed-price contracts, while coal- and natural gas-fired 

plants typically enter into shorter contracts—and usually with fuel adjustment 

clauses to hedge against fuel price volatility. Geothermal energy thus bears the dual 

financial burdens of higher initial capital costs combined with greater price risks 

going forward—a combination that makes it difficult to attract investment dollars. 

The output from Salton Sea Unit 6 will make it the largest renewable energy project of any kind in the United States. It took us five years—and over $8 million 

in development costs—to obtain our permit from the California Energy Commission, 

and it will take an additional 28 months to build—a total of more than seven years 

from start to finish. Construction costs will exceed $700 million, using 550 construction workers and leading to more than 60 high-paying, fulltime positions. It will represent the single largest capital investment in Imperial County, which is the most 

economically disadvantaged area in the state and one of the poorest in the country. 

We have a permit, so we could put shovels in the ground tomorrow. We have a 

customer—the Imperial Irrigation District—which strongly supports the development of geothermal power and has signed a 30-year contract for 95% of the plant’s 

output. We are also ready to go with financing and construction. However, the 

project is not yet commercially viable. Put simply, obtaining a production tax credit 

for this facility is the difference between an economically viable project and a 

dream. The present values of future production tax credits (especially if allowed for 

ten years of energy production) will launch this project and other geothermal 

projects around the country. 

The first issue we ask you to address is the eligibility period. For geothermal 

projects, the placed-in-service date should be extended for an appropriate term to 

make the production tax credit viable. Given the construction time of most geothermal plants, the existing one-year eligibility period does nothing to help make 

our plant a reality and probably won’t help other geothermal developers. Three 

years is the minimum needed to benefit most geothermal developers, who, like us, 

must deal with multi-year lead time challenges of planning, permitting, and construction. I therefore propose that you either extend the Section 45 placed-in-service 

date for at least three years or provide transition rules enabling new geothermal 

projects with binding contracts in place to qualify. This modification would more realistically help to achieve Congress’ intent to provide an incentive for more geothermal development. 

The second issue is the duration of the production tax credit. We believe geothermal projects should receive the same term provided for wind generation—ten 

years—as opposed to the current five years for geothermal. A five-year duration 

would represent an improvement to the existing investment tax credit, but re-aligning the duration of the credit from five years to match the ten years afforded other 

renewables such as wind will result in better long-term planning and significant additional geothermal development. 

If Congress extends the production tax credit for geothermal energy in this manner, we will build this plant; it’s that simple. And it will greatly increase the odds 

of seeing a Salton Sea 7, 8 and 9, because non-polluting, baseload geothermal power 

is seen as an attractive substitute for coal and gas plants. The power from our 

plants near the Salton Sea can be directed west to San Diego, northwest to Los Angeles, northeast to Las Vegas, or east to Arizona. These are all areas with urgent 

needs for new, reliable electric power. They are having difficulty meeting current 

clean air requirements and they expect substantial growth in their power demands. 

While they are also subject to state or local renewable portfolio standards that manVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00049 Fmt 6633 Sfmt 6621 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
46 

4 ‘‘Does the PTC Work?,’’ by Brandon Owens (PR&C Renewable power Service, July 2004), pp. 

10–12. 5One study has shown that ‘‘job creation from geothermal energy is 11 times higher than from 

natural gas.’’ ‘‘Renewables Work: Job Growth from Renewable Energy Development in California,’’ by Brad Heavner and Susannah Churchill, June 2002 (http://www.calpirg.org/reports/ 

renewableswork.pdf). 

date higher percentages of renewable energy, they are not likely to meet those 

standards in the absence of the production tax credit. 

Providing the geothermal industry with a production tax credit does not get us 

off the hook on the tax front by any means. Indeed, one recent study has shown 

that geothermal plants pay, on average, more than three times the taxes that gasfired combined cycle power plants pay on a per megawatt-hour basis.4 This is largely the result of geothermal’s high capital and related infrastructure costs and the 

fact that a much higher percentage of our costs go to labor than a comparably sized 

gas plant, whose highest cost item is fuel.5 In fact, our pro formas show that over 

the next 30 years, even with the benefits of the production tax credit in place, 

Salton Sea Unit 6 will still pay $100 million in federal income and payroll taxes 

and nearly $200 million in state and local income, property, and payroll taxes. 

Our industry does have another option—the energy investment tax credit. However, for my company, the one-time investment credit provides nowhere near the 

benefit that the recurring PTC does and simply cannot make the project commercially viable. 

If, as policy makers, you want to encourage more renewable energy development, 

you can impose a mandate like a renewable portfolio standard or offer an incentive 

like a tax credit. As a businessman, I like an incentive, and the production tax credit fills that bill perfectly. First, it is output-based, so you get your reward only after 

making your investment and operating your plant. Second, you can take it to the 

bank, and third, the low-cost producer gets the biggest reward. State renewable 

portfolio standards are somewhat limited by the cost of renewable power, but the 

PTC will literally energize these standards by reducing costs and stimulating investment. 

Lessons of the last few years—with record high prices for natural gas, coal, and 

gasoline—teach us that the United States must diversify and expand its domestic 

energy supply, and that means tapping our nation’s entire renewable energy resource base. 

It is important that tax measures in the energy bill help to ensure that future 

U.S. electricity supplies will be available from a diverse, domestic, and environmentally friendly resource base located right here in the United States. 

Geothermal energy: (1) provides reliable baseload power; (2) is virtually emissions-free; (3) contributes to fuel diversity; (4) is an indigenous, renewable fuel 

source; (5) contributes to energy security; (6) provides price stability, as seen by our 

30-year fixed price contract with our customer; and (7) creates more jobs than a 

comparable fossil fuel-fired plant. 

As President Bush has said in several recent speeches, a key goal of comprehensive energy legislation must be to develop new sources of energy. The single best 

way to encourage new development of geothermal power is to extend the production 

tax credit, together with a longer or modified placed-in-service date. Simply put, 

that action will do more to increase the domestic production of all renewable energy 

than any previous government action. It would represent a huge win for the environment and therefore the country and all U.S. energy consumers. 

Thank you. I would be pleased to answer any questions. 

f 

Chairman CAMP. Thank you very much, Mr. Signorotti. Now we 

have Mr. Christopher O’Brien, who is Vice President of Sharp Solar 

Systems. 


jcorcoran on PROD1PC62 with HEARING
47 

STATEMENT OF CHRISTOPHER O’BRIEN, VICE PRESIDENT, 

STRATEGY AND GOVERNMENT RELATIONS, SOLAR SYSTEMS 

DIVISION, SHARP ELECTRONICS CORPORATION, 

KINGSTOWNE, VIRGINIA, AND CHAIRMAN OF THE BOARD OF 

DIRECTORS, SOLAR ENERGY INDUSTRIES ASSOCIATION 

Mr. O’BRIEN. Mr. Chairman, Members of the Subcommittee, I 

thank you for the opportunity to testify today. My name is Christopher O’Brien. I am Chairman of the Solar Energy Industries Association, the national trade association of the solar energy industry, representing over 100 companies who manufacture and sell 

solar energy systems and representing all major solar energy technologies—photovoltaics, solar thermal, and concentrating solar 

power. 

I am also Vice President for Strategy and government Affairs for 

Sharp Corporation’s Solar Systems Division. Sharp is the world’s 

largest manufacturer of solar photovoltaics, or PV, with manufacturing plants located in Japan, in the U.K., and in Memphis, Tennessee. The Sharp Solar plant in Memphis was inaugurated in 

2003, with a capacity of manufacturing 20 megawatts per year of 

solar panels. The capacity was doubled to 40 megawatts per year 

in 2004, and will increase to 60 megawatts later this year. 

I would like to make three points in my testimony this afternoon. 

First, the section 45 Production Tax Credit as structured has insignificant value to the solar industry. Second, meaningful incentives 

are key to bringing down the cost of solar energy and increasing 

deployment. Third, we would, therefore, recommend that solar be 

removed from the list of eligible technologies under Section 45 in 

exchange for an expansion of the existing section 48 Investment 

Tax Credit. 

Now, it may come as a surprise that the section 45 PTC does not 

benefit all eligible renewables. However, as structured, it simply is 

not beneficial to any sector of the solar energy industry. Let me explain. 

The section 45 credit, first of all, is available only to projects that 

engage in the sale of power. Most solar PV and solar thermal 

projects are distributed generation, installed on rooftops of homes 

and businesses, and the energy generated by these solar energy 

systems is used on-site. The definition of a power sale used by the 

legislation, therefore, excludes distributed solar energy systems 

from the credit. 

Larger utility-scale solar plants are also unlikely to claim the 

section 45 PTC because under current law, developers must choose 

between the section 45 PTC and the existing Section 48 Investment 

Credit, and the latter is more significant in value. 

So, the most effective way to bring solar energy online in the 

U.S. would be to increase the Section 48 solar ITC to approximately 30 percent and make that credit available to all solar applications, even if that credit were to come at the expense of our being 

excluded from section 45 PTC. 

Congress has used Investment Tax Credits for the last 40 years 

as a mechanism to support key emerging industries and to realize 

public value. Solar provides excellent public value, reducing peak 

demand, reducing pollution, and avoiding or deferring transmission 


jcorcoran on PROD1PC62 with HEARING
48 

and distribution upgrades. Furthermore, the U.S. has the best 

solar resources in the developed world. 

An expansion of the section 48 Investment Credit would have a 

strong positive effect on the U.S. solar energy market, increasing 

the scale and competition among manufacturers, accelerating the 

drop in the cost of solar energy to the point where solar energy 

would more rapidly and broadly compete with convention peaking 

and retail electric prices. 

SEIA, or the Solar Energy Association, estimates that an expansion of the ITC would over 10 years stimulate an estimated 50,000 

new jobs, decrease solar costs by 50 percent, and save consumers 

over $15 billion in electricity and natural gas costs. In California 

alone, we estimate that these provisions would create over 10,000 

jobs and spur $8.5 billion in economic investment. In other places, 

like Saginaw County, Michigan, home to one of the largest producers of silicone for the solar industry, Hemlock Semiconductor 

Corporation would expect to see significant investment and capacity expansion. 

In other nations, similar policy models have been used to spur 

manufacturing scale-up, increased competition among installers, 

and improved marketing. This international market growth has cut 

the cost of solar energy sharply and demonstrated the ability of the 

industry to move off of incentives after that initial jump-start. 

On the other side of Capitol Hill, Senator Lamar Alexander has 

proposed in S. 727 a temporary 5-year expansion of the Investment 

Tax Credit that would apply to both residential and commercial 

sectors. 

We have an opportunity to shift a tax policy that does not work 

as effectively as intended for solar energy into one that does. Expanding the section 48 ITC would give the solar industry a credit 

of approximately the same proportional value as that enjoyed by 

other renewables through the section 45 PTC. This would help to 

accelerate the public benefits associated with the increased use of 

solar energy and bring a booming solar market back to the United 

States 

Once again, I appreciate the opportunity to testify and the willingness of this panel to explore new policy options. I look forward 

to answering your questions. 

[The prepared statement of Mr. O’Brien follows:] 

Statement of Chris O’Brien, Vice President, Strategy & Government Affairs, 

Sharp Electronics, Solar Systems Division, Kingstowne, Virginia, and 

Chairman, Solar Energy Industries Association 

Mr. Chairman, members of the committee, I thank you for this opportunity to testify. 

My name is Chris O’Brien. I am Vice President for Strategy and Government Affairs at Sharp Electronics, Solar Systems Division. We are the largest photovoltaics 

manufacturer in the world. Our Memphis facility will soon be the largest solar manufacturing facility in the United States. I also serve as Chairman of the Solar Energy Industries Association, the national trade association of the solar energy industry,—representing the photovoltaics (PV,) Concentrating Solar Power (CSP,) and 

solar heating industries. 

I would like to make three points this afternoon. 

• First, the current production tax credit has no value to the solar industry. 

• Second, meaningful incentives are key to bringing down solar costs. 

• And third, we would willingly be removed from the section 45 credit in favor 

of an expansion of the existing investment credit. 


jcorcoran on PROD1PC62 with HEARING
49 

It may come as a surprise that the current credit does not benefit all eligible renewables. However, the PTC as currently written is simploy not relevant to any sector of the solar industry. 

For different reasons, the credit is of no value to either distributed retail, or central station wholesale, solar power. 

As you know, this credit is available only to projects that engage in the sale of 

power. Most solar PV projects are distributed generation, installed on rooftops and 

run through the customer’s meter. The definition of a power sale used by the legislation therefore excludes them from the credit. 

Even if they could theoretically take the PTC, owners of most PV systems would 

not realistically benefit. A typical home PV system is 2 kilowatts—one twenty-fivethousandth the size of a small wind farm. With the PTC, that system would generate just $50 in annual credits. The difficulty inherent in somehow having the IRS 

‘‘read your meter’’ would remove any economic benefit. 

Of course, photovoltaics are not the only solar electric technology. For almost 20 

years, approximately 400 megawatts of concentrating solar (‘‘CSP’’) projects have 

been operating in the Mojave Desert of California. These plants use fields of mirrors 

to bring heat into a conventional steam power plant, feeding valuable peak power 

into the grid. New projects are currently in the pipeline. And although the developers of these new CSP plants could at least theoretically claim the PTC, they will 

not. Under current law, developers must choose between the PTC and the existing 

10% commercial solar investment credit. While the current PTC represents 30–40% 

of power costs for wind, it is perhaps 6—10% of solar costs. Given the realities of 

commercial finance, no project developer will trade 6 % over 10 years for 10% up 

front. 

We appreciate that the expansion of the PTC indicates a desire by Congress to 

support clean, domestic solar power. Unfortunately, as written, it simply will not 

work. 

So, while our industry represents many different technologies, we speak with one 

voice on this issue. 

The most effective way to bring solar on-line in the United States would 

be to increase the existing investment credit to 30%—and make that credit 

available for all solar applications. 

The reasoning would be that increasing market size allows the industry to increase the scale of manufacturing, bring competition into the marketplace, and decrease costs. 

Historically, solar prices have come down 20% for each doubling of installed capacity. A usable ITC would ‘‘jumpstart’’ the U.S. market by bringing already-declining solar costs over the ‘‘tipping point’’ in many areas, to the point where they 

broadly compete with conventional peaking and retail electric prices. 

Similar models have been used by other countries to expand the solar industry, 

resulting in double-digit annual market growth. (Though the U.S. lags, global PV 

industry is now 10 times the size it was in 1996.) In other nations, manufacturing 

scale-up, increased competition among installers, and improved marketing have 

proven the ability of the industry to move off of incentives after that initial 

‘‘jumpstart.’’ 

Congress has used investment tax credits for the last 40 years as a mechanism 

to stimulate economic growth in emerging industries, and realize public value. 

Solar provides excellent public value, and the United States has the best solar resources in the developed world. From Maine to Nevada, we could use solar power 

to meet some of our most pressing energy concerns—from peak demand reduction, 

to environmental benefits, to the avoidance of transmission and distribution upgrades. I would be happy to provide the committee with a body of work that quantifies these benefits. 

In S. 727, Senator Alexander has proposed a temporary 5-year expansion of the 

investment tax credit that would apply to both the residential and commercial sectors. 

This bill also proposes changes that would make the PTC usable for some types 

of solar projects. However, I’ve asked my colleagues, and we agree that if we seek 

to see significant near-term deployment and really bring down solar costs, the most 

important policy change that Congress could enact would be an expansion of ITC— 

even if that credit were to come at the expense of our being excluded from the production tax credit. 

Over 10 years, these credits would stimulate an estimated 50,000 new jobs, decrease solar costs by 50%, and save consumers over $15 billion in electricity and 

natural gas. In California alone, we estimate that these provisions would create over 

10,000 jobs and spur $8.5 billion dollars in economic investment. Expanding the ITC 

is the most meaningful solar policy that Congress could enact in the energy bill. 


jcorcoran on PROD1PC62 with HEARING
50 

We have an opportunity to shift a tax policy that does not work into one that 

does. Expanding the existing ITC, would give the solar industry a credit of approximately the same value as that currently enjoyed by other renewables through the 

PTC. This would begin to bring the booming solar market back to the U.S. 

Once again, I appreciate the opportunity to testify, and the willingness of this 

panel to explore new policy options. I look forward to answering your questions. 

f 

Chairman CAMP. Thank you very much. Thank you all very 

much. That was excellent testimony. I just have a couple of questions. 

Mr. O’Brien, do you see the market share of solar in the U.S. 

comparable with other countries, and if other countries have a larger solar use than the U.S., what reasons do you attribute that to? 

Mr. O’BRIEN. Probably the most dramatic example of an effective policy has been taking place over the last 10 years in Japan. 

Japan put in place a policy targeting installation of solar on residential rooftops. This is back in 1994 and they set a goal of five 

gigawatts of installed solar capacity by 2010. At that time, the 

world market for solar was in the tens of megawatts, so it was an 

outrageous goal. Nevertheless, they committed to a long-term set 

of incentives. That, in turn, gave businesses a framework that they 

could work with, a degree of certainty to make the investments, to 

drive down the cost, and to increase deployment. 

What happened? Over the next 10 years, the installed cost of 

solar systems in Japan dropped by 70 percent. The subsidy level 

that the government provided decreased from approximately $8 per 

watt installed to—it will be phased out to zero next year. The total 

number of systems installed increased from approximately 500 in 

1994 to 70,000 per year this year. So, it has overall been a great 

example of a short-term stimulus that has very effectively increased the dissemination and the use of solar energy in Japan. 

Chairman CAMP. That is one of the concerns, that data shows 

the cost of solar power is higher on a kilowatt hour basis than 

other kinds of renewables, and I wondered, if sounds as if in Japan 

it was economies of scale that brought that price down. Are there 

any technologies on the horizon that you see that may make solar 

power more economically comparable to other renewables? 

Mr. O’BRIEN. There are technologies emerging. There are some 

new—I think you see over the last 20 or 25 years, you have seen 

that the cost of the solar module, the solar panel itself, has decreased by about 20 percent each time that the global volume has 

doubled. It is about an 18 to 20 percent learning curve. There are 

new breakthrough technologies that are being worked on, including 

deposition of photovoltaics on plastic substrates. There are concentrating photovoltaic technologies. Concentrating thermal solar 

power is proving to be economic. So, I think that there are a variety of solar conversion technologies that are effective. 

I think equally important, though, and what we have seen in 

some of our larger markets is the productivity and the efficiency 

between the factory gate and the rooftop. What we have seen in 

places in larger markets is that some of the largest solar companies 

in Japan now are home-building companies. They have incorporated solar so that they have standard model homes that are ecohomes or zero-energy homes that you as a consumer can walk in, 


jcorcoran on PROD1PC62 with HEARING
51 

and instead of getting granite countertops, you can get a solar system on your roof and no energy bill. So, it is making much more 

efficient solar—market channels has been a big part of the successful outcome there. 

Chairman CAMP. Okay. Thank you very much. 

Mr. Ranger, I have a couple questions. I wondered, this obligation, this current requirement to flare landfill gas, how does that 

affect—how does that flare requirement factor into the economics 

of using the gas to generate and sell electricity, this preexisting requirement of flaring landfill gas? 

Mr. RANGER. Well, generally, Mr. Camp, the landfills are flaring that gas, so those systems are already installed at the bigger 

landfills. What has excited the industry about the section 45 tax 

credit is it is something that can go into putting in new capital to 

change that gas, take it away from the flare and turn it into electricity. It is still a capital-intensive industry past the flare, and 

that is where we need the support of the tax credit. 

So, one thing that is troubling to me, personally, is that landfill 

gas gets penalized because there is an environmental benefit that 

is attached to collecting the gas. We still have the same capital requirements as any other renewable energy provider and we still 

need some support to make that investment. I would like to see all 

renewables be treated equally and make more of these projects 

happen. 

Chairman CAMP. All right. Thank you. Do you mean equal in 

terms of the time period as well as the amount, credit amount? 

Mr. RANGER. Correct. 

Chairman CAMP. From the charts we have, the production from 

wind and closed-loop biomass receive basically 1.9 cents per kilowatt hour for the first 10 years and others are not, are either equal 

or less than that. You think that has had an effect on the ability 

to compete in that area? 

Mr. RANGER. Well, the EPA estimates that there is another 500 

landfills that are candidates for landfill gas electricity projects. So, 

if we were at that level of support, you would see almost all those 

projects come about. But what has happened in the landfill gas industry is we keep getting ratcheted back. We have looked at numbers at 1.3 cents a kilowatt hour, and what finally came out was 

the 0.9. That is going to generate some activity, but we are talking 

20 projects, in my estimation, that were going to come forward, not 

only because of the deadline but also the magnitude of the tax 

credit. 

Chairman CAMP. You said in your testimony that a medium-size 

landfill would meet the electrical needs of 3,000 homes. That is 

fairly significant. 

Mr. RANGER. Yes, it is, and I think it is just a resource that 

continues to go up a flare and this country can’t afford to watch 

that kind of energy evaporate, no matter what the reasons it is 

going into a flare. 

Chairman CAMP. All right. Thank you very much. 

The gentleman from New York, Mr. McNulty, may inquire. 

Mr. MCNULTY. Thank you, Mr. Chairman. I also thank all of 

you for your testimony. 


jcorcoran on PROD1PC62 with HEARING
52 

We have heard so many times today that we have had this goal 

of reducing our dependency on foreign sources of energy. I mentioned earlier that the President has made this a highlight in his 

State of the Union Address for the last couple of years and I was 

very enthusiastic about that. Then we get going through the legislative session and I find myself asking the question, where is the 

beef, because we talk about it a lot and we don’t do a lot about it. 

So, in my limited time, I just wanted to kind of go down the line 

and get a little bit more from you about what you think the government ought to be doing. Now, I understand that is a limited role, 

and it should be. But I really appreciate Mr. O’Brien’s testimony 

because he got into that. He talked about other things that we 

ought to be doing in order to help his industry. 

Now, I know how all of you feel about the PTC and the ITC, but 

in your opinion, what else should—I am looking for a sense of urgency here. I am not talking about you, about us, about getting the 

information so that we can move on something and get some things 

done, the things that—the urgency that Mr. Larson was talking 

about earlier. 

In your opinion, what else should we be doing beyond the PTC 

to help your industries grow and to reduce our dependency on foreign sources of energy? Mr. Gosselin, we can start and just go down 

the line. Just take about a minute. 

Mr. GOSSELIN. Thank you. For wind industry, we clearly believe a long-term extension is what is necessary for us to get traction, remove the inefficiencies from the production of the equipment, and drive down our costs to remove the dependency from the 

PTC itself and add significant new wind into the country’s energy 

mix. It is as simple as that. Thank you. 

Mr. MCNULTY. Mr. Carlson? 

Mr. CARLSON. Thank you, Mr. McNulty. Basically, you heard a 

lot today about the cost of the various renewable technologies. 

Some are closer to the fossil fuel-driven electricity market than are 

others, and basically, the bridging of that gap really requires two 

actions, in my opinion. 

One isn’t necessarily a Federal action, because many of the 

States have moved forward with things like Renewable Portfolio 

Standards, and that is basically a spreading phenomena that creates a market segment for just renewables which allows them to 

compete among themselves for that market segment. So, that is 

one action that needs to continue and spread across the country. 

The other basically is this Production Tax Credit and the 

levelizing of that so that all of these renewables have an equal opportunity to grab some of that market share where it is appropriate, because many of them, as you have heard today, are also 

very driven by location. Where there is forest restoration to be 

done, it may favor biomass. Where there is the large resources that 

Mr. Norris talked about in terms of trash, that may be the chosen 

technology. But we need to level the playingfield for all of those so 

they have an equal opportunity to compete. 

Mr. MCNULTY. Thank you, Mr. Carlson. 

Mr. Ranger? 

Mr. RANGER. I appreciate your openness and willingness to consider other ways to help our industry. From the landfill gas perVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00056 Fmt 6633 Sfmt 6602 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
53 

spective, I think this incentive is going to be sufficient to see a lot 

of activity, but we just need more time. This was the first time we 

were included in the PTCs and the one-year time frame, as you 

have heard, is just insufficient. I think if you gave us an extension 

of at least 3 years, we will see a lot more of these, and if you would 

make the incentive the same as all the other renewables, I think 

you are going to be surprised at how many projects we could bring 

online in that time frame. Thank you. 

Mr. MCNULTY. Thank you. 

Mr. Norris? 

Mr. NORRIS. I think for the waste-to-energy industry, the big 

issue that we have, or the two big issues are the capital costs and 

the amount of time it takes to put one into operation. If we were 

to build a new waste-to-energy facility, by the time we got through 

developing, permitting, and construction, we are seven or 8 years 

in and probably close to $15 or $20 million, similar to what the 

geothermal is. With that, it is hard to get incentivized to build one 

when we have such a short period of time in order to put this into 

place. 

We have asked for a three-year here, thinking that we could add 

some small number of units at existing facilities because we think 

they may take a little less time to permit and to put into operation. 

But to make some wholesale big move as far as generating electricity out of the waste that comes out of urban areas that would 

normally go to landfills, to do that, we are going to need a lot 

longer time and a tax credit either through this way or the ITCs. 

If we will remember back in the mid-1980s when the vast majority of the waste-to-energy plants got built, there was an Investment 

Tax Credit there that went through that drove the vast market of 

that, and probably 40 percent of the plants, 40 to 50 percent of the 

plants that are operating today got put into place because of that 

Investment Tax Credit. Since then, in the last 10 years, we have 

not built a new waste-to-energy facility anywhere in the United 

States. 

Mr. MCNULTY. Thank you. 

Mr. Signorotti? 

Mr. SIGNOROTTI. Well, clearly, as I hope I have illustrated, the 

single most important point that the government can do to help us 

is to extend the in-service date and to levelize the playingfield for 

geothermal. However, in my opinion, since so much geothermal in 

the West is located on public lands, and that does not apply to our 

project in southern California, but a vast amount of geothermal energy does exist on public domain lands, lands that are controlled 

by the Bureau of Land Management, it would seem to me that to 

accelerate leasing, to perhaps simplify some of the rules as far as 

getting permits to drill and the various other components that are 

involved in exploratory drilling and development of geothermal resources on public lands would be a tremendous benefit to the industry. 

Mr. MCNULTY. Thank you. 

Mr. O’Brien, I think you have answered some of my question, but 

if you wanted to add anything else—— 

Mr. O’BRIEN. If you would, I think the most important point 

would be the longevity of the incentive program that was put in 


jcorcoran on PROD1PC62 with HEARING
54 

place, that for businesses like Sharp would provide a timeframe of 

certainty to justify investments in everything from new product development, project development, and manufacturing capacity expansion. 

There are two documents that I would like to enter into the 

record. These pertain to the PV industry. One is a PV roadmap 

that outlines a set of policies that would support that. The second 

is a job study associated with that that shows the related jobs development. 

[The information was not received at the time of printing.] 

Mr. O’BRIEN. I would say in addition to the Investment Tax 

Credit that I described, probably for distributed technologies like 

photovoltaics and solar thermal, the most important thing is really 

the, in addition to the tax credit, is the ability to easily interconnect to the electric grid and to get the full benefit of the energy 

that is used on-site. So, those would be some standardized interconnections, or interconnection standards and what is called net 

metering, or the ability to capture the value of the energy that is 

generated on site are the two things. 

Mr. MCNULTY. I thank you all and I thank the Chairman for 

letting me go over a little bit. 

Chairman CAMP. All right. Thank you. 

The gentleman from Florida, Mr. Foley, may inquire. 

Mr. FOLEY. Thanks, Mr. Chairman. 

One of our biggest challenges, obviously, is getting the people 

that proclaim they want to save the environment to allow us to try 

to by implementing new technologies. When we talk about methane 

gas, oh, no, I don’t want a landfill. We talk about wind energy, 

Walter Cronkite, no, I don’t want them off of Nantucket. No matter 

where you are located, they don’t want a nuclear facility. Well, I 

don’t want those solar panels on the roof in this development. We 

can’t mar the nice-looking Mexican tile by having that ugly solar 

panel. So, it seems like everybody has an objection, yet they are all 

in unison screaming, we have got to do more to lessen our dependency on oil. 

Now, you all suggested equalizing the credit. I assume you would 

like to go to the 1.9, not reduce accordingly, is that correct? Okay. 

I am just making sure we are all on the same wavelength, singing 

from the same hymnal, because I do think it is important. 

Now, I must have missed something, but the gentleman from Energy led me to believe that very, very little of our energy production in the United States is by crude oil, am I correct in that statement, and is that a correct statement? It is mostly natural gas? 

Mr. O’BRIEN. He was speaking about the electricity generation. 

Mr. FOLEY. So, we are out of diesel fuel generation, we are out 

of light crude. I know the City of Lakeworth still has some old generators. So, everybody in the Nation has converted, is that true? 

Does anybody know? I am just curious. 

Mr. CARLSON. Yes. Let me answer that, if I could, Mr. Foley. 

He said only about three percent of our electric generation is from 

oil, and that is correct. The largest single source is coal, which represents slightly over half of the total. Then nuclear and natural gas 

making up perhaps 40 percent, between those two. Then the hydro 


jcorcoran on PROD1PC62 with HEARING
55 

and renewables basically making up the rest, the last 10 percent 

or so. 

Mr. FOLEY. Then maybe I should have framed the question ‘‘fossil fuels,’’ those that are brought up from the ground. So, then I 

would have had a higher number? 

Mr. CARLSON. Yes. Fossil fuels would represent somewhere, I 

believe, between 70 and 75 percent of the total. 

Mr. FOLEY. Okay. I failed to ask the question. They always 

teach you, make sure you know the question. 

Well, I am encouraged at least that we are having the debate, 

and I think each one of the members here presents real options 

and real opportunity. We have seen in Florida particularly solid 

waste facilities. Where we used to bury, now we are finding recycling. Where we used to use the methane, now we are trying to find 

ways to plumb it in and create the burn rate that will make it cost 

effective. When we used to throw everything into landfills, vegetative resources, now through biomass credits, we are seeing people 

really clean up the environment. So, if people give us a chance to 

do every one of these options listed, I sense ten or so years from 

now, we will be in a better place. 

People in this country are impatient. I mean, I remember when 

I had a cell phone in the 1980s. Nobody thought, oh, what are you 

doing with that thing, that big lug? It was this big. I could have 

used it for an attack weapon. Now they are this small. But people 

assume, oh, nobody will ever need a cell phone. 

I think in this particular quarter, we have to think way outside 

the box. I, myself, would be even interested in being more aggressive with tax credits for all of your industries because I think it is 

the pathway from reliance, whatever it is, fuel, coal, in order to 

minimize the degradation of the ozone and other things that you 

are able to provide for us. 

So, I applaud each and every one of your industries. I think we 

should try to make them equitable. I think that creates a competition between the sectors. So, I appreciate your input, and particularly those from Palm Beach County. We are very, very encouraged 

by some of the things we are seeing. On the interstate, we see 

phone systems now that are using photovoltaics in order to power 

those. No longer do you have to connect with electric wires. So, we 

are seeing a lot of new technology that I think is spurring the use 

now and the abilities in downtowns—new downtowns are going 

with photovoltaic lighting systems. 

Again, I guess the other reason we all want to support you equitably, and one of you mentioned it, we are all in different locations. 

Florida has an abundance of sunshine, as does Arizona. In fact, Arizona has quite a bit this last couple days. But that sunshine can 

help do things that in other climates may not be as practical. 

We certainly know we generate a lot of waste around here, and 

I am not talking about the government, I am talking about the confines of Washington, D.C., because there are a lot of people that 

have to have their product go to the landfill, which again would 

help us in the treatment of the methane and other things. 

Thank you for your presentations. 

Chairman CAMP. Thank you very much. 

The gentleman from California, Mr. Thompson, may inquire. 


jcorcoran on PROD1PC62 with HEARING
56 

Mr. THOMPSON. Thank you, Mr. Chairman. 

To my colleague from Florida’s early remarks, I think that he 

would be interested, knowing his interest in a specific product that 

comes out of my district, I saw two wineries this weekend, both of 

which were heavily dependent, and one of which was totally dependent on solar energy. They had their panels, one on the rooftop, 

the other one covering the septic system, an area that couldn’t be 

used for anything else. That particular one at Frog’s Leap was generating all the power that they needed to run their whole winery. 

So, I think some of that NIMBY stuff is going by the wayside and 

some folks are being very creative and very helpful at the same 

time. 

Mr. FOLEY. Would the gentleman please bring some of the finished product so we could test it? 

Mr. THOMPSON. I have never let you down in that regard, Mr. 

Foley. 

[Laughter.] 

Mr. THOMPSON. I just want to say that I think Congress has 

been way behind the curve in regard to providing a strategic energy plan that the voters that we all represent want. I think that 

those of you on the panel today represent the industries that can 

help get us ahead of that curve. So, thank you for being here. 

I understand and appreciate the value that all your industries 

bring to this discussion, so I don’t want to sound like I am excluding anyone, but I do have nearly half the geothermal producers, or 

17 of them are located in my district, so if you would bear with me, 

I just want to focus a little bit on the geothermal issue. 

Mr. Signorotti, you had talked about the facility that you are 

planning to build down in Southern California. I know that from 

what is happening in Lake County in my district in California, that 

the geothermal industry has done more than provide a cleaner environment. They have also provided an incredible boost to local 

government revenues, to local revenues in regard to job creation, 

and it has been a real plus to the entire community. 

I don’t know if your industry quantifies that somehow, but do 

you see the same coming to the area in southern California where 

you are proposing your new facility? 

Mr. SIGNOROTTI. Absolutely. In Imperial County, where we 

have our ten plants and 340 megawatts, we employ about 220 fulltime employees. We are the largest taxpayer in the county and 

have been for many years. This new project, we estimate will generate an additional $3 million in new property taxes annually. We 

estimate that there will be 550 construction jobs created over a 24- 

to 28-month period and over 60 new full-time jobs. Again, this is 

in a very economically disadvantaged part of California. 

Mr. THOMPSON. If this is like Lake County, these are good 

jobs. They have benefits. They pay well. 

Mr. SIGNOROTTI. These are jobs that people stand in line for 

in our area, and I just wanted to follow up on your NIMBY comment. When we permitted this plant through the California Energy 

Commission, Commissioner Purnell commented at the conclusion of 

one of the public hearings that he had never been to a public hearing in his career as a Commissioner for the California Energy Commission where there was not one comment in opposition to this 


jcorcoran on PROD1PC62 with HEARING
57 

plant. I think that that speaks volumes about the environment that 

we live within Imperial County. Imperial County wants this, as 

does California. 

Mr. THOMPSON. I know the industry folks in my district are 

great neighbors, and you have the same response there. 

I asked the last panel, or the last witness, about a couple of specific issues, and I guess I would like to ask you about those, too. 

It seems to me, and the last witness, at the end of his testimony, 

he stated that studies show an increased use of biomass, wind, and 

geothermal technologies in the wake of higher natural gas prices 

or changes in environmental policies, such as greenhouse gas caps 

and trade programs. 

Given this, it would seem to me that we would want to restructure the PTC in a way that would allow you maximum leverage on 

getting investment dollars. I think the current proposal is going 

down the wrong road. Any comments on that? 

Mr. SIGNOROTTI. Well, clearly, with regard to Salton Sea 6, the 

PTC is the key factor. This project is PTC dependent. With the 

PTC, it will go forward. Without a PTC, it will not. 

Mr. THOMPSON. So, the PTC should be extended to include all 

of the industries that are providing us with these—— 

Mr. SIGNOROTTI. I certainly wouldn’t speak against that, but 

I am focusing in on our geothermal projects in the Imperial County, but I certainly think that there is a lot of equity and a lot to 

be said for that. 

Mr. THOMPSON. Thank you. I yield back, Mr. Chairman. 

Mr. SIGNOROTTI. Thank you. 

Chairman CAMP. Thank you. 

The gentleman from Indiana, Mr. Chocola, may inquire. 

Mr. CHOCOLA. Thank you, Mr. Chairman, and thank you all for 

being here today. 

Mr. O’Brien, I just wish that solar energy had a more viable future in Indiana. We don’t get as much sunshine as I would like. 

But I guess the question I would ask all of you is how do we, 

or when do we declare victory? When would you all come here and 

say, you know, we don’t need the tax credit anymore? Should we 

think about this as kind of a venture capital, helping new technology emerge, or should we think about this as a long-term subsidy that supports good policy? 

I will throw it open to all of you to try to give your perspective 

on that. Mr. Gosselin, I will start with you. 

Mr. GOSSELIN. Thank you. Again, from the wind industry perspective, we have been enjoying the benefit of the PTC and what 

it drives in technology for approximately the last 13 years. We have 

seen at least eight generations of new machine technology come to 

bear and continually lower costs. It is just in the last couple of 

years that we have seen higher costs come into the capital base of 

a wind project, and we believe that by having a long-term, stable 

PTC environment, that manufacturers will come to the U.S., create 

a U.S. base, and use that long-term PTC to drive out their inefficiencies that we currently have with the on and off again nature 

of the PTC. 

So, victory is removing ourselves from the dependence on the 

PTC and being able to stand alone on our own capabilities and 


jcorcoran on PROD1PC62 with HEARING
58 

merits in terms of economics associated with wind energy production. We believe that happens within the timeframe of a long-term 

PTC extension. 

Mr. CHOCOLA. Just briefly, one of the things you mentioned in 

your testimony was the rising cost of steel. I used to be in the grain 

bin business and I am painfully aware of the steel escalating cost. 

But doesn’t really every industry have to deal with that? It is not 

unique, is it, to the wind generation? 

Mr. GOSSELIN. No, it is not unique, but wind energy has a very 

large component of steel in it. The towers alone are something on 

the order of 60 tons of steel. So, it has a very large component relative to other technologies. While steel is driving costs up, it is not 

as material as what has happened with the dollar-Euro, and also 

as we see new technologies introduced, again, seeking to drive 

down the production cost, the cents per kilowatt hour that allows 

us to stand alone and compete on our own. 

Mr. THOMPSON. Mr. Carlson? 

Mr. CARLSON. Thank you. I think we declare victory basically 

when we are no longer dependent on foreign sources of energy for 

any significant percentage of our total national total. If you take 

our raw material, for example, biomass, it cannot just be used to 

generate electricity. It can also be used to make fossil fuels for 

automobiles. There is a synergy between those two activities that 

goes beyond just having, for instance, electric cars replace internal 

combustion engines, where we can actually produce the fuel for the 

internal combustion engine, and a substantial amount of that activity does take place in Indiana in terms of the ethanol production. 

So, I think that it is all part of a coordinated total where the renewables must start to displace fossil fuels and the same activity 

must take place in the transportation fuel network to the point 

where we can push back our dependency on foreign sources of oil. 

I can’t predict when we would declare victory, but I think we will 

know it when we get there and I think bringing renewables up to 

a substantial fraction of our Nation’s electric supply, for instance, 

say 20 percent over the next couple of decades is a reasonable goal, 

and the PTC and levelizing the PTC is probably the key element 

in doing that. 

Mr. THOMPSON. Is poultry waste used in open-loop biomass? 

Mr. CARLSON. It can be. It is not to any large degree at this 

point. Those systems are typically very small and are based essentially on the farm where the waste is produced. But it certainly in 

some cases can be a viable fuel for electric generation, certainly. 

Mr. THOMPSON. I see we are going to run out of time here 

quickly, but if anybody has a quick comment—— 

Mr. RANGER. I would like to just comment on the question. In 

the case of the landfill gas industry, we are not looking for a perpetual subsidy. In fact, one of the reasons that I shared with you 

the Riverview project story was that the subsidy has worked in the 

landfill gas industry to get energy projects built and that subsidy 

basically helped them pay off the capital. 

In the case of Riverview, Michigan, I declare that one a victory 

every day I look at the bottom line. We still have a project that is 

bringing in money into our company. It enables us to reinvest in 

that facility. You still have to keep the technology upgraded. We 


jcorcoran on PROD1PC62 with HEARING
59 

are putting in PLCs now, modernizing that plant. But Congress 

was successful in creating that project and the Congress should feel 

good about that and we need some help for another 500 more. 

Chairman CAMP. Why don’t we move on quickly. The gentleman 

from Connecticut, Mr. Larson, may inquire. 

Mr. LARSON. Thank you again, Mr. Chairman, and I thank the 

panelists. I have indeed enjoyed your comments this afternoon. 

My question will be more in association with one a lot of the 

Members have raised in terms of a question following along the 

lines philosophically, I guess, of what Congressman McNulty raised 

earlier and Representative Chocola. What is the most important 

factor in attracting capital to your businesses? 

Mr. GOSSELIN. Certainly from the wind industry, the return of 

the capital and the understanding or the known part of the business is the single most important part of attracting it. 

Mr. LARSON. So, that is why, with respect to the tax credit, if 

there is certainty, if there is across-the-board distribution, so you 

set up a system of competition where solar isn’t excluded or is included more under section 48 or Section 45, then we are leveling 

the playingfield and we are providing an opportunity for you to 

compete. 

It seems again like we get into these vicious circles where we 

never directly get at the problem because we are always chasing 

our philosophical or economical tails, because it seems to me, and 

coming from perhaps a Keynesian perspective, that government 

has a responsibility in promoting sound public policy to make sure 

you are able to compete because you are fulfilling an objective. 

Whether that is energy sufficiency, and I won’t even say total 

weaning ourselves off of dependency, but at least energy sufficiency 

so that we can compete on our own, that these are the kinds of 

things that we ought to be pursuing. 

Should the market dictate where we go, or is the combination of 

the market and government providing an opportunity for otherwise 

industries that would be dwarfed because of lack of capital coming 

to it, and therefore lack of investors? Where should Congress strike 

this balance in your minds? Anyone? 

Mr. CARLSON. If I could, sir, let me take a crack at that. I don’t 

know that it is—that Congress needs to pick the winners and the 

losers. I think the market should pick the winners and the losers, 

and I think we have demonstrated as a panel that in different locations, you will have different winners. 

Mr. LARSON. Correct. That was a good point you made. 

Mr. CARLSON. Clearly, I think that what Congress should do is 

levelize the playingfield and make sure that we have the opportunities. We don’t have—— 

Mr. LARSON. As Mr. Foley said, is 1.9 percent the right figure? 

Does it need to be more? Does it need to be less? 

Mr. CARLSON. I think the 1.9 cents is a good starting point, and 

we have to have access to the contracts with the utilities, which is 

what PURPA gave us back in the late 1970s, is that they had to 

purchase power from independent suppliers that could supply it at 

their what was called avoided cost, the same cost that it would cost 

them to produce it. That was a watershed for the country. 


jcorcoran on PROD1PC62 with HEARING
60 

Now, there have been ways in which they have attempted to 

back away from that, certain utilities, and that needs to be reemphasized, that if you can buy it from an independent supplier at 

your cost, you should do so. Then any difference could be made up 

by this PTC that we are talking about. 

Mr. LARSON. Anyone else? Mr. O’Brien? 

Mr. O’BRIEN. I think the lesson learned in our industry was 

that there are successful policy examples that we can look to in 

other countries. Actually, two of the most successful countries have 

more sunshine than Indiana does, Japan and Germany. 

But I think that the clear ingredients for our industry and what 

has worked well has been a reasonable horizon for the longevity of 

the incentive combined with a clear signal that there is a sunset. 

So, I think sending the right signal to the folks that are making 

investments in product development and manufacturing capacity 

and in project development is important. You effectively get what 

you pay for by the longevity of the program. So, those technologies 

that are less mature, that require more development, I think require perhaps a longer timeframe to recoup those investments. 

Mr. LARSON. Is there a grand plan to synergistically link your 

industries together, and could such be conceived? 

Mr. GOSSELIN. Not that I am aware of. 

Mr. O’BRIEN. I think I would just answer that, I don’t think 

there is a silver bullet. I think that when you look at the size of 

the gaps that need to be addressed, when you look at where we are 

today in terms of a dependence on fossil energy and you look at 

the—if you look going forward, there will be a portfolio that includes all of these technologies. I think it is important to recognize, 

and I think each of the technologies has different attributes. Some 

are distributed, some are central, some are large-scale, small-scale. 

But I think there is going to be—I would expect if you flash forward 20 years, you are going to see a portion of the portfolio with 

each of these technologies. 

Mr. LARSON. Thank you all very much. Thank you for your indulgence, Mr. Chairman. 

Chairman CAMP. Thank you, and again, I want to thank the 

panel for your excellent testimony this afternoon. The hearing of 

the Subcommittee on Select Revenue is now adjourned. 

[Whereupon, at 4:09 p.m., the hearing was adjourned.] 

[Submissions for the record follow:] 

Statement of the American Public Power Association 

The American Public Power Association (APPA) is the national service organization representing the interests of over 2,000 community-owned utilities located in 

every state but Hawaii. Collectively, public power utilities deliver electricity to one 

of every seven electric consumers (approximately 43 million people), serving some 

of the nation’s largest cities. However, the vast majority of APPA’s members serve 

communities with populations of 10,000 people or less. 

We appreciate this opportunity to offer our views on federal financial incentives 

for production of electricity from renewable energy sources. Appropriate incentives 

for renewable and clean coal generation are essential to achieving a balanced energy 

bill. At the same time, we believe an important element of the debate on renewable 

energy sources and clean technologies is absent from this hearing—comparable incentives for public power systems. Without comparable incentives, nearly 3000 public power and rural cooperatives serving approximately 25 percent of America’s electric consumers will be hampered from investing in renewable energy facilities. 


jcorcoran on PROD1PC62 with HEARING
61 

Under current law, investor-owned utilities are eligible to receive a production tax 

credit for generating electricity from renewable energy sources. However, not-forprofit utilities are ineligible for such incentives because they do not incur any federal tax liability. The only incentive provided to consumer-owned electric utilities for 

renewable energy production is the Renewable Energy Production Incentive (RPEI) 

Program subject to the annual appropriation process and has been grossly underfunded since its creation as part of the Energy Policy Act (EPAct) of 1992 and is 

discussed further in this section. 

The lack of comparable incentives will exacerbate problems for public power systems due to a growing trend of state mandates and prospects of a federal requirement that utilities generate a certain percent of their electricity from renewable energy sources. For-profit utilities have federal incentives in place to offset the cost 

of investing in renewable energy facilities to comply with government mandates 

while not-for-profits must pass on the cost as rate increases to their customers. 

Financial incentives for public power to invest in renewable energy projects will 

also contribute to the reduction of greenhouse gas intensity. As part of APPA’s voluntary commitment with the U.S. Department of Energy for participation in a voluntary greenhouse gas reporting and reduction program, comparable incentives for 

all sectors of the electricity industry is specifically outlined in the proposal as an important strategy to achieve this objective and recognizing the role not-for-profit utilities play in the industry by serving 25 percent of the nation’s electricity customers. 

Comparable Tax Incentives for Municipal Electric Utilities 

Current market conditions make the of production of electricity from renewable 

energy sources three to 10 times higher than from traditional fuel sources such as 

coal and natural gas. APPA’s members have a commitment to their customers and 

the communities they serve to keep rates at the lowest possible level. This commitment makes it difficult to participate in a national energy policy that promotes diversification of sources of electricity generation to include greater use of renewable 

energy. 

Many APPA members are extremely interested in expanding generation capacity 

to include renewable generation facilities. Because public power systems are governed by local elected or appointed officials, they are responsive to the needs and 

expectations of their respective communities. Public power communities want clean 

energy even when this results in higher rates. In fact, public power has an excellent 

record of providing clean energy. However, the availability of comparable incentives 

would provide a more reliable and non-regressive financial mechanism to make it 

easier to invest in qualified projects to generate from renewable energy sources. 

Traverse City Light and Power (TCLP) Department in Traverse City, Michigan, 

is one example of a community’s commitment to renewable energy. TCLP has a 

nameplate capacity of 1,000 Kilowatts (kW) from hydroelectricity generation. Furthermore, the TCLP owns and generates 800,000 kWh/year of electricity from a 

nine-year old wind turbine to serve its 10,256 customers. The decision to make this 

investment was finalized after enough volunteers in the community agreed to pay 

a 1.5-cent/KWh premium on their electricity rates to cover the cost of the production 

from a renewable energy source. The decision to make the investment has been a 

positive one for the community as it has diversified its energy supply and contributed to cleaner air. In addition, TCLP has recently begun discussions with the local 

school to provide some electricity from the wind turbines to charge a hybrid electric 

bus that the school hopes to put in to operation soon. 

Several of the dams used by TCLP for hydropower generation are in need of 

heavy capital investment. However, these improvements provide little additional 

power supply. TCLP estimates the dams would need approximately $4 million for 

upgrades and improvements. With little return on their investment and discussions 

in the Michigan legislature regarding a renewable portfolio standard, TCLP is considering additional wind generation capacity, but its options are limited because it 

will be difficult to garner enough volunteers to accept a surcharge given the necessity to ask citizens for help for the first wind project. Therefore, the viability of pursuing this new wind project will depend highly on whether or not public power systems receive a comparable tax incentive. 

Renewable Energy Production Incentive Program 

The only federal incentive currently available to public power systems is the Renewable Energy Production Incentive (REPI) program authorized under the Energy 

Policy Act of 1992. This program was created to be a comparable counterpart to the 

renewable energy production tax credits made available to investor-owned utilities 

under this law. Under REPI, the U.S. Department of Energy (DOE) is authorized 

to make direct payments to not-for-profit public power systems and rural cooperaVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00065 Fmt 6633 Sfmt 6621 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
62 

tives at the rate of 1.5 cents per kWh (1.8 cents when adjusted for inflation) from 

electricity generated by solar, wind, geothermal, and biomass projects. Unfortunately, the REPI program is subject to the annual appropriations process, and the 

program has been woefully under-funded since its inception. According to DOE 

sources, approximately $80 million would be required in Fiscal Year (FY) 2006 in 

order to fully fund all past and current REPI applicants. Despite the demonstrated 

need, however, DOE has only asked for $5 million for FY 2006, citing budgetary 

constraints. 

Renewable Portfolio Standards 

Complicating the issue is a recent trend by several states to enact renewable portfolio standards (RPS) and the prospects of a federal RPS mandate. According to the 

U.S. Energy Information Administration (EIA), almost 20 states have enacted some 

form of an RPS, and there are further discussions in other state legislatures to 

enact similar mandates. For-profit utilities can have the ability to use the federal 

tax incentives granted to them to offset the costs associated with the state laws. 

Not-for-profit utilities required to comply with these RPS mandates will not have 

comparable incentives to assist them in doing so. 

Without federal financial assistance, public power systems must finance more expensive renewable energy facilities internally—through higher rates for everyone or 

surcharges paid by those willing to pay more for ‘‘green’’ power. For example, the 

Board of Water and Power Commissions for the Los Angeles Department of Water 

and Power (LADWP) recently adopted a policy in response to a state RPS and a resolution passed by the City Council. The policy approved by the Board set the goal 

of LADWP supplying 20 percent of its generation load by 2017 from renewable energy resources and an interim goal of 10 percent by 2010. In order to determine how 

LADWP will pay for this effort, a study will be conducted to examine a renewable 

surcharge for its customers to pay for meeting the RPS goals and possibly a calculation method and plan for implementing the surcharge. Also included in the study 

will be an assessment for a solar surcharge to support installation and generation 

of electricity from photvoltaics. But without comparable incentives, the LADWP is 

limited to what financial options can be used to meet the City Council’s resolution. 

Greenhouse Gas Initiative 

APPA has joined with partners in the electricity industry in signing a Memorandum of Understanding (MOU) with DOE that commits us to voluntarily reduce 

greenhouse gas intensity. This MOU was part of President Bush’s proposal for a voluntarily greenhouse gas emissions reporting and reduction program. The goal of the 

program is to reduce greenhouse gas intensity levels by 18 percent by 2012. 

APPA worked diligently to ensure that the MOU recognizes the need to provide 

investment incentives to public power systems in order to utilize the latest clean 

technologies and renewable generation. The MOU specifically spells out the need to 

promote policies that provide ‘‘investment stimulus on an equitable basis to all segments of the power sector in order to accelerate use of existing [greenhouse gas]-reducing technologies, deploy advanced technologies and maintain America’s critical 

energy infrastructure (emphasis added).’’ 

Taxable Tax Credit Bonds 

In the 108th Congress, the Senate twice passed legislation that included a proposal to offer comparable tax incentives to consumer-owned utilities. The proposal, 

included as part of the Senate passed comprehensive energy bill and the Foreign 

Sales Corporation/Extraterritorial Income (FSC/ETI) Bill, would have established a 

mechanism—known as tradable tax credits—whereby public power systems and 

rural electric cooperatives could earn tax credits for production of electricity from 

renewable sources and then sell the tax credits to entities with federal tax liabilities. The proceeds from the sale of the tax credits would be used to offset the higher 

cost of renewable energy generation. However, concerns expressed by the White 

House and Members of the House prevented the plan from making it into the final 

version of either bill. 

In response to recommendations made by the Bush Administration and Members 

of Congress to develop an alternative to the tradable tax credit, APPA has worked 

closely with the National Rural Electric Cooperative Association (NRECA) and others to develop an alternative approach to the production tax credit so that the notfor-profit utilities that serve nearly 25 percent of the total population can receive 

incentives to help them invest in renewable energy resources. The proposal is similar to a tax policy already incorporated in the U.S. Tax Code. While not exactly 

identical, the alternative to tradable tax credits utilizes a financial investment previously recognized in the tax code that is familiar to most. The proposal is referred 

to as clean energy bonds and has been introduced in the Senate as S. 962. Senate 


jcorcoran on PROD1PC62 with HEARING
63 

Finance Committee Chairman Grassley and Ranking Member Baucus have recently 

introduced this bill to provide for the use of taxable tax credits bonds for qualified 

renewable energy facilities. APPA strongly supports S. 962. 

The clean energy bond would allow municipal utilities and rural electric cooperatives to issue interest-free debt through a taxable tax credit bond to raise revenue 

for renewable energy generation projects as defined under Section 45 of the U.S. 

Tax Code. In lieu of interest on the investment, the bondholders would receive a 

tax credit from the federal government that could then be put toward reducing their 

personal income tax liability. The bond is taxable, so if the credit is worth $100 and 

the bondholder is in the 35 percent tax bracket, the bondholder would deduct $65 

from his or her tax liability. 

In addition to renewable energy generation facilities, proposals in Congress are 

being considered to expand the clean energy bond to include new clean coal generation technologies. Coal is the most abundant natural resource for producing electricity in the United States. Increased use of clean coal technologies will allow us 

to increase our use of this readily available and reliable resource. At this time, the 

technology for clean coal facilities is not cost effective compared with traditional 

generation facilities. But including this technology as an eligible project under the 

scope of the clean energy bond will allow for greater market share across 

theelectricity industry; thereby reducing the cost for utilities to install and generate 

from clean coal technologies. Senator Bunning and others have introduced legislation in the Senate incorporating the clean energy bond as a financing method for 

clean coal technologies 

Conclusion 

Not-for-profit electricity utilities need comparable tax incentives for renewable 

and other clean energy generation. The debate amongst policymakers regarding 

greenhouse gas emissions, RPS and reducing our dependency on foreign sources of 

energy make the call for comparable incentives that are much more important to 

keep electricity rates affordable. While some not-for-profit electric utilities have 

taken steps to advance renewable energy projects, the burden of the cost has fallen 

exclusively on their ratepayers. These communities, both large and small, should be 

recognized for their desire to promote clean technologies and renewable energy generation. However, the ability to participate in ‘‘green’’ power generation should be 

made available to all communities regardless of economics, population or geography 

and without the need to implement a regressive tax. 

The policy to reduce our nation’s dependence on foreign sources of energy by investing in renewable energy and clean energy will greatly benefit the economy and 

health of all Americans. But such a decision should not exclude utilities that serve 

25 percent of Americans from receiving incentives to help achieve this positive goal. 

Again, APPA thanks both the Chairman and Ranking Member for their leadership on this issue, and we encourage the House to work with the Senate to enact 

comparable tax incentives for not-for-profit electric utilities in the 109th Congress. 

We look forward to working with you on this issue. 

f 

Solar Mission Technologies, Inc. 

Missoula, Montana 59801 

No date available 

Honorable Committee Members: 

Solar Mission Technologies, Inc is a privately owned, renewable energy power station developer based in the U.S. Solar Mission’s core business is to develop Solar 

Tower power stations globally. 

The first Solar Tower development is in advanced stages of project feasibility in 

Australia by local developer, Enviro Mission Limited; a publicly-traded Australian 

company. Solar Mission has maintained an investment in the Australian project 

since 2001. 

Australia was selected as the launching place for Solar Towers due to the favorable political and market sector receptiveness for clean green electricity from a fully 

dispatchable solar powered generating plant. 

The success of the Australian roll-out is cornerstone to development of similar 

power stations in the United States. 

U.S. federal tax credits for renewable energy generators form part of the impetus 

and timing for Solar Mission’s decision to commence development in the U.S. as a 

priority over markets where political incentives do not exist. 


jcorcoran on PROD1PC62 with HEARING
64 

The market case for renewable energy development is also supported by evidence 

that energy supply is set to lag behind demand based on GDP growth figures plotted 

against the equivalent energy indicators, whether BTU’s (natural gas/oil) or MWH 

(electricity generally). This worldwide trend supports investment and policy incentives for energy infrastructure development, particularly renewable energy. 

The imperative for energy development was driven home at the World Energy 

Congress (WEC) Sydney, Australia, (September 2004) with the call that recommended ‘‘no energy source should be taken off of the table.’’ 

See: http://www.worldenergy.org/wec-geis/wec_congress/default.asp 

In addition the WEC concluded ‘‘[a] larger share of global infrastructure investment must be devoted to energy’’. 

Tax credits will help move the electricity market in the United States toward 

those two goals. 

Solar Mission’s development strategy for the U.S. is influenced by the current tax 

policy although the tax credit structure could go further to standardize the term, 

quantity and value of tax credits for all renewable fuel sources. Standardization will 

provide certainty in planning and costing renewable energy projects and will foster 

investment confidence in renewable energy development. 

Solar Mission seeks the support of the Legislative Committee to continue shaping 

legislation that aims to capture electricity production from renewable sources. 

Thank you for the opportunity to table the views of Solar Mission’s directors and 

management. 

Sincerely, 

f 

Christopher Davey 

Statement of Edison Electric Institute 

The Edison Electric Institute (EEI) appreciates the opportunity to submit this 

statement for the hearing record on tax credits for electricity production from renewable sources. EEI is the trade association for U.S. shareholder-owned electric 

companies, and serves international affiliates and industry associates worldwide. 

Our U.S. members serve almost 95 percent of the ultimate customers in the shareholder-owned segment of the industry and nearly 70 percent of all electric utility 

customers in the nation. They generate almost 70 percent of the electricity generated by U.S. electric companies. Several of our members have made significant investments in renewable technologies including wind, biomass co-firing, landfill gas 

and waste to energy, and geothermal, and many others may do so in the future. 

While last year’s extension of the Production Tax Credit (PTC) for five or ten 

years was a step in the right direction, the requirement that the facilities be inservice by the December 31, 2005 severely limited the PTC’s effectiveness. To maximize the impact of the tax credit, there must be a realistic opportunity to plan for 

equipment purchases in a sustained business cycle, address transmission and siting 

issues, and begin production over a longer time period. The ‘‘boom and bust’’ business cycles created by frequent twelve-month extensions of the tax credit have not 

helped developers of renewable energy technologies and have only increased costs 

for the consumer. The PTC extension was authorized in the JOBS Bill last fall and 

did not provide enough time for technologies with long lead times, or technologies 

that face equipment shortages, transmission access issues, and siting challenges. It 

is very difficult to have all these functions prepared for implementation or construction within a twelve-month period. Consequently, EEI recommends extending the 

in-service date requirement until December 31, 2010 and continuing the ten-year 

opportunity to claim PTCs. Alternatively, a binding contract rule for the project output could be substituted for the in-service requirement. 

EEI supports extending the PTC for renewable technologies because it will increase fuel diversity. This diversity is necessary to assure domestic energy security, 

provide affordable reliable power to customers, moderate fuel price fluctuations and 

increase in generation costs, and improve the quality of the environment. For many 

companies, their strategic business goals include asset diversification among technologies and fuels, and renewable energy is expected to play an important role. 

Achieving these goals will require policies that optimize the use of all fuels. The 

PTC assists in furthering national electric industry goals of fuel diversity by making 

it easier for immature, but promising technologies to compete more effectively in a 

brutally price competitive market: generation. The electric industry supports subsidy only until such time as these technologies achieve sufficient production to reach 

marketplace success through economies of scale. 


jcorcoran on PROD1PC62 with HEARING
65 

As you can see from the attached charts, non-hydro renewable energy is a small 

but growing segment of the U.S. electricity generation portfolio. However, the increase in a given year has varied depending on the availability of the PTC. Ensuring 

that no one fuel type dominates the electricity production will increase electricity 

pricing stability for all consumers. EEI supports the PTC to help develop renewable 

technologies so that they can be an important part of the electricity production mix, 

along with coal, hydro, natural gas and nuclear generation. Additionally, renewable 

technologies have the potential to impact natural gas demand in some locations. The 

renewable energy industry needs the PTC because it is still a new industry that has 

yet to achieve the economies of scale that mature industries have achieved. In the 

few cases where per unit costs are nearing conventional fuels, there are still outstanding issues that are being resolved. Because many of the best renewable resources may not be near the load centers, additional transmission is likely to be 

needed to bring the output to the load. Also, addressing local concerns about siting 

can be expensive, difficult, and time consuming. In most cases, the costs of renewable technologies are still higher than conventional fuels because they have not yet 

achieved the necessary economies of scale. 

A five-year in-service rule would give developers adequate time to plan forward 

to place facilities in service and provide a dependable source of revenue so that 

multi-year projects could be developed. This is particularly important for geothermal 

and landfill gas projects, which would allow electric utilities to plan and build required transmission facilities. This is consistent with other Congressional efforts to 

use the tax code to increase sources of energy. EEI is confident that such a program 

would result in increased renewable investment, thereby increasing the nation’s fuel 

diversity. Additionally, an extended PTC is also likely to stimulate the development 

of new technologies and more efficient devices to convert the raw fuel input into 

electricity, whether the technology is geothermal, wind, biomass, or land-fill gas. 

GENERATION FROM RENEWABLE SOURCES OF ENERGY HAS INCREASED SIGNIFICANTLY

SINCE 1990 

Note: Numbers exceed 100% due to rounding. 

*Includes wind, solar, biomass, geothermal and other non-hydro renewable energy 

sources 

Source: Energy Information Administration, 2004 preliminary data 

f 

Statement of Carolyn Elefant, Ocean Renewable Energy Coalition, 

Potomac, Maryland 

Introduction 

Ocean Renewable Energy Coalition is a trade association founded to promote energy technologies from clean, renewable ocean resources. The coalition is working 

with industry leaders, academic scholars, and other interested NGO’s to encourage 

ocean renewable technologies and raise awareness of their vast potential to help secure an affordable, reliable, environmentally friendly energy future. 

We seek a legislative and regulatory regime in the United States that fosters the 

development of ocean renewable technologies, their commercial development, and 

potential for export. 

The United States is falling behind in the race to capture the rich energy potential of our oceans. While other countries have already deployed viable, operating, 

power generating projects using the emission-free power of ocean waves, currents, 

and tidal forces, the U.S. is only beginning to acknowledge the importance these 

technologies. 

Ocean energy can play a significant role in our nation’s renewable energy portfolio. With the right support, the United States ocean energy industry can be competitive internationally. With the right encouragement, ocean renewable energy 

technologies can help us reduce our reliance on foreign oil—fossil fuels, in general— 

and provide clean energy alternatives to conventional power generating systems. 

Why the Ocean Energy Industry Needs the Production Tax Credit 

1) What is ocean energy? 

Ocean energy refers to a range of technologies that utilize the oceans to generate 

electricity. Many ocean technologies are also adaptable to non-impoundment uses in 

other water bodies such as lakes or rivers. These technologies are can be separated 

into three main categories: 


jcorcoran on PROD1PC62 with HEARING
66 

Wave Energy Converters: These systems extract the power of ocean waves and 

convert it into electricity. Typically, these systems use either a water column or 

some type of surface or just-below-surface buoy to capture the wave power. In addition to oceans, some lakes may offer sufficient wave activity to support wave energy 

converter technology. 

Tidal/Current: These systems capture the energy of ocean currents below the 

wave surface and convert them into electricity. Typically, these systems rely on underwater turbines, either horizontal or vertical, which rotate in either the ocean 

curren or changing tide (either one way or bi-directionally), almost like an underwater windmill. These technologies can be sized or adapted for ocean or for use in 

lakes or non-impounded river sites. 

Ocean Thermal Energy Technology (OTEC) OTEC generates electricity 

through the temperature differential in warmer surface water and colder deep 

water. Of ocean technologies, OTEC has the most limited applicability in the United 

States because it requires a 40 degree temperature differential that is typically 

available in locations like Hawaii and other more tropical climates. 

2) Is ocean energy commercially viable now? 

Yes, but thus far, on a small scale and not in the United States: 

• The LIMPET project, a 500 kw shore-based wave plant in Scotland has been 

feeding power to the grid for 5 years at a cost of 7 cents a kilowatt/hr. Another 

600 kw project similar to LIMPET on Island of Pico in the Azores is operational. 

• The Pelamis, a Scottish wave energy converter has been feeding power to the 

grid in Scotland since August 2004—and recently announced plans to construct 

a 2.25 MW plant off the coast of Portugal. 

• An Australian company, Energetech, is in the final stages of anchoring a 500 

kw wave energy device in Port Kembla, Australia which will feed power into 

the Australian grid. 

3) What is the status of U.S. wave, current and tidal projects? 

A number of such projects in the United States have been proposed and are on 

the cusp of deployment: 

• New Jersey based Ocean Power Technologies has operated a test wave energy 

buoy off the coast of Hawaii for the U.S. Navy and plans to interconnect to the 

grid by the end of the year. 

• Washington state based Aqua Energy has proposed a 1 MW pilot project for the 

Makah Bay off the coast of Washington state. The project is currently in the 

midst of what is now verging on a three year permitting process at the Federal 

Energy Regulatory Commission. (FERC) 

• New York based Verdant Power is undergoing licensing at FERC and intends 

to deploy six units of a tidal/current project located in the East River and supply power to customers on Roosevelt Island imminently, once all regulatory 

clearances have been obtained. 

• Australian based Energetech has formed a subsidiary in Rhode Island which 

has received funding from the Massachusetts Trust Collaborative and has 

planned a 750 kw project for Port Judith Rhode Island. Permitting has not yet 

commenced. 

4) Are these projects discussed above the start of real commercialization? 

Yes—or at least that’s what the Electric Power Research Institute (EPRI), perhaps the nation’s most prominent utility research collaborative, concluded. An EPRI 

Report released in January 2005 found that ‘‘wave energy is an emerging energy 

source that may add a viable generation option to the strategic portfolio.’’ Among 

the benefits of wave that the report identified are that it is environmentally benign, 

has a low profile and is generally not visible and is more predictable than solar and 

wind so it is more dispatchable to the grid. In light of the success of its wave energy 

report, EPRI has now embarked on a second stage of exploring the energy potential 

of tidal and current ocean and coastal resources. 

5) But is ocean energy economically viable? 

The EPRI report found that presently, the cost of power from ocean technologies 

ranges from 7 cents to 16 cents/kw in a low case scenario. But these costs are expected to decline as the industry matures and as economies of scale make ocean 

projects less costly. To compare, back in 1978 wind energy cost 25 cents/kwh to 

produce—but now costs between 4.5 and 6 cents/kwh. Wave is already less costly 

than wind. Moreover, the EPRI report found that if wave had obtained the same 


jcorcoran on PROD1PC62 with HEARING
67 

government subsidies as wind, it would be a far more advanced technology than at 

present. 

6) So how would a PTC help the ocean energy cause when ocean plants are 

not yet producing power in the United States? 

Several reasons. First, ocean projects are already operating commercially, albeit 

on a small scale overseas and are on the cusp of doing so in the United States. Second, in the absence of a PTC, ocean is perceived by investors as a second class renewable, thus making it impossible for ocean developers to attract necessary capital. 

Third, the absence of a PTC also makes ocean a less desirable renewable investment 

than other renewables like wind or solar that do receive the credit. 

Because currently, the government offers no funding or programs for ocean energy, the industry, though nascent, has had no choice but to seek out private investment. But the ocean, wave and tidal/current energy industry cannot attract financing effectively if handicapped by the absence of a PTC for new technologies with applicability to ocean, lakes and other free flowing non-impounded bodies of water. 

f 

Statement of Glenn English, National Rural Electric Cooperative 

Association, Arlington, Virginia 

On behalf of the National Rural Electric Cooperative Association (NRECA), I appreciate this opportunity to provide testimony for the record on an issue of great 

importance to our members—incentives for renewable generation. Electric cooperatives are an untapped market force for deploying more renewable generation technologies. Developing additional renewable generation in rural America would help 

to advance these technologies and bring down their costs. But although electric cooperatives are uniquely situated to develop additional renewable resources, the cost 

of these resources is too high for their consumers. Electric cooperatives need an incentive comparable to the Production Tax Credit so they can bring the benefits of 

renewable generation to their communities. 

Background 

Electric cooperatives are private, not-for-profit utilities, owned by the consumers 

they serve. In most states, member-elected boards have ultimate sign-off on rates, 

terms and conditions of daily business transactions. Today, 930 electric cooperatives 

serve electric consumers in 47 states. There are generally two types of electric cooperatives: ‘‘distribution’’ cooperatives that deliver electricity directly to the consumer and ‘‘generation and transmission’’ (‘‘G&T’’) cooperatives that generate and 

transmit electricity to distribution cooperatives. Distribution cooperatives may also 

purchase power from the marketplace and from investor-owned utilities and public 

power systems. 

Electric cooperatives serve an average of 6.6 consumers per mile. By way of comparison, investor-owned utilities serve an average of 34 customers per mile and municipal utilities serve an average of 44 customers per mile. Although cooperatives 

serve 12% of the nation’s electric consumers, they own and maintain 43% of the 

miles of distribution lines (lines that move power from higher voltage transmission 

substations into homes and businesses). Revenue per mile for cooperatives averages 

only $8,558 while it is more than six times higher for investor-owned utilities, at 

$58,981. 

Electric Cooperatives Face Cost Impediments 

Given the relatively low revenue per mile that electric cooperatives receive from 

members, keeping electricity rates affordable depends upon access to low-cost generation. The capital cost to install new renewable generation capacity is three to ten 

times more expensive than the cost to install conventional gas generation. Despite 

this challenge, electric cooperatives are committed to offering renewable generation 

to their consumers. In 2003, electric cooperatives purchased more than 200 megawatt hours of energy from renewable resources operated by developers that benefit 

from the Production Tax Credit (PTC). Nearly 250 co-ops offer renewable energy options through ‘‘green power’’ programs. Yet only twelve out of 930 electric cooperatives own renewable generation. Electric cooperatives generate about 5% of the electricity produced in the United States, but taking renewable generation alone, electric cooperatives own less than 1%. Why? Because renewable generation is driven 

by the PTC and the developers and utilities that benefit from the PTC. There is no 

incentive that enables electric cooperatives to affordably develop renewable generation for their communities. 


jcorcoran on PROD1PC62 with HEARING
68 

Electric Cooperatives Are Ideally Situated to Plan More Renewable Generation 

Renewable generation should be planned not for the purpose of receiving a tax 

break, but to deliver electricity to consumers on a long term, affordable basis. Electric cooperatives are ideally situated in rural America to site, build and transmit 

renewable energy to their consumers. I say transmit, because having a good spot 

for a new wind project does not mean that the power can actually be delivered to 

the grid. The transmission grid is a complex and often highly constrained system. 

There are utilities that would like to sign contracts to take delivery of power from 

wind farms but are prevented because transmission constraints prevent delivery of 

that power. Electric cooperatives have a tradition of integrated, long-term planning 

and expertise on the nation’s electricity grid that must be taken into account as 

Congress seeks to foster more renewable generation. Renewable generation must ultimately reach end consumers in order to appropriately fulfill Congress’ goals of 

more renewable energy production at lower costs. 

Beyond the planning that electric cooperatives can provide when developing a new 

project, there is a potential for a significant synergy given our rural geography. 

Electric cooperatives serve many farm communities and have an opportunity 

through a partnership with farmers to solve problems of animal waste runoff. A 

farmer can purchase a methane digester, and the local electric cooperative can in 

turn purchase the methane output and convert it to electricity. Electric cooperatives 

are also located in many wind-rich areas, as well as in proximity to landfill gas facilities. Electric cooperatives are positioned to make renewable energy more affordable and economically competitive with convention generation. 

Electric Cooperatives Need Affordable Options for Complying With New 

Policies 

Given their mission of providing affordable electricity to rural consumers, electric 

cooperatives rely and have historically relied upon inexpensive generation from coal. 

But electric cooperatives are seeking the means to provide more costly renewable 

generation to their consumers on an affordable basis. Increasingly stringent clean 

air standards addressing NOx, SO2 and Mercury are being set forth in new federal 

and state regulations and possibly new legislation. Climate change standards requiring carbon reductions, if enacted, will require electric cooperatives and the entire utility industry to seek more production from non-emitting generation sources. 

And, electric cooperative consumers in some states are impacted by renewable portfolio standard mandates. 

Given the increasing costs that these policies are imposing, those electric cooperatives with access to local renewable generation resources should have the option 

that all others have to develop those resources for their consumers on an affordable 

basis. And, electric cooperative consumers should not face the uncertainty of being 

entirely dependent upon purchases from third parties. Depending upon the market, 

private developers may or may not pass through the savings they realize through 

the PTC in power sales to cooperatives. Electric cooperatives need an opportunity 

to develop local generation resources for the benefit of the consumers within their 

service territories. 

The Cooperative Business Model: Why Comparable Incentives are Needed 

NRECA supports the extension of the PTC equitably to all renewable resources, 

given that many electric cooperatives purchase from the developers who rely on the 

PTC. But electric cooperatives also need access to comparable incentives. Electric cooperatives provide power to their consumer-owners ‘‘at cost’’ and thus are not-forprofit. Therefore electric cooperatives do not generally pay federal income tax. Revenues above cost of service are returned to customers, used to reduce rates or reinvested in utility infrastructure rather than paid to shareholders. Traditional tax incentives do not work for not-for-profit utilities as they have no federally taxable income to offset. And, while electric cooperatives have access to low-interest loans 

from the Rural Utilities Service (RUS), the interest rate on those loans does not 

nearly approach the approximately 30% cost reduction that the Production Tax 

Credit, for example, achieves for the wind developers. 

In order for Congress to fully realize the benefits of tax incentives that are designed to make renewable energy economical, a tax incentive tailored to the unique 

characteristics of not-for-profit utilities is required. Electric cooperatives previously 

proposed a ‘‘tradable tax credit’’ incentive for electric cooperatives, but it was rejected by the Committee due to tax policy concerns. Electric cooperatives have therefore developed a new approach—a ‘‘clean energy bond.’’ Clean energy bonds can provide electric cooperatives with an incentive comparable to the production tax credits 

that are available for the private sector. Clean energy bonds are based upon a ‘‘tax 


jcorcoran on PROD1PC62 with HEARING
69 

1 Energy and Geosciences Institute, University of Utah. Prepared by the U.S. Geothermal Industry for the Renewable Energy Task Force (1997), Briefing on Geothermal Energy. Washington, D.C. 2The U.S. Geological Survey testified before the Subcommittee on Energy and Mineral Resources of the House Resources Committee, U.S. House of Representatives, on May 3, 2001 that 

their 1978 report still represents the best available resource estimate. According to that report, 

there is an identified geothermal potential of 22,000MW and an undiscovered, unidentified potential for geothermal production of an additional 72,000 to 127,000 MW. This does not include 

all resource types considered to be part of the geothermal resource base. 

credit bond’’ that currently exist in the tax code for school construction under the 

‘‘qualified zone academy bond’’ (QZAB) program. In essence, a clean energy bond 

would provide cooperatives and public power systems with interest-free loans for financing qualified energy projects. 

S. 962, the ‘‘Clean Energy Bonds Act of 2005,’’ was recently introduced by Chairman Grassley and Senator Baucus, and a House companion will soon be introduced. 

The bills provide the clean energy bond for the renewable resources in Section 45 

of the Code. I urge the Committee to consider this legislation in a potential energy 

conference. 

Conclusion 

Electric co-ops need incentives to afford renewable generation, just as investorowned utilities and private developers are able to afford renewable generation 

through the PTC. The Clean Energy Bond provides an incentive tailored to co-ops, 

acting as an interest-free loan to finance qualified renewable energy projects. I appreciate the Subcommittee’s consideration of our business model, which is critical 

to serving rural America; the significant renewable generation opportunities that 

exist in the areas we serve; and our desire to provide our consumer-owners with affordable green energy options. Please let me know if I or anyone in our organization 

can be of assistance to the Committee as it considers these important issues. 

f 

Statement of the Geothermal Energy Association 

On behalf of the Geothermal Energy Association, we submit this testimony to the 

Subcommittee on Select Revenue Measures for inclusion in the record of its hearing 

on May 24, 2005 on tax credits for electricity production from renewable energy 

sources. 

Geothermal energy is a clean, renewable resource that provides energy in the 

United States and around the world. Geothermal energy is defined as heat from the 

earth. It is considered a renewable energy resource because the heat emanating 

from the interior of the earth is essentially limitless. The heat continuously flowing 

from the earth’s core is estimated to be equivalent to 42 million megawatts of energy.1 The interior of the earth is expected to remain extremely hot for many years 

to come, ensuring a permanent flow of energy. 

The benefits of geothermal energy include minimal air emissions, marginal land 

impact, reduced waste, and reduced environmental costs. In addition, geothermal 

energy is one of the most reliable renewable energy sources available. Electric power 

from geothermal sources is very desirable because it is base load power, not peaking, and it enjoys the highest capacity and availability factors of any power generation system. 

Today, geothermal energy provides nearly 3,000 MW of reliable electric power in 

the U.S. But according to the USGS, this represents only a small fraction of U.S. 

resource potential.2 Because of the high initial cost and risk of developing new geothermal power projects, geothermal, one of the largest energy resources in the western U.S., has not been developed to its full potential. 

Geothermal projects take years to bring to fruition. Early exploration is high risk, 

and verification of a geothermal resource on a prospective site typically involves ten 

million dollars or more for drilling and related geophysical studies and reports. The 

success rate for ‘‘green field’’ exploration has been estimated to be between 20 and 

50 percent in recent years, which is significantly higher than historical success 

rates. Once a resource is verified, permitting and construction can take 3–5 years 

or more, depending upon the resource location and the number and variety of governmental authorities with jurisdiction over the project. Despite all of these barriers, new geothermal projects are coming on-line today for initial prices between 

6.0 and 7.5 cents/kWhr 


jcorcoran on PROD1PC62 with HEARING
70 

3 California Energy Commission (2003). ‘‘Comparative Cost of California Central Station Electricity Generation Technologies.’’ 

In 2003, the California Energy Commission estimated that the average capital 

cost of a geothermal facility was roughly $2700 per kilowatt, which is 4–6 times 

greater than the capital cost involved in a comparable-output combined cycle natural gas power plant as shown in the following table.3 (The CEC estimate does not 

reflect recent increases in steel and drilling costs discussed later in this statement, 

and does not include ‘‘site specific’’ costs such as permitting and transmission shown 

later in Figure 1.) 

Table 1: Capital Costs of Natural Gas and Geothermal Facilities 

(CEC estimates) 

Capital 

Costs 

Installed 

Costs 

In-service Cost 

Combined Cycle Natural Gas 542 592 616 

Geothermal Flash 2128 2410 2558 

Geothermal Binary 3210 3618 3839 

Because a geothermal facility has very low fuel costs and no fuel market volatility, in the long run, over 30–50 years, the ‘‘levelized’’ cost of a facility might be 

quite reasonable. But without the Section 45 Production Tax Credit (PTC), the initial risks, long lead times, and high capital cost will compel many investors to 

choose other alternatives that have shorter lead times, less risk, and lower frontend costs. 

An expanded Section 45 Production Tax Credit (PTC) that includes geothermal 

energy helps overcome these barriers. An expanded PTC gives geothermal energy 

the opportunity to develop to its full potential alongside other renewables on an equitable basis, and spurs development of one of the nation’s largest under-developed 

energy resources. While geothermal development in the U.S. flourished in the late 

70s and 80s, since roughly 1992 there has been very limited development of new 

geothermal facilities. During this period, natural gas became a plentiful and cheap 

energy source and states struggled with changing their laws to allow more competition in the power industry. With cheap and plentiful gas and substantial legal uncertainty, developers shied away from making expensive and risky investments in 

geothermal power. 

Congress’ decision to expand the PTC to include geothermal energy in 2004 appears to be changing these trends as interest in new projects is evident in several 

western states. With continued support, geothermal power can rebound from the 

stagnant 90s and provide needed, reliable energy to meet our nation’s needs. An expanding geothermal power industry will mean improvements in technology, expansion of the resource base, and as the infrastructure supporting geothermal development is rebuilt reduced production costs. 

Here are some reasons to support making geothermal energy eligible for the full, 

ten-year Section 45 PTC: 

• It will spur new investment, adding hundreds of new megawatts of highly reliable base load geothermal power to the grid. Geothermal power provides some 

of the most reliable electric power produced today, and produces electricity virtually emissions free. 

• New geothermal development will mean new jobs and an immediate economic 

stimulus, and will bring substantial, long-term economic benefits to many communities in the West. 

• It is justified. Geothermal power plants are capital intensive, costing several 

times more than a comparable fossil fuel plant, and involve greater risk due to 

the uncertainties of the subsurface resource. Providing investors a production 

tax credit incentive helps overcome these barriers and spurs new development. 

• Development of geothermal energy resources will add to our nation’s energy security. As former CIA Director Woolsey, National Security Advisor McFarlane, 

and Chairman of the Joint Chiefs of Staff Admiral Moorer said in their September 19th, 2001 letter to the Senate, ‘‘disbursed, renewable and domestic supplies of fuels and electricity, such as energy produced naturally from wind, 

solar, geothermal, incremental hydro and agricultural biomass address the chalVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00074 Fmt 6633 Sfmt 6621 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
71 

4Princeton Energy Research Inc (December 15, 1998). Review of Federal Geothermal Royalties 

and Taxes. Volume I, page 17. 5Owens, Brandon (July 2004). ‘‘Does the PTC Work?’’ PR&C Renewable Power Service. 

lenges [to America’s energy security].’’ Their letter went on to urge immediate 

action on renewable energy production tax credits. 

• It is equitable. Federal tax incentives for renewable energy have favored wind 

energy more than other renewable technologies. Extending the PTC on an equal 

basis to geothermal and other renewable energy sources would allow the market 

to choose which technology to pursue. 

• The net cost to the federal government should be negligible. A recent study of 

the economic impact of extending the PTC to geothermal energy conducted by 

the National Renewable Energy Laboratory found, ‘‘from the perspective of the 

U.S. Treasury, it is likely that the net cost of the PTC would be insignificant 

or perhaps even negative . . .’’ (NREL/TP–620–31969, April 2002) 

In many areas, rural economic development is nearly as important as securing reliable energy at stable prices. The geothermal facilities operating today provide high 

quality jobs in many rural counties, and are often among the principal sources of 

income supporting local schools and government services. New facilities spurred by 

extending the PTC to geothermal energy would provide reliable electricity, income 

and economic benefits for decades. As GEA stated in its October 3, 2001 testimony 

before the House Resources Committee, ‘‘If the goal of the DOE [Geothermal Energy] Strategic Plan could be reached, the cumulative federal royalties from new 

power plants would reach over $7 billion by 2050, and estimated income tax revenues would exceed $52 billion in nominal dollars.4 From just the state share in 

these royalties, alone, that would mean an additional investment of $3.5 billion in 

schools and local government facilities in the western states.’’ 

There is broad support outside of Congress, as well. Not just the renewable power 

companies, but also the National Association of Regulatory Utility Commissioners, 

the Edison Electric Institute, and the Western Governors’ Association have been 

among the groups calling for the expansion and extension of Section 45 as a national priority. 

For similar reasons, Congress should consider providing equivalent incentives to 

public power entities and cooperatives that face similar investment choices. These 

organizations provide power to 25% of the nation’s consumers. One approach that 

we believe deserves support is embodied in The Clean Energy Bonds Act of 2005, 

recently introduced in the Senate as S. 962. 

Background on the PTC 

A recent report from Platts Energy Resource provides some interesting background and insight on the role of the PTC: 

The U.S. government has a long history of supporting renewable power technologies. This support has taken the form of publicly funded research and development (R&D) activities, on the order of over $15 billion in the past 20 years, as well 

as direct market intervention through the enactment of favorable regulatory policies, 

such as the Public Utilities Regulatory Policies Act of 1978 (PURPA, P.L. 95–617) 

and direct tax incentives like the investment and production tax credits. Among these 

support mechanisms, the production tax credit (PTC) is viewed as the most effective 

method for achieving increased market expansion of renewable energy sources. 

Before its expiration on December 31, 2003, the PTC provided an inflation-adjusted 

tax credit of 1.8 cents (θ) for every kilowatt-hour (kWh) of electricity produced from 

wind farms, ‘‘closed-loop’’ biomass systems, or animal waste facilities during the first 

10 years of operation. Policy-makers and the renewable energy industry generally believe that this credit, originally enacted as part of the Energy Policy Act of 1992, was 

the primary driver behind the double-digit growth of the U.S. wind power industry 

over the past five years. U.S. wind power capacity grew by 31 percent between 1998 

and 2003, increasing from 1.6 to 6.3 gigawatts (GW).5

However, while the wind industry grew by double digits between 1998 and 2003, 

the geothermal industry grew by 2%, adding two new facilities—49MW and 10MW 

power plants in California—that received state production-based incentive payments 

similar to but slightly less than the current 5-year geothermal PTC. These incentive 

payments were enacted in association with the initial power industry deregulation 

legislation and are no longer available. Two other projects that should have been 

completed with incentive payments in the northern part of the state were mired in 

a stranglehold of federal reviews given their location on National Forest Service 

land. While these two projects are still moving forward, the cost to the developer 

of delays caused by federal land management agencies has been substantial. 


jcorcoran on PROD1PC62 with HEARING
72 

6Wiser, Ryan, et al. (2003). Evaluating State Renewables Portfolio Standards: A Focus on Geothermal Energy. National Geothermal Collaborative (NGC). page 1. 7 Ibid, page 2. 

Today, several states are moving ahead with laws that will promote contracts for 

new renewable power development. The geothermal industry is hopeful that these 

will lead to new power development, but the jury is still out on their overall effectiveness. 

State ‘‘renewable portfolio standards’’ (‘‘RPS’’) were recently reviewed in a report 

by the National Geothermal Collaborative, supported by the U.S. Department of Energy, entitled ‘‘Evaluating State Renewable Portfolio Standards: A Focus on Geothermal Energy,’’ available at www.geocollaborative.org/publications. This report 

concludes that state RPS laws have so far had mixed success and have predominantly assisted wind energy development: ‘‘. . . early experience with the RPS in 

U.S. states has been mixed. Moreover, geothermal energy has not yet been the primary beneficiary of many state RPS policies.’’ 6

In its examination of the existing state RPS programs, several drawbacks were 

identified: ‘‘. . . we also find that the RPS has some potential disadvantages relative 

to other types of renewable energy policies: (1) due to its complexity, the RPS can be 

difficult to design and implement well, (2) an RPS may be less flexible in offering 

targeted support to renewable energy than some of the other renewable energy policies, (3) the exact cost impacts of an RPS cannot be known with certainty in advance, 

(4) operating experience with the RPS remains limited, (5) if an RPS does not lead 

to the availability of long-term power purchase agreements, the ability to finance new 

renewable projects will be limited and compliance costs may increase, and (6) an 

RPS is not necessarily suited to supporting diversity among renewable technologies, 

although an RPS can be designed to do so through the use of resource tiers and credit multipliers.’’ 7

Policy Justifications for Adding Geothermal Energy to the PTC 

While recent analysis by the California Energy Commission (CEC) cited by the 

staff of the Joint Committee on Taxation in their report for this hearing, JCX–36– 

05, shows that on a long-term basis, investment in geothermal energy makes economic sense, the marketplace is geared towards short-term decisions and minimum 

risk. As a result, the CEC analysis misses the point. 

What the PTC is doing is not so much levelizing cost as equalizing risk. Given 

the high capital cost and risk associated with geothermal development, the PTC 

gives the investor the incentive necessary to consider geothermal energy on an equal 

basis with conventional power projects. In addition, by lowering the capital risk for 

the geothermal projects, the ratepayer and the economy benefit by avoiding price 

spikes and instead ensuring long-term stable prices for energy. 

While the California Energy Commission’s report presents an interesting case for 

supporting geothermal energy and other renewables, there are several points that 

need to be made about their analysis. First, we do not agree that there is such a 

great disparity in the cost of electricity between binary and flash plants as their 

study concludes. Second, their capital cost estimates do not reflect recent increases 

in world steel prices, which have more than doubled. Geothermal facilities use significant amounts of steel, and this price increase can result in a 10–20% or more 

increase in the cost of a project. Similarly, the recent surge in world oil prices has 

led to a rebound in the demand for drilling equipment and drilling supplies. Geothermal developers are finding the cost of drilling has increased at least 20–30% in 

the past year, and drilling is a significant part of the cost of new facilities as shown 

in the Figure below. (Also, as the Figure below indicates, only about half of the investment needed for a new geothermal facility qualifies for the Investment Tax 

Credit, making it effectively a 5% credit, while an output-based credit like the PTC 

makes no such distinction.) 

Comparative Taxation Rates 

It is generally observed that geothermal facilities pay significant federal, state 

and local taxes. A study conducted for the Department of Energy in 1998 by the 

Princeton Economic Research, for example, states: 

‘‘A lot more Federal income tax is being collected from geothermal electricity than 

from electricity produced from natural gas, on a per kWh basis. It appears that geothermal power systems, while having been granted a number of Federal tax incentives . . ., nevertheless appear to bear much heavier Federal income tax loads than 

are borne by some natural gas power generating systems. This is mostly because 

geothermal systems are much more capital intensive than natural gas power sysVerDate Aug 31 2005 07:09 Apr 04, 2006 Jkt 026380 PO 00000 Frm 00076 Fmt 6633 Sfmt 6621 E:\HR\OC\26380.XXX 26380

jcorcoran on PROD1PC62 with HEARING
73 

8 Entingh, Daniel J. (December 15, 1998). ‘‘Review of Federal Geothermal Royalties and 

Taxes.’’ Princeton Economic Research, Inc., page 4. 9Owens, Brandon (July 2004). ‘‘Does the PTC Work?’’ PR&C Renewable Power Service, page 

9. 10 Ibid, page 10. Figure and legend note are duplicated from the original work. 

tems, and profits and income taxes are generally proportional to the size of investments.’’ 8

More recent analysis supports this conclusion. Brandon Owens, who is currently 

Associate Director at Cambridge Energy Research Associates, published a study entitled ‘‘Does the PTC Work?’’ which found: ‘‘Fossil fuel—fired technologies have a 

lower tax burden relative to all renewable power technologies. The difference in tax 

burden is most pronounced for biomass and geothermal technologies, which, in this 

example, pay 227 percent and 338 percent more in total taxes, respectively, than 

they do for gas-fired combined-cycle units on a per megawatt-hour (MWh) basis.’’ 9

That study, published by PR&C Renewable Power Service, presents the following 

graphic of the relative tax value per Megawatt hour of different technologies: 10

Assessing Positive Geothermal Externalities 

Another policy reason often given as a justification for support for geothermal and 

other renewable technologies is compensation for their values to the nation that are 

not reflected in the market price of electricity—or their ‘‘externalities.’’ Domestic energy production has obvious national security benefits, and electricity production 

has new relevance to national security since EIA and others are projecting significant and growing imports of natural gas. Obviously, reducing natural gas imports 

will have national security benefits, as well as benefits for our balance of trade. 

However, it is beyond GEA’s capability to estimate a dollar value for these attributes. While gas-fired power plants must keep buying imported gas long into the 

future, geothermal power plants do not buy fuel at all and have a captive source 

of domestic energy. 

A more measurable externality is the air emissions benefits of geothermal power. 

One way to approximate positive geothermal externalities is to examine the economic values received for these attributes in existing emissions trading systems. In 

assessing geothermal externalities through trading systems, we do not necessarily 

advocate the inclusion of renewables in trading schemes over other legislative policies nor speculate that the values here would be received in any particular plan. 

There are a range of challenges to analyzing such approaches that are beyond the 

scope of this statement. We also recognize that if renewables were to be included 

in emissions trading, prices would likely fluctuate, as markets would shift. In response to these uncertainties, we have opted to use somewhat conservative price per 

ton estimates, which we believe result in conservative assessments. We have extrapolated average price per ton values from the existing trading systems (NOx and SO2

systems in the U.S., CO2 systems in Europe) that currently exclude renewables. 

Here are the results. Using the mid range value of the reported price per ton estimate of each emission (NOx, SO2, and CO2), we obtained a rough sense of the positive externalities created by geothermal power production for each emission. Valuing 

NOx at $2250 per ton, and estimating that geothermal power production prevents 

emissions of 32 thousand tons of NOx per year, U.S. geothermal power production 

generates a value of $72 million a year ($2250 x 32,000). Valuing SO2 at $150 per 

ton, and estimating that geothermal power production prevents emissions of 78 

thousand tons of SO2 per year, U.S. geothermal power production generates a value 

of $11.7 million a year. Valuing CO2 at $10 per ton, and estimating that geothermal 

power production prevents emissions of 16 million tons of CO2 per year, U.S. geothermal power production generates a value of $160 million a year. The total equals 

$243.7 million in equivalent air emissions value. 

While this calculation is very rough, it does give an approximation of the externality value provided by geothermal power production. Assuming average annual 

geothermal power production of 15 billion kWhrs in the U.S., this equivalent air 

emissions total represents roughly 1.6 cents/kWhr in value that is not marketable 

and not recognized in the market price of geothermal power. 

Tax Policy Advantages of a Production Tax Credit 

The structure of the Production Tax Credit is unique, and when first enacted in 

1992 it represented a radical change from the Investment Tax Credit. The move to 

a production tax credit makes sense from a number of policy perspectives. 

• The Production Tax Credit works—the PTC has stimulated new investment in 

wind energy; 


jcorcoran on PROD1PC62 with HEARING
74 

• The Production Tax Credit encourages cost reduction and efficiency by rewarding investors based upon project output instead of total expenses; and, 

• The Production Tax Credit requires production for the full period of the credit 

to ensure that projects are legitimate power producers and not tax credit 

‘‘scams.’’ 

Conclusion 

Congress’ decision to expand the Production Tax Credit to include geothermal 

technology was an appropriate policy choice. To make this effective, we urge Congress to extend the credit three to five years. If any shorter period is enacted, we 

urge Congress to allow geothermal projects to qualify for the credit based upon binding contracts, not just the ‘‘in-service’’ date of the power plant. Further, we urge 

Congress to provide geothermal projects the same ten-year credit period as wind 

sources. 

These changes would make the PTC an effective and equitable stimulus for new 

investment in geothermal power and result is substantial economic, energy security, 

and environmental benefits. 

f 

Statement of the Independent Wind Power Association 

The Mission of the Independent Wind Power Association (IWPA) is to enable small 

to mid-size wind energy companies to grow in order to meet the United State’s future 

energy production needs. The IWPA seeks to define issues and support legislation 

that allows significant expansion of the opportunities and capital investment pool 

available for these companies. 

In considering whether to extend the Production Tax Credit (‘‘PTC’’), Congress 

should seize the opportunity to encourage more competition among participants in 

this emerging segment of the power industry. The PTC is a positive incentive that 

has stimulated the development of clean energy projects throughout the United 

States, yet the structure of the PTC can and should be perfected and improved to 

increase market efficiency. 

More competition can be achieved by allowing the PTC to be more equitably utilized by independent, smaller developers including ranchers, farmers, small businessmen and start-up renewable energy project entrepreneurs—in addition to the 

nation’s largest power generators which under the current law benefit first from renewable PTCs. 

Such an amendment to Section 45 can be easily accomplished without incurring 

a negative fiscal impact to the Treasury. Furthermore, by encouraging more robust 

competition among renewable power facility operators, the Congress can quickly and 

substantially diversify the country’s supply base thus increasing the number of taxable entities and hastening the marketability and cost-competitiveness of renewable 

electric power. 

The practical imbalance of the current PTC is a function of price and income. 

Though the price gap is narrowing, electricity generated from renewable sources is 

currently more costly than electricity generated from conventional power plants. 

Congress clearly intended for the PTC to stimulate the development of renewable 

projects in the face of this price differential. 

As we have seen in recent months, global energy prices have become increasingly 

volatile. Many economists predict crude prices could spike as high as $100 per barrel in the coming years. The negative impact of such a spike would be a significant 

blow to electric consumers and our economy as a whole. It is important that Congress act now to promote more electric generation in this country from sources other 

than fossil fuels to avoid the negative impacts resulting from price volatility and potential supply/capacity shortages. Wind power is one the cleanest and most abundant sources of energy making it an important part of any solution addressing 

America’s energy needs. 

To take full advantage of the PTC, a taxpayer must first have sufficient offsetting 

taxable income. While large power producers enjoy multiple revenue streams generated from diversified business segments, ranchers, farmers, small businessmen 

and start-up renewable energy project developers tend to be focused on a single renewable power source and subsequently lack this offsetting income. As a result, 

these smaller entrepreneurs are typically forced to sell their projects, often in complex and costly transactions, to large financial institutions whose chief interest in 

renewable energy is acquiring the PTC to offset unrelated income. 


jcorcoran on PROD1PC62 with HEARING
75 

As a solution, the IWPA proposes a more fair and equitable structure of the PTC 

designed to allow competitive wind developers, who commonly lack substantial taxable income, to retain ownership of their projects by building the value of the PTC 

into the power purchase agreement with their energy buyer. IWPA’s proposal allows 

the purchasers of renewable energy, who likewise have a direct interest in expanding the development of renewable energy, to acquire all or a portion of the PTC in 

connection with a long-term power purchase agreement. This proposal confines the 

benefit of the PTC exclusively to those investors taking the risks associated with 

bringing these clean sources of electricity to the market. 

The IWPA recommends the Congress consider legislation that would allow the 

PTC, in a one-time election, to be utilized by a qualified renewable-energy purchaser 

through a long-term power purchase agreement. The experience of the current PTC 

indicates this proposed modification will make the PTC more practical for the small 

businesses taking financial risks in developing clean energy. The proposal effectively 

allows the current PTC benefit to reside with the utilities (which it was originally 

intended to benefit) seeking to purchase clean energy and thus benefits the consumers who will see long-term benefits in price, security and reliability from the 

production of clean, domestic energy. 

The proposal simply creates more efficient use of the PTC without altering the 

definition of the current PTC. Furthermore, the IWPA believes the amendment will 

not increase the government’s cost of the credit. The proposal will significantly improve the availability of private capital for new wind-power projects thus lower financing costs. 

Finally, the uncertainty associated with successive short-term extensions of the 

PTC in recent years has added to rising costs. The drive to complete construction 

within the one-year extension time frames has created strains on turbine supplies 

and construction contracting as project developers rush each year to develop projects 

before the PTC expires. 

A multi-year extension combined with the ability to join the PTC into a power 

purchase agreement as proposed herein will provide the industry better tax predictability and improved market stability. This more attractive incentive will create favorable private financing and is a significant step towards achieving Congress’ initial goals in establishing the PTC to promote renewable energy development. 

f 

Statement of David Koenig, American Forest and Paper Association 

The American Forest & Paper Association (AF&PA) is the national trade association for the forest products industry. We represent more than 200 companies and 

related associations that engage in or represent the manufacturers of pulp, paper, 

paperboard and wood products. America’s forest and paper industry ranges from the 

state-of-the-art paper mills to small, family owned sawmills and some 10 million individual woodlot owners. The U.S. forest products industry is vital to the nation’s 

economy. We employ approximately 1.3 million people and rank among the top ten 

manufacturing employers in 42 states with an estimated payroll of $50 billion. Sales 

of the paper and forest products industry top $230 billion annually in the U.S. and 

export markets. We are the world’s largest producer of forest products. 

Today, the U.S. forest products industry is facing serious domestic and international challenges. Since 1997, 101 pulp and paper mills have closed in the U.S., 

resulting in a loss of 70,000 jobs, or 32% of our workforce. An additional 67,000 jobs 

have been lost in the wood products industry since 1997. New capacity growth is 

now taking place in other countries, where forestry, labor, and environmental practices may not be as responsible as those in the U.S. 

Energy is the third largest operating cost for the forest products industry. In the 

pulp, paper and paperboard sector of the industry, energy makes up 10–15 percent 

of the total operating costs. Since 1972, our industry has reduced its average total 

energy usage by 17 percent through increased efficiencies in the manufacturing and 

production process. In addition, we have reduced our fossil fuel and purchased energy consumption by 38 percent, and increased our energy self-sufficiency by 46 percent. 

The American Jobs Creation Act (H.R. 4520) included a provision to expand the 

Section 45 tax credit to include open-loop biomass. For purposes of the credit, openloop biomass is defined as any solid, non-hazardous, cellulosic waste material which 

is segregated from other waste materials and which is derived from forest-related 

resources, solid wood waste materials, or agricultural sources. Eligible forest-related 

resources are mill and harvesting residues, pre-commercial thinnings, slash, and 


jcorcoran on PROD1PC62 with HEARING
76 

brush. The 2005 credit for electricity produced from open-loop biomass facilities is 

0.9 cents per kilowatt hour compared with 1.9 cents per kilowatt hour of electricity 

generated from closed-loop biomass facilities. To qualify for the credit for both open 

and closed-loop biomass, the facility must be placed in service prior to January 1, 

2006. 

The forest products industry is the largest user of biomass for energy production, 

which is used largely to fuel our wood and paper manufacturing facilities. In addition to biomass like bark, sawdust, and other residues from the wood harvesting 

and product manufacturing processes, the industry uses biomass in the form of 

‘‘spent pulping liquors.’’ Spent pulping liquors are created as a residual during the 

pulping process, and the wood residuals (mostly lignin) are burned in a process that 

separates and recovers the chemicals for reuse and captures the heat value from the 

lignin to create steam and electricity. In total, the forest products industry currently 

uses biomass to generate 60% of its power needs. With continued research and development of new technologies, and expanded tax incentives, the potential exists to 

greatly increase our industry’s capacity for energy production. 

Regarding Section 45, the placed in service date for facilities that produce electricity from open-loop biomass needs to be extended from January 1, 2006 to January 1, 2010. Such projects take several years to complete and the industry needs 

the certainty of knowing that the current tax credit will be available in the future 

to take the risk of making the investment. At the very minimum, Congress should 

extend the placed in service date to January 1, 2008 as the Administration proposed 

in its FY 2006 budget. 

Also, clarification is necessary to the Section 45 definition of open-loop biomass 

to ensure inclusion of the lignin content from spent pulping liquors used to produce 

electricity at new or expanded facilities. Wood is composed primarily of cellulose 

(wood fibers) held together by lignin. Wood bark is composed of hemicelluloses. 

Pulping chemicals are used to dissolve the wood used for making paper. The cellulose fibers become paper products, the pulping chemicals are recycled from recovery boilers for reuse in the pulping process, and the wood residues (mostly lignin) 

are used to generate heat for making steam and electricity. 

Finally, the current inflation adjusted tax credit of 0.9 cents per kilowatt hour 

needs to be increased to 1.5 cents per kilowatt hour to make the additional electricity produced competitive with other traditional forms of electric generation. The 

increased tax credit would provide a critical incentive for new investments in energy 

production facilities connected to current paper mill infrastructure, thus helping to 

improve the competitive position of the forest products industry. 

We appreciate the subcommittee’s interest in our thoughts on the need to extend 

and modify the Open-Loop Biomass component of the Section 45 tax credit. 

f 

Statement of Richard Kolodziej, American Biogas Alliance 

The American Biogas Alliance (Alliance) is an organization of companies and individuals dedicated to increasing the production of methane from renewable sources 

in the United States. 

COMMENT SUMMARY 

Currently, the federal government provides tax credits for the production of electricity from waste or renewable sources for new projects. Landfill operators may receive 0.9 cents tax credit per kilowatt-hour for electricity produced from landfill gas 

at facilities placed in service during 2005. This is the equivalent of $2.64 per million 

btus of electricity (delivered energy). For electricity produced from animal and crop 

waste and municipal sewage, the tax credit is 1.8 cents per kilowatt-hour or $5.28 

per million btus. For ethanol produced from crops or biomass, the credit is 52 cents 

per ethanol gallon or $6.87 per million BTUs. 

While the Alliance applauds Congress for providing these incentives and for encouraging the production of electricity from renewable sources, we believe that Congress can replicate the success of these incentives for electricity production by also 

providing an incentive for producing methane from these same renewable sources. 

Rather than having the federal government pick winners among the energy forms, 

the Alliance urges Congress to treat companies that own and operate facilities that 

produce methane (biogas) from landfills, animal and crop waste and municipal sewage the same as those companies that own and operate facilities that produce electricity from these sources. Specifically, Congress is urged to provide companies that 

produce methane from landfills, animal and crop waste and municipal sewage the 


jcorcoran on PROD1PC62 with HEARING
77 

1 ‘‘Biogas For Transportation Use: A 1998 Perspective,’’ July 9, 1998, QSS Group Inc. 

same tax credit per million btus of methane produced (and either used by that organization or sold to a third party) as they would receive if they produce a million 

btus of electricity from these sources. 

BACKGROUND 

Almost a quarter of America’s primary energy consumption is natural gas, and 

natural gas is primarily composed of methane. Over 70 percent of new single-family 

homes have natural gas service and, for the past decade, more than 90 percent of 

new power plants have been natural gas fueled. The reasons for this growth are the 

inherent environmental, economic and form-value attributes of the fuel itself. Unfortunately, the popularity of natural gas is driving demand to levels that will exceed 

domestic and North American supply. As a result, the price for natural gas has increased significantly over the past few years, and there is renewed interest in building new liquefied natural gas (LNG) receiving terminals in the U.S. to capitalize on 

the growing world-wide trade in LNG. While LNG imports have benefits (especially 

if the gas were imported from non-OPEC countries), it would be even more beneficial if the U.S. took advantage of its undeveloped domestic methane sources. One 

of the most valuable is the production biogas from waste products. 

• Biogas is a product of the decomposition of organic materials, such as animal 

or crop wastes. Biogas composition is typically about 60 percent methane and 

30 percent carbon dioxide, with the remaining 10 percent dominated by nitrogen and water vapor. This gas is produced at landfills, sewage waste treatment 

plants, feedlots, and any other place where there is decaying organic material. 

The biogas resulting from these activities can be released to the atmosphere, 

collected and flared, or collected and used as a fuel. It also can be collected and 

concentrated to match the composition of natural gas, and used to supplement 

America’s natural gas supplies. Unfortunately, atmospheric release and flaring 

are the most common methods of dealing with biogas today. A 1998 U.S. Department of Energy study 1 estimated that, worldwide, between 25 and 37 quadrillion btus of methane each year is released into the atmosphere (beyond the 

methane currently captured) due to natural decomposition of organic material. 

This is equivalent to between 25 and 38 percent of all of the energy used in 

the U.S. each year. Much of the naturally occurring renewable methane is produced in small quantities from disparate sources (e.g., swamp gas), and, therefore, is difficult and expensive to capture. Fortunately, much of the biogas generated from human activity is produced in larger quantities in discrete locations, where it can be captured. In the U.S., the DOE study referenced above 

estimated that the potential biogas production from farm waste, landfills and 

municipal sewage alone is approximately 3.5 quadrillion btus of methane. Of 

that amount, the study estimated that it would be feasible to capture and use 

over a third of this methane (or about 1.25 quadrillion btus). This is equivalent 

to: 

• 6 percent of all the natural gas used in the U.S., or 

• 175 percent of all the LNG currently being imported into the U.S., or 

• The output of four new one billion cubic-foot-per-day LNG terminals 

Landfills: Landfills generate a substantial amount of methane through the anaerobic (oxygen-free) degradation process that occurs naturally within the landfills 

themselves. The methane can be a safety hazard if not ‘‘drained’’ properly. In November, the Bush Administration co-signed a ‘‘Methane-to-Markets’’ agreement with 

12 other countries, in part, to help developing countries implement landfill gas collection programs. Currently, the federal government offers incentives for new 

projects to convert landfill gas to electricity. As a result, according to the U.S. EPA, 

there are 380 such landfill gas electrification projects in place today. Unfortunately, 

not all landfills are located in areas where the economics of electricity production 

are sufficient to make landfill gas collection and processing financially feasible (e.g., 

inadequate electricity prices or access to the electricity grid), and, therefore, many 

U.S. landfills do not capture their methane. They simply ‘‘flare’’ the gas or allow the 

gas to vent into the atmosphere. The U.S. EPA estimates that there are 600–700 

additional landfill gas-to-energy projects that could be constructed nationwide. An 

alternative to electrification is to clean and concentrate the gas into pipeline-quality 

methane, and (1) inject the gas into the local natural gas distribution system, (2) 

use the gas to fuel trash trucks and other local vehicles at (or very near) the landfill 

site or (3) transport the gas by truck to a location where the gas can be used to 

displace petroleum or other, more polluting fuels. 


jcorcoran on PROD1PC62 with HEARING
78 

Animal Waste: The processing of waste from domesticated animal operations 

(such as dairies, and pork and poultry production) is an expensive process that presents significant environmental challenges. With the proper financial encouragement, farmers and other operators of these animal facilities could install anaerobic 

digester systems to convert the waste to usable methane—with valuable, sanitary 

fertilizer as a byproduct. As with landfill gas, there currently is a federal incentive 

to convert animal waste to electricity, but no federal incentives to convert animal 

waste to methane. Companies that must cope with large quantities of animal waste 

can become significant producers of methane through the use of anaerobic digesters. 

For example, Smithfield Bioenergy today is producing biogas with a substantial 

methane component at a Smithfield Foods hog farm in Utah. That Smithfield facility shows that hog farms and similar operations can be a viable source of methane 

that can reduce our dependence on imports if the process can be made economically 

viable. 

Sewage: The amount of human sewage that must be processed continues to grow 

with the population. The economic costs are large, and the environmental costs are 

significant. As with animal waste, sewage can be converted to methane via anaerobic digesters. In Malmo, Sweden, for example, the city runs part of its fleet of transit buses on methane produced at its local sewage treatment plant. As with landfill 

gas and animal waste, there currently is a federal incentive to convert municipal 

sewage to electricity, but no federal incentives to convert municipal sewage to methane. 

Biomass: While not a major source of fugitive methane, recoverable biomass—including crop waste, plants (such as switch grass) grown especially for energy production and other organic matter—also can be used as a feedstock for the production 

of methane. Here, too, Congress has provided financial incentives for the conversion 

of biomass into some forms of energy. For example, federal tax credits are available 

to those who blend of ethanol with gasoline and to producers of biodiesel from virgin 

plant oils (e.g., soy beans) that is used to displace diesel fuel in vehicles. 

While producing and capturing methane from these sources is generally not economic given existing prices for competing fuels and the fact that many of the technologies for producing and capturing methane from these sources are new and just 

developing, with adequate federal incentives, projects to capture and use methane 

from these sources could become quite economically attractive. Currently, commercial technologies exist for the production of biogas from all these sources. However, 

since the demand for these technologies is limited, there is little mass production 

and economies of scale. Early projects stimulated by federal incentives would help 

demonstrate the technology, help reduce the cost of similar future commercial 

projects and increase competition for this equipment. 

RECOMMENDATION 

The Alliance urges Congress to treat companies that own and operate new facilities that produce methane from landfill gas, animal and crop waste and municipal 

sewage the same as those companies that own and operate new facilities that 

produce electricity from these sources. Specifically, Congress is urged to provide 

companies that produce methane from landfill gas, animal and crop waste and municipal sewage the same tax credit per million btus of methane produced (and either 

used by that organization or sold to a third party) as they would have receive if they 

produce a million btus of electricity from these sources. 

History has shown that such incentives for the production of natural gas can be 

very effective. In 1979, Congress approved an incentive for the production of methane from coals seams and coalmines. For the first decade, investment and production grew slowly. Since then, however, the production of methane from these sources 

has mushroomed, so that, last year, nine percent of the natural gas used in the U.S. 

was produced from coal seams and coalmines. 

It is difficult to estimate prospectively the cost of the proposed biogas incentive. 

However, the Alliance would urge Congress to consider two points. First, from discussions with a number of project owners/operators, it is believed that many of the 

renewables-to-electricity projects that would be constructed in the future (assuming 

that the existing Section 45 incentives for electricity production are extended) would 

instead become renewables-to-methane projects if methane production were provided the same incentive as electricity production. To the extent that producers 

choose the methane course, this expansion of Section 45 would offset itself. In other 

words, for those projects, the additional cost to the Treasury would be zero. Second, 

it is expected that it would take significant time to identify appropriate sites, negotiate contracts, and then build and install the methane producing technologies. The 

cost of those new facilities would run into the millions, a reality that ensures that 

new entrants into this method of methane production would be limited in number 


jcorcoran on PROD1PC62 with HEARING
79 

in the initial years, hopefully, increasing as the credit is shown to make methane 

production economically viable. The slow growth of coal seam methane production 

over the first decade of the incentive illustrates this point. As a result, the additional cost in the first several years of extending the incentive to methane production should be comparatively modest at first and climb only gradually in future 

years. 

Increasing the production of biogas from animal and crop waste, landfills and municipal sewage would help address several public policy problems simultaneously. It 

would increase the supply of domestically produced, non-fossil fuel energy while reducing the amount of greenhouse gas now emitted into the atmosphere. It would 

lead to the development and deployment of new technologies, and create jobs here 

at home as the industry grows. It would help dairy, hog and poultry farmers and 

their surrounding communities to successfully address the significant environmental 

challenges to waste disposal while providing them a valuable supplementary revenue source. And, for municipalities, it also would provide a valuable supplemental 

revenue source while reducing the amount of sewage that currently needs to be 

processed. 

The noted scientist and inventor R. Buckminster Fuller observed: ‘‘Pollution is 

nothing but the resources we are not harvesting. We allow them to disperse because 

we’ve been ignorant of their value.’’ Encouraging the harvesting of methane from 

these renewable sources would be a win-win-win for America. 

f 

US Geothermal, Inc. 

Boise, Idaho 83706 

May 24, 2005 

Dear Members of the Subcommittee: 

My name is Daniel Kunz and I am President of US Geothermal, Inc. My colleague’s name is Douglas Glaspey who is the Chief Operating Officer of our company. We have lived in Boise, Idaho for over 25 years and have worked in the natural resource development and energy industries. US Geothermal, Inc. was formed 

nearly 4 years ago to develop the Raft River geothermal site in southeastern Idaho. 

US Geothermal, Inc. is developing the Raft River geothermal resource to initially 

produce 10 megawatts of clean, reliable and renewable geothermal electricity under 

a 20-year contract with Idaho Power Company. The power will be delivered to Idaho 

Power’s energy consumers from our site in the southeastern part of the state, half 

way between the capital city of Boise and Salt Lake City, Utah on Interstate highway I–84. We believe there are 10 to 20 times this amount of energy available at 

Raft River, or another 100 to 200 megawatts of geothermal energy, that can be developed. In fact, two months ago we signed two new 10 megawatt, 20-year power 

sales agreements with Idaho Power Company. This means that we now have 30 

megawatts under contract. However, despite having these 20-year fixed price contracts it is probable that the other 100 to 200-plus megawatts will remain untapped 

in this reservoir if the geothermal production tax credit (PTC) is not extended in 

a viable manner. Idaho has additional geothermal sites that we will seek to develop 

if the PTC is extended in a viable manner. 

Geothermal power plants produce what is called base load power: consistent energy production, 24 hours a day, seven days a week. In addition, a well-managed 

geothermal reservoir is a sustainable resource as evidenced by many geothermal 

power projects in California and Nevada. Geothermal plants enjoy the highest capacity and availability factors of any power plant or project. Once the capital costs 

have been paid for, these plants are very low cost to operate and have very little 

‘‘down time’’ because there is no combustion that requires significant maintenance 

in other plants like coal, nuclear and gas. Our problem is primarily the high upfront capital costs of developing a resource and building a geothermal plant. Our 

costs are more than four times per megawatt higher than comparable natural gasfired power plants. In addition, we typically sign long-term (20- to 30-year) fixedprice contracts, while coal- and natural gas-fired plants typically enter into shorter 

contracts—and usually with fuel adjustment clauses to hedge against fuel price volatility. Geothermal energy thus bears the dual financial burdens of higher initial 

capital costs combined with greater price risks going forward—a combination that 

makes it difficult to attract investment dollars. The benefits of the power source 

often go unnoticed and unaccounted for. For example, geothermal power has a high 

capacity factor that allows the customers to rely on this source over very long periods of time. These plants have no market fuel costs and are not subject to market 


jcorcoran on PROD1PC62 with HEARING
80 

related price adjustments. The fuel source is secure, located in the United States: 

no worry about the foreign energy sources. 

We need a stable production tax credit program with a term of 3 to 5 years so 

that the capital allocation people can plan and rely on the credit in order to invest 

in geothermal power development. 

The first issue we ask you to address is the eligibility period. For geothermal 

projects, the placed-in-service date should be extended for an appropriate term to 

make the production tax credit viable. We believe three years is the minimum needed to benefit most geothermal developers, who, like us, must deal with multi-year 

lead time challenges of planning, permitting, and construction. Five years would be 

better. We propose that you extend the Section 45 placed-in-service date for at least 

three to five years. 

The second issue is the duration of the production tax credit. We believe geothermal projects should receive the same term provided for wind generation—ten 

years—as opposed to the current five years for geothermal. Making the duration of 

the credit match the ten years afforded other renewables such as wind will result 

in better long-term planning and significant additional geothermal development. If 

Congress extends the production tax credit for geothermal energy in this manner 

then the development program at Raft River can proceed toward building the ultimate capacity that we believe is between 100 and 200 Megawatts. 

While we are the ‘‘little guys’’ in geothermal development, we have a great opportunity to grow and develop new geothermal sites in Idaho and elsewhere in the 

west, adding good paying jobs to mainly rural areas, providing tax revenues to those 

same rural areas, providing a ‘‘flywheel’’ effect from our jobs and tax payments that 

helps local businesses and suppliers, and developing new technological advances in 

this clean form of power development. For example, we have been awarded a grant 

from the U.S. Department of Energy to be applied to the use of a potentially higher 

efficiency power cycle using ammonia absorption. This is an additional risk that 

may be difficult to finance without the PTC. However, if successful, the ammonia 

absorption power cycle could open doors for geothermal electric power development 

at resource sites that today may not be economically viable. 

We appreciate the opportunity to ‘‘be heard’’. We are thankful for the hard work 

that the committee does in support of energy development and independence. We 

respectfully request that you support the extension and improvements in the PTC 

as outline herein. 

Sincerely, 

Daniel Kunz 

President 

Douglas Glaspey 

f 

Chief Operating Officer 

Public Service of New Hampshire 

Manchester, New Hampshire 03101 

May 26, 2005 

Dear Chairman Camp: 

On behalf of Public Service of New Hampshire (PSNH), a subsidiary of Northeast 

Utilities (NU), I am pleased to submit comments to the Subcommittee on Select 

Revenue Measures of the House Ways and Means Committee concerning renewable 

energy production tax credits. 

PSNH, the largest electric utility in the State of New Hampshire, operates three 

fossil electric generating facilities and nine hydro-electric generating plants in the 

state. Both PSNH and New Hampshire understands and has prioritized the value 

of fuel diversity; and continues to look for ways to meet today’s and tomorrow’s energy challenges, while being environmentally responsible. 

PSNH has first hand knowledge of the benefits and challenges of embarking on 

a renewable biomass project. The Northern Wood Power Project (NWPP), located in 

Portsmouth, is our renewable energy initiative in which we will be replacing an existing coal-fired boiler with a state-of-the-art boiler designed to burn biomass. Biomass, or clean wood, is a resource abundant in the New England region. Because 

of its innovative approach, this project has enjoyed broad support, but has not been 

without its challenges. Biomass projects are often smaller in scale and therefore borderline in their financial viability. Federal support, by way of the renewable production tax credit, can be the critical piece which allows these important projects to 

move forward. 


jcorcoran on PROD1PC62 with HEARING
81 

Supporting the application of the renewable energy production tax credit for open 

loop biomass expands the fuel diversity of America’s energy supply and lowers dependence on foreign oil and gas supply. Encouraging the use of biomass as a fuel 

to generate electricity expands the fuel diversity while providing low-emissions generation options. 

Biomass as a renewable, using biomass as a fuel, is uniquely important in supporting sustainable forest management practices and selective forest clearing—an 

important wildfire prevention treatment. Biomass power also generates jobs in rural 

economies and injects sizable revenue into the regional economy. When completed, 

PSNH’s NWPP is estimated to add approximately $20 million annually into the 

New Hampshire economy. 

For these reasons, PSNH urges the Subcommittee to treat biomass no differently 

than other forms of renewable energy. Extending the time frame for the ‘‘placed inservice date for qualifying facilities’’ provision under the renewable energy production tax credits for units placed in service through 2006 would encourage the environmentally cleanest use of biomass for electricity generation. The newer, state-ofthe-art boiler design we plan to use at the NWPP is a great benefit to the environment since air emissions are significantly reduced. Extending the in-service date 

would provide an important boost in encouraging industry to participate in the renewables program since it takes many years to plan, site and develop these projects. 

PSNH appreciates the opportunity to offer comments on the Renewable Production Tax Credits hearing of the Subcommittee on Select Revenue Measures. Please 

contact Mr. Todd W. Lavin, Executive Director of Governmental Affairs for Northeast Utilities at (202) 508–0901 should you require further information on this topic. 

Sincerely, 

Gary A. Long 

f 

President and Chief Operating Officer 

Statement of Market Street Energy Company, Saint Paul, Minnesota 

Mr. Chairman and Members of the Subcommittee, Market Street Energy Company appreciates this opportunity to submit a statement for the record for the Subcommittee’s hearing on Federal tax credits for electricity production from renewable 

resources. 

Market Street Energy Company 

Market Street Energy Company is an experienced leader in energy conservation 

and the conception, design, operation and management of renewable energy systems. The company is a for-profit affiliate of District Energy St. Paul, a non-profit 

heating utility, and District Cooling St. Paul, a non-profit cooling utility, in St. Paul, 

Minnesota. Market Street Energy’s mission is to deliver quality, cost-effective energy projects and services that benefit communities, investors, clients and the environment. The company is committed to expanding the presence of renewable energy 

systems that achieve outstanding energy efficiencies and improve the environment 

throughout the United States. 

Deep water air conditioning 

Deep water air conditioning offsets the demand for electricity by using a renewable energy source to provide reliable, environmentally friendly, low-cost air conditioning. Cool water from a deep lake or ocean is pumped through a pipeline to a 

cooling system on the shore. The intake pipe is placed at a depth where the water 

temperature is 39–46 F. A cooling station transfers the water’s chill to water circulating in a closed loop pipeline system (district cooling system) that provides air conditioning service to consumers. The water is returned at a depth where the water 

in the lake or sea has a similar temperature as the returned water. 

Recent deep water projects include a system using cold water from Cayuga Lake 

to cool campus buildings at Cornell University, another using water from 

LakeOntario to cool buildings in downtown Toronto, and another using water from 

the Baltic Sea to cool buildings in downtown Stockholm. We are currently developing projects in Hawaii. 

The benefits 

Deep water air conditioning offers many advantages over conventional methods to 

provide air conditioning. 

Uses a renewable, energy source—cold, deep water. 


jcorcoran on PROD1PC62 with HEARING
82 

Significantly reduces electrical usage—each ton of deep water air conditioning 

saves about 0.7 kW of electric capacity. 

Reduces reliance on fossil fuels. 

Reduces emissions from power plants—r educed use of fossil fuels provides for significant reductions in greenhouse gas emissions as well as CO, NOx, SO2 and particulate emissions. 

Eliminates need for chillers and cooling towers—eliminating the use of cooling 

towers reduces potable water consumption, toxic chemical use, and the production 

of sewage. 

Eliminates use of ozone-depleting and greenhouse gas refrigerants. 

Current law 

While the Internal Revenue Code (sec. 45) provides a tax credit for the domestic 

production of electricity from renewable resources, there are no tax incentives for 

the use of renewable resource technology that replaces the consumption of electricity, even though the environmental advantages are the same. Sec. 48 provides 

an investment tax credit for any property that uses solar energy or geothermal deposits for heating or cooling, but does not apply to the use of deep water. Private 

activity bonds (sec. 141) can be issued to finance local district heating or cooling 

projects, including deep water air conditioning projects, subject to the volume cap 

in sec. 146. 

Need for change 

The Congress has recognized the importance of tax incentives in developing and 

accelerating the use of similar renewable energy technologies. Deep water air conditioning projects provide the same benefits as technology that qualifies for the sec. 

45 credit for electricity production from renewable resources and technology that 

qualifies for the sec. 48 energy investment credit. The startup cost for these projects 

is considerable. A lake source cooling project to cool the central campus of Cornell 

University had a $60 million price tag. A proposal to cool a significant portion of 

downtown Honolulu will cost about $120 million. 

Proposed change 

In order to encourage the substantial up-front investment required for deep water 

air conditioning projects, Congress should: 

Extend the sec. 45 credit for production from renewable resources to deep 

water air conditioning projects, 

Extend the sec. 48 energy investment credit to deep water projects, or 

Allow the issuance of private activity bonds for such projects outside the volume cap. 

f 

Statement of Richard A. Meyer, Ocean Energy Council, Inc., Royal Palm 

Beach, Florida 

Mr. Chairman and members of the Subcommittee, I welcome the opportunity to 

add my Submission for the Record regarding including OCEAN ENERGY as a significant renewable energy source worthy of becoming eligible for the Section 45 production tax credit (PTC). 

The Ocean Energy Council has over 80 members including representatives of federal, state and local government, private industry, research facilities, the offshore 

(oil) industry, power generating firms, and others. There has been an abundance of 

testimony by various witnesses to your Committee on the importance of adding to 

and extending PTCs to encourage expansion of development of renewable sources 

of energy. 

Ocean energy encompasses various technologies including harnessing the energy 

in the oceans from wave, thermal differences (OTEC), offshore wind, tidal, current, 

biomass and salinity gradients. Each has its champions, and all have been demonstrated not only in research laboratories worldwide, but in recent years with demonstration facilities in the ocean. 

The keynote speaker at the April, 2005 EnergyOcean2005 Conference, held in 

Washington, was Spencer Abrahim, Secretary of Energy in President Bush’s Cabinet 

until he left the administration in February. He referenced the powerful and positive report on ocean energy that the Edison Power Research Institute / EPRI, an 

independent energy research organization, had just released in February, saying it 


jcorcoran on PROD1PC62 with HEARING
83 

would be a great asset towards influencing Congress, the offshore industry, power 

producers and investors. 

He said: ‘‘The ocean energy industry has matured over the past few decades, and 

the technologies are becoming commercially viable at a time when our nation seeks 

greater energy independence. The time is right.’’ 

I want to make 3 points regarding ocean energy: 

1. Ocean Emergy outranks nuclear, oil, coal, and natural gas in net energy 

analysis. 

Ocean Energy outranks these energy sources economically. When producing electrical power, an associated amount of energy is expended. The costs of finding, extracting, processing, transporting, and delivering energy too often goes unconsidered. Ocean energy is not the most economical: hydroelectric and geothermal rank 

higher. But these energy sources are found in only a limiting small number of locations. Ocean energy is widely available. 

Three major studies of net energy analysis have been done, by the University of 

Massachusetts, Stanford University and the Oregon Office of Energy Research. 

2. Ocean Energy has far wider potential for adding to the energy picture 

than other renewables including wind, biomass, geothermal and direct 

solar. 

Renewable ocean energy has vast potential because the sun’s heat warms the entire planet, but unlike land surfaces where it is dissipated, this heat is 

stored in the oceans, where it is waiting to be utilized. The oceans cover over 70% 

of the earth’s surface. The oceans are, indisputably, the earth’s largest solar collector. And while all this energy takes up residence in the world’s oceans, it is constantly renewed and replenished. Throughout most of the world, it is available 

24/7—unlike most other solar and renewable technologies. It is truly ‘‘The 24/7 Energy’’. 

3. The U.S. is far behind Europe, China, Japan and Austrailia in developing renewable energy. 

Offshore wind farms have been operating for several years in Denmark, Sweden, 

and the U.K. Two wave energy facilities have been connected to local grids off Scotland and England. France and Canada have had tidal generating installations providing power for decades. Portugal, just last month, contracted for a wavefarm off 

its shores. Australia has initiated two wave generating plants, and China has just 

authorized an offshore wind farm. OTEC plants are planned for the Mariana island 

of Saipan and in Tamil province in India. 

I will be happy to provide further references regarding any of the above statements upon request at 561.795.0320 or www.oceanenergy@adelphia.net. 

We ask that you include ocean energy in the renewable sources of electrical energy production eligible for Production Tax Credits. Thank you. 

f 

Statement of Honorable Earl Pomeroy, a Representative in Congress from 

the State of North Dakota 

I first want to commend the Chairman and Ranking Member for holding this 

hearing on the important subject of providing incentives to the renewable energy industry in our country. I would like to bring the subcommittee’s attention to two significant issues with regard to the production tax credit. 

1) Extend the production tax credit for wind energy development for a minimum 

of five years. There are currently some 6,700 MW of installed wind generation in 

this country. That number is expected to climb to nearly 9,000 MW by the end of 

the year. Without an extension of this tax credit, growth in the wind energy industry would virtually grind to a halt. 

In North Dakota, about 60MW of wind energy has been installed that is owned 

and operated by FPL Energy. FPL is the owner and operator of these facilities. The 

incentive provided to FPL through the production tax credit (PTC) allows the company to sell wind generated electricity in our market at a competitive price. That 

price has been attractive enough for FPL to secure purchased power agreements 

from Basin Electric Power Cooperative, Bismarck, (for 40 MW) and Otter Tail Power 

Company,Fergus Falls,Minn. (for about 20 MW). Without this production tax credit, 

the price of wind generation would not be competitive in a state like ours where 

generation costs are extremely low compared to national averages. 

Another reason the PTC needs to be extended is to encourage suppliers to gear 

up for this market. Already, utilities in my state that are interested in developing 


jcorcoran on PROD1PC62 with HEARING
84 

more wind energy tell me that equipment costs for wind generation have risen 20 

to 25% in the past year. That’s because not enough companies are gearing up to 

supply equipment to the industry. Congress needs to provide certainty to this market and the manufacturers who supply equipment to it. The stop and start nature 

of the production tax credit must end; we must provide long term certainty for a 

robust market to develop. 

2) Provide a comparable incentive for nonprofit and municipal utilities: The PTC 

is essentially not available to about 25% of the electricity market supplied by nonprofit cooperatives and municipal electric utilities. That’s because these entities are 

generally not subject to federal income tax. I encourage this committee to support 

a comparable incentive for nonprofit and municipal utilities that wish to own and 

operate wind generation facilities. I support a proposal for Clean Energy Bonds, 

which could provide electric cooperatives and municipal utilities with an incentive 

comparable to the production tax credit. Clean Energy Bonds are based upon a ‘‘tax 

credit bond’’ that currently exists in the tax code for school construction under the 

qualified zone academy bond (QZAB) program. This program would allow the U.S. 

Treasury to provide the holder of such bonds a tax credit to be applied against federal income tax liability in lieu of interest payments from the issuer of the bond. 

Essentially, a clean energy bond would provide cooperatives and public power systems with interest-free loans for financing qualified renewable energy projects. 

f 

Technology Transfer Partners 

Chicago, Illinois 

No Date Available 

Honorable Committee Members: 

I offer the following observations upon use of tax credits to help promote electricity from renewable resources. These comments are based upon 25 years experience worldwide literally in all facets of the energy industry. First if one looks at 

economic development trends worldwide, and then plots GDP growth against any 

rational energy equivalent factor in BTU’s (natgas/oil) or in MWH (electricity generally), what becomes apparent is that worldwide, energy supply will potentially 

begin to lag energy demand over the next decade. 

For that reason as the World Energy Congress concluded in Sydney, Australia in 

September 2004 that ‘‘no energy source should be taken off of the table.’’ 

With that thought in mind Congress has developed and attempts to encourage alternative energy supply development under the rubric of ‘‘renewable energy’’. In 

light of the World Energy Congress conclusion above, ‘‘renewable energy’’ really has 

no absolute definition or application, but ultimately functions as a flexible working 

definition to include any alternative source of energy whose use may be stimulated 

by reasonable incentives. 

One category of energy supply readily available but often overlooked is waste heat 

or waste energy off of existing electrical or industrial applications. Congress may 

want to stimulate both industry and creative minds to capture and employ this currently available-but untapped—energy source. There are technologies already developed that may be employed for this task; traditional cogeneration, the new expansion gas motor technology, and other rankine cycle technologies. 

I would encourage this legislative Committee to give serious consideration to 

shaping its legislation in part to capture this readily available energy supply. Specifically I suggest that tax credit coverage be broadened to include particular types 

of equipment that capture waste heat or energy. Alternatively the Committee may 

consider creating an entirely new fiscal measure to further encourage productive use 

of waste heat/waste energy. Thank you for your time. 

Sincerely, 

f 

David Rosenberg 

Verdant Power 

Arlington, Virginia 22207 

June 6, 2005 

Thank you for allowing us to comment on this critical issue of paramount importance to the emerging ocean renewable energy industry. As you know the Production Tax Credit (PTC) has been and continues to be a tremendous impetus to the 

successful development and maturation of the wind industry. One of the values of 


jcorcoran on PROD1PC62 with HEARING
85 

1 Using a 45% capacity factor and an EIA figure stating that the average U.S. home consumes 

10,524 KwH of electricity per year. 

the credit is that it recognizes actual electricity production, not mere promises. All 

of the business and market risks of the technology development and implementation 

remain the obligation of the private sector. 

We as a country need to extend the same principles to the emerging ocean energy 

industry in order to provide needed critical support to the development and growth 

of a domestic industry. Currently much of the governmental support for research 

and development of this technology is based in the European Union, which provides 

significant financial, technical, and regulatory assistance to its budding marine energy industry. Great strides are being accomplished as a result, with a danger that 

the irrevocable dominance of this industry will permanently reside outside of the 

United States. 

The domestic industry is real. Our own company has been actively developing a 

200kW showcase demonstration project in the East River in New York City, to be 

followed by a build out of a larger field of up to 5–10 MW. This facility would place 

New York City as one of the largest urban renewable energy producers in the world. 

This particular effort has been followed by the filing by other developers of preliminary permits with the Federal Energy Regulatory Commission for more than a 

dozen similar ocean energy projects. 

In conclusion, we appreciate the advantages that the PTC has provided the wind 

industry and its development. It has helped put the wind industry on a path toward 

self sustainability. Might the same be done for an emerging industry—ocean energy? 

The PTC would go a long way toward accelerating the development of a new industry, which the United States could dominate. 

Sincerely yours, 

Ronald F. Smith 

f 

Chairman 

Statement of Mark R. Stover 

Hydropower is one of the nation’s most valuable energy resources. It is low-cost, 

clean, domestic, renewable and emits no air pollution. Hydropower also provides 

vast recreational opportunities, improves electric grid reliability and significantly reduces the amount of carbon emissions from the United States. 

In fact, NHA estimates that U.S. hydropower generation avoids 130 million metric 

tons of carbon each year. Put another way, the carbon emissions avoided by U.S. 

hydropower generation is equivalent to removing approximately 40 percent of the 

vehicles from U.S. roadways. Truly a unique electricity source, hydropower provides 

numerous benefits every day to millions of Americans. 

Despite its many benefits, data from both the Energy Information Administration 

and the Department of Energy confirms that the nation’s hydropower resources are 

greatly underutilized. Hydropower has significant growth potential. Considering the 

nation’s growing need for clean and domestic energy, the time has come for Congress to ensure that this potential is developed. 

Less than three percent of the nation’s 75,000 dams produce electricity. The Department of Energy estimates that as much as 21,000 megawatts of hydropower capacity sits unused at existing hydropower facilities and non-hydropower dams—this 

is capacity that could be developed without building new dams or impoundments. 

This is enough power for eight cities the size of Seattle or for the entire state of 

Virginia. It is enough yearly power for 7.8 million homes.1 Developing this unused 

capacity would also result in the avoidance of 42 million metric tons of carbon emissions each year. 

Of the 21,000 MW identified by DOE, 4,300 MW of new hydropower generation 

could be achieved by simply further developing our nation’s existing hydropower infrastructure through efficiency improvements and capacity additions. This is known 

as incremental hydropower. There is enough incremental hydropower to meet the 

electricity needs of the states of New Hampshire and Vermont. Put another way, 

it is enough yearly power for 1.6 million homes. 

In addition to the conventional hydropower technologies mentioned above, DOE 

estimates that a wealth of potential exists for micro, low-head, kinetic and lowpower hydropower development. In fact, DOE believes that the hydropower industry 

could double its present contribution to the nation’s electricity supply if these 

emerging, cutting-edge, non-conventional technologies are fully deployed. 


jcorcoran on PROD1PC62 with HEARING
86 

2Public Opinion Surveys with Registered Voters, January 2002; Bisconti Research, Inc. (BRi). 

Error of +/—3 percent. 

Unfortunately, almost none of the nation’s potential hydropower capacity is being 

developed. Bringing new hydro generation on-line is capital intensive, and the costs 

are increasing. In addition, hydropower faces costly regulatory hurdles of new development not faced by other resources. While the costs clearly vary from project to 

project, new hydro generation—depending on the type of upgrade—runs from $650 

to more than $2,500 per kilowatt (Kw), sometimes much more. 

Hydropower’s development costs are very similar to the development costs of the 

resources that are presently included in the Section 45 production tax credit (PTC). 

In short, hydropower faces similar obstacles in today’s energy markets as other renewable energy sources and deserves similar policies designed to encourage the development of renewable energy, such as the Section 45 PTC. 

In its December 2004 Report, the bipartisan National Commission on Energy Policy recommended that Congress expand the renewable energy production tax credit 

to include ‘‘new hydropower generation.’’ During the 107th and 108th Congresses, 

members in both the Senate and the House, on both sides of the aisle, introduced 

15 bills that recognized the hurdles to new hydropower development by providing 

incentives—none of which were adopted. The Energy Policy Act of 2005, which was 

recently adopted by the House, authorizes appropriated payment incentives, but the 

Section 45 PTC is without question the best mechanism to ensure that new hydropower generation will come on-line in the near future. 

Incentives work. One need only look at the recent growth of the wind energy industry, as well as some of the other renewable energy industries. Or, look at the 

last time there was any significant growth in the hydropower industry—the 1980s 

when Congress last provided incentives for hydropower development. Those incentives resulted in approximately 10,000 MW of clean energy being placed on the electricity grid. Since then, development has been stagnant at best. It’s time for Congress to provide hydropower incentives again. 

Without incentives, the wealth of valuable hydropower potential will continue to 

sit unused at a time when it is most needed. NHA urges Congress to include a 

strong role for hydropower in its renewable energy tax incentive package. Specifically, the National Hydropower Association calls on Congress to amend the Section 

45 PTC to include as ‘‘qualified energy resources:’’ 

1. incremental hydropower; 

2. qualified hydroelectric facility; and 

3. kinetic hydropower. 

As stated above, ‘‘incremental hydropower’’ is additional electric generation 

achieved from increased efficiency or additions of capacity at an existing hydropower 

facility. A ‘‘qualified hydroelectric facility’’ is a FERC-licensed minor diversion structure less than 20 feet in height or an existing non-hydro dam to which turbines or 

other generating devices are added to produce energy. ‘‘Kinetic hydropower’’ is any 

technology that uses water to generate electricity but does not require the use of 

a dam or impoundment. 

Hydropower enjoys strong public support. It’s time for policies in Congress to better reflect this support. A 2002 poll showed that 93 percent of America’s registered 

voters believe that hydropower should play ‘‘an important role’’ in our energy future.2 Of those voters, 75 percent support incentives from the federal government 

to develop more renewable power in the United States and favor incentives for new 

hydropower capacity at existing hydropower projects. Put another way, they support 

increasing the efficiency and generating capacity of existing hydro projects (incremental hydropower). 

Of the registered voters who support incentives from the federal government to 

develop more renewable power in the United States, 74 percent favor incentives for 

new hydropower capacity at existing non-hydro dams (qualified hydropower). Put 

another way, they support retrofitting non-hydro dams with power generating 

equipment. 

Hydropower, to quote FERC Chairman Pat Wood, III, has long been ‘‘a backbone 

of the nation’s energy infrastructure.’’ Considering the nation’s growing interest in 

fully developing its clean, domestic energy supplies, the public’s support for hydro, 

as well as the growing bipartisan support for maximizing the power output of the 

nation’s existing hydropower and dam infrastructure, it’s time for Congress to bolster the nation’s hydropower resources. The best way to do that is to include a 

strong role for hydropower in the Section 45 PTC. In addition to clean energy, development of new hydropower will lead to jobs, investment in the economy, fees to the 


jcorcoran on PROD1PC62 with HEARING
87 

government for the use of federal non-hydro dams, general hydropower fees and a 

new source of tax revenue once the tax credit expires. 

This year marks the 125th anniversary of hydropower usage in the United States. 

Including hydropower in the Section 45 PTC is the right way to celebrate this milestone. Hydropower has long played an important role in the nation’s energy portfolio 

and energy strategy, but it stands ready to play an even greater role in the future 

with the proper incentives from Congress. With proper incentives, such as the Section 45 production tax credit, Congress can ensure that the nation’s hydropower resources and its many power, environmental and societal benefits are fully deployed 

and available to future generations of Americans. 

f 

Statement of Pat Wolff, American Farm Bureau Federation 

The American Farm Bureau Federation stands in strong support of the multi-year 

extension of tax credits for renewable fuels. We thank the committee for the opportunity for Farm Bureau to provide its comments for the record of the May 24 hearing on tax credits for electicity production from renewable sources. 

The Renewable Electricity Production Tax Credit (REPTC) is a small but important piece of a renewable energy strategy for the United States. The tax credit provides incentives for the development and expansion of a reliable source of ‘‘home 

grown’’ fuel that will help to ensure adequate supplies, stabilize energy costs and 

reduce dependence on traditional energy resources. Wind power capacity in the 

United States has quadrupled since 1990 and currently provides enough energy to 

support the electrical needs of 1.5–1.9 million households. Biomass conversion is already one of the most widely used renewable technologies, accounting for 12 percent 

of renewable energy supplies. 

The tax credit also promises to provide a steady source of income to our nation’s 

farmers and ranchers. As one of the largest holders of private land, the agricultural 

sector is the most logical provider of the resources needed for the continued growth 

of the wind power industry. Producers stand to benefit from lease payments provided by wind energy developers using land for placement of wind turbines. 

Income realized from wind energy projects is usually very stable, increasing revenue security for farmers. In addition, many leasing/royalty contracts contain a provision for a minimum payment per turbine, providing reassurance during low-wind 

periods. Farmers and ranchers can harvest the air around them while they grow 

crops and graze livestock. Wind turbines have a small ‘‘footprint’’ and provide little 

obstruction, with the largest models utilizing only one-quarter acre, including access 

roads. Furthermore, the turbines can be placed on CRP land with USDA’s approval. 

Information collected from the Department of Energy (DOE), the Government Accounting Office (GAO) and the USDA outlines the current and potential benefits to 

the agricultural industry. While there are several types, a typical leasing agreement 

provides $2,000 per year for a 750-kilowatt wind turbine, roughly two to three percent of a wind project’s gross revenue. A 250-acre farm could increase annual income up to $14,000 per year, given the common turbine spacing requirements. With 

DOE’s goal of producing five percent of the nation’s electricity through wind energy 

by 2020, farmers and rural landowners could see $1.2 billion in additional income 

from wind energy over the next 15 years. 

Extension of the tax credit for electricity produced from biomass fuels will boost 

demand for the crop residues and the bioenergy crops needed to fuel biomass conversion. An extension of the credit could be expected to generate demand for as 

much as 40 million acres of land for bioenergy crops. Bioenergy crops could become 

the fourth most important crop market from an acreage standpoint after wheat, 

corn and soybeans. 

USDA and DOE’s assessment of the potential pay-off from expanded production 

of biomass indicates that an expanding conversion industry would generate higher 

commodity prices. USDA’s feasibility studies suggest crop prices would be up to 14 

percent higher with bioenergy crops using 40 million acres of production. This would 

boost farm incomes $3 billion to $6 billion due to higher receipts for existing crops 

and receipts from bioenergy crops. As a result of improved crop prices, there would 

be a reduction in farm program costs of $2 to $3 billion with lower commodity payments due to higher prices and conservation costs reduced by allowing CRP contract 

holders to grow bioenergy crops on reserve acreage in return for a lower rental payment. 

The REPTC is set to expire at the end of this year. A long-term extension of the 

credit will speed up adoption of renewable technologies and support development of 


jcorcoran on PROD1PC62 with HEARING
88 

the market infrastructure necessary to make these technologies more competitive. 

Furthermore, a multi-year extension of the REPTC will ensure the stability of the 

tax credit, attracting the capital necessary to realize the benefits of long-term planning. 

Farm Bureau urges Congress to act quickly to pass a multiple-year extension of 

the Renewable Electricity Production Tax Credit. 

Æ 


jcorcoran on PROD1PC62 with HEARING