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74–058PDF 2012

IMPACT OF TAX POLICIES 

ON THE COMMERCIAL APPLICATION 

OF RENEWABLE ENERGY TECHNOLOGY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON INVESTIGATIONS AND 

OVERSIGHT 

JOINT WITH THE 

SUBCOMMITTEE ON ENERGY AND ENVIRONMENT 

COMMITTEE ON SCIENCE, SPACE, AND 

TECHNOLOGY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

THURSDAY, APRIL 19, 2012 

Serial No. 112–78 

Printed for the use of the Committee on Science, Space, and Technology 

( 

Available via the World Wide Web: http://science.house.gov 
(II) 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

HON. RALPH M. HALL, Texas, Chair 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

DANA ROHRABACHER, California 

ROSCOE G. BARTLETT, Maryland 

FRANK D. LUCAS, Oklahoma 

JUDY BIGGERT, Illinois 

W. TODD AKIN, Missouri 

RANDY NEUGEBAUER, Texas 

MICHAEL T. MCCAUL, Texas 

PAUL C. BROUN, Georgia 

SANDY ADAMS, Florida 

BENJAMIN QUAYLE, Arizona 

CHARLES J. ‘‘CHUCK’’ FLEISCHMANN, 

Tennessee 

E. SCOTT RIGELL, Virginia 

STEVEN M. PALAZZO, Mississippi 

MO BROOKS, Alabama 

ANDY HARRIS, Maryland 

RANDY HULTGREN, Illinois 

CHIP CRAVAACK, Minnesota 

LARRY BUCSHON, Indiana 

DAN BENISHEK, Michigan 

VACANCY 

EDDIE BERNICE JOHNSON, Texas 

JERRY F. COSTELLO, Illinois 

LYNN C. WOOLSEY, California 

ZOE LOFGREN, California 

BRAD MILLER, North Carolina 

DANIEL LIPINSKI, Illinois 

DONNA F. EDWARDS, Maryland 

BEN R. LUJA ́ N, New Mexico 

PAUL D. TONKO, New York 

JERRY MCNERNEY, California 

TERRI A. SEWELL, Alabama 

FREDERICA S. WILSON, Florida 

HANSEN CLARKE, Michigan 

SUZANNE BONAMICI, Oregon 

VACANCY 

VACANCY 

VACANCY 

SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT

HON. PAUL C. BROUN, Georgia, Chair 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

SANDY ADAMS, Florida 

RANDY HULTGREN, Illinois 

LARRY BUCSHON, Indiana 

DAN BENISHEK, Michigan 

VACANCY 

RALPH M. HALL, Texas 

PAUL TONKO, New York 

ZOE LOFGREN, California 

BRAD MILLER, North Carolina 

JERRY MCNERNEY, California 

EDDIE BERNICE JOHNSON, Texas 

SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

HON. ANDY HARRIS, Maryland, Chair 

DANA ROHRABACHER, California 

ROSCOE G. BARTLETT, Maryland 

FRANK D. LUCAS, Oklahoma 

JUDY BIGGERT, Illinois 

W. TODD AKIN, Missouri 

RANDY NEUGEBAUER, Texas 

PAUL C. BROUN, Georgia 

CHARLES J. ‘‘CHUCK’’ FLEISCHMANN, 

Tennessee 

RALPH M. HALL, Texas 

BRAD MILLER, North Carolina 

LYNN C. WOOLSEY, California 

BEN R. LUJA ́ N, New Mexico 

PAUL D. TONKO, New York 

ZOE LOFGREN, California 

JERRY MCNERNEY, California 

EDDIE BERNICE JOHNSON, Texas 
(III) 

C O N T E N T S 

Thursday, April 19, 2012 

Page 

Witness List ............................................................................................................. 2 

Hearing Charter ...................................................................................................... 3 

Opening Statements 

Statement by Representative Paul C. Broun, Chairman, Subcommittee on 

Investigations and Oversight, Committee on Science, Space, and Technology, U.S. House of Representatives ............................................................... 24 

Written Statement ............................................................................................ 26 

Statement by Representative Paul Tonko, Ranking Minority Member, Subcommittee on Investigations and Oversight, Committee on Science, Space, 

and Technology, U.S. House of Representatives ............................................... 28 

Written Statement ............................................................................................ 30 

Statement by Representative Andy Harris, Chairman, Subcommittee on Energy and Environment, Committee on Science, Space, and Technology, U.S. 

House of Representatives .................................................................................... 33 

Written Statement ............................................................................................ 35 

Statement by Representative Brad Miller, Ranking Minority Member, Subcommittee on Energy and Environment, Committee on Science, Space, and 

Technology, U.S. House of Representatives ....................................................... 37 

Written Statement ............................................................................................ 39 

Witnesses: 

Dr. Molly F. Sherlock, Specialist in Public Finance, Congressional Research 

Service 

Oral Statement ................................................................................................. 41 

Written Statement ............................................................................................ 44 

Mr. John Parcell, Acting Deputy Tax Legislative Counsel U.S. Department 

of the Treasury 

Oral Statement ................................................................................................. 57 

Written Statement ............................................................................................ 59 

Dr. Michael Pacheco, Vice President, Deployment and Industrial Partnerships, National Renewable Energy Laboratory 

Oral Statement ................................................................................................. 74 

Written Statement ............................................................................................ 77 

Discussion 83 

Mr. Rhone Resch, President and CEO, Solar Energy Industries Association 

Oral Statement ................................................................................................. 92 

Written Statement ............................................................................................ 95 

Mr. Terry Royer, CEO, Winergy Drive Systems Corporation, Elgin, IL 

Oral Statement ................................................................................................. 107 

Written Statement ............................................................................................ 109 

Mr. Steven Erby, Vice President, Monolith Solar Associates, LLC, Rensselaer, 

NY 

Oral Statement ................................................................................................. 111 

Written Statement ............................................................................................ 113 

Dr. Benjamin Zycher, Visiting Scholar, American Enterprise Institute 

Oral Statement ................................................................................................. 115 

Written Statement ............................................................................................ 117 
Page

IV 

Dr. Margo Thorning, Senior Vice President and Chief Economist, American 

Council for Capital Formation 

Oral Statement ................................................................................................. 140 

Written Statement ............................................................................................ 142 

Ms. Lisa Linowes, Executive Director, Industrial Wind Action Group, Lyman, 

NH 

Oral Statement ................................................................................................. 158 

Written Statement ............................................................................................ 160 

Discussion 175 

Appendix: Answers to Post-Hearing Questions 

Dr. Molly F. Sherlock, Specialist in Public Finance, Congressional Research 

Service ................................................................................................................... 188 

Mr. John Parcell, Acting Deputy Tax Legislative Counsel U.S. Department 

of the Treasury ..................................................................................................... 192 

Dr. Michael Pacheco, Vice President, Deployment and Industrial Partnerships, National Renewable Energy Laboratory ................................................. 197 

Mr. Rhone Resch, President and CEO, Solar Energy Industries Association .... 232 

Mr. Terry Royer, CEO, Winergy Drive Systems Corporation, Elgin, IL ............. 253 

Dr. Benjamin Zycher, Visiting Scholar, American Enterprise Institute ............. 256 

Dr. Margo Thorning, Senior Vice President and Chief Economist, American 

Council for Capital Formation ............................................................................ 258 

Ms. Lisa Linowes, Executive Director, Industrial Wind Action Group, Lyman, 

NH ......................................................................................................................... 260
(1) 

IMPACT OF TAX POLICIES 

ON THE COMMERCIAL APPLICATION 

OF RENEWABLE ENERGY TECHNOLOGY 

THURSDAY, APRIL 19, 2012 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT, JOINT WITH THE

SUBCOMMITTEE ON ENERGY AND ENVIRONMENT, COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY, Washington, DC. 

The Subcommittees met, pursuant to call, at 9:42 a.m., in Room 

2318 of the Rayburn House Office Building, Hon. Paul Broun 

[Chairman of the Subcommittee on Investigations and Oversight] 

presiding. 
2 

RALPH M. HALL, TEXAS EDD1E BERN1CE JOHNSON, TEXAS 

U.S. HOUSE OF REPRESENTATIVES 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

2321 RAYBURN HOUSE OFFICE BUILDING 

WASHINGTON, DC 20515-6301 

(202) 225-6371 

Subcommittees on Investigations & Oversight and Energy & Environment Hearing 

Impact of Tax Policies on the Commercial Application of Renewable 

Energy Technology 

Thursday, April 19, 2012 

9:30 a.m. to 11 :30 a.m. 

2318 Rayburn House Office Building 

££nelI 

Dr. Molly F. Sherlock, Specialist in Public Finance, Congressional Research Service 

Mr. John Parcell, Acting Deputy Tax Legislative Counsel, U.S. Department of the Treasury 

Dr. Michael Pacheco, Vice President, Deployment and Market Transfonnation, National 

Renewable Energy Laboratory 

Panel II 

Mr. Rhone Resch, President and CEO, Solar Energy Industries Association 

Mr. Terry Royer, CEO, Winergy Drive Systems Corporation 

Mr. Steven Erby, Vice President, Monolith Solar Associates, LLC 

Dr. Benjamin Zycher, Visiting Scholar, American Enterprise Institute 

Dr. Margo Thorning, Senior Vice President and Chief Economist, American Council for 

Capital Fonnation 

Ms. Lisa Linowes, Executive Director, Industrial Wind Action Group 
3 

U.S. House of Representatives 

Committee on Science, Space, and Technology 

Subcommittee on Investigations and Oversight 

and the 

Subcommittee on Energy and Environment 

HEARING CHARTER 

"Impact of Tax Policies on the Commercial Application of Renewable Energy 

Technology" 

Thursday, April 19, 2012 

9:30 a.m. - II :30 a.m. 

2318 Rayburn House Office Building 

1. Purpose 

On Thursday, April 19,2012, the Committee on Science, Space, and Technology's 

Subcommittee on Investigations and Oversight and the Subcommittee on Energy and 

Environment will hold a joint hearing titled, "Impact of Tax Policies on the Commercial 

Application of Renewable Energy Technology.,,1 The purpose of the hearing is to examine 

recently expired, current, and proposed renewable energy tax preferences, and their impact on 

the commercial application of renewable energy technologies. 

2. Witness List 

Dr. Molly F. Sherlock, Specialist in Public 

Finance, Congressional Research Service 

Mr. John Parcell, Acting Deputy Tax 

Legislative Counsel U.S. Department of the 

Treasury 

Dr. Michael Pacheco, Vice President, 

Deployment and Industrial Partnerships, 

National Renewable Energy Laboratory 

Mr. Rhone Resch, President and CEO, Solar 

Energy Industries Association 

Mr. Terry Royer, CEO, Winergy Drive Systems 

Corporation, Elgin, IL 

Mr. Steven Erhy, Vice President, Monolith Solar 

Associates, LLC, Rensselaer, NY 

Dr. Benjamin Zycher, Visiting Scholar, 

American Enterprise Institute 

Dr. Margo Thorning, Senior Vice President 

and Chief Economist, American Council 

for Capital Fonnation 

Ms. Lisa Linowes, Executive Director, 

Industrial Wind Action Group, Lyman, NH 

lThe hearing is being conducted pursuant to clause (l)(p)(6) of House rule X, which assigns the Committee on 

Science, Space, and Technology jurisdiction over the "eommercial application of energy technology," and clause 

2( c) of House rule X, which requires "[ e lach standing committee" to "review and study on a continuing basis the 

impact or probable impact of tax policies affecting subjects within its jurisdiction." 
4 

2 

3. Background 

The Federal Government supports the production and use of fossil fuels. nuclear and renewable 

energy, and increased energy efficiency through direct financial support to energy producers and 

consumers,2 and through the use of energy tax preferences that reduce the taxes paid by 

producers and consumers of energy from these fuels and technologies. 

As shown in Figure I, in many years of the recent decades (with the notable exception of2009, 

(which saw the passage ofthe American Recovery and Reinvestment Act of 2009 (ARRA)), the 

combined cost of the reduced revenues and increased outlays from these tax preferences have far 

exceeded the levels of direct financial support by the Department of Energy (DOE). 

Figure 1. Energy-Related Tax Preferences, by Type of Fuel or Technology and DOE's 

for 

1950 19&4 1988 1992 1996 2000 2004 2DOO 2012. 

'Reflects transfers and rescissions of budget authority for Section 1705 loan guarantees aftcr ARRA was enacted. 

'Examples include the Department of Energy's energy research and development (R&D), weatherization and loan 

¥,uarante: programs . . , ..' . . . Terry DllIan and PhIlip Webre, Federal Financial Supportjor the Development and ProductIOn of Fuels and 

Energy Technologies, Congressional Budget Office, Issue Brief, March 2012, Figure I, p. 4, and Figure 3, p. 6 

(http://www.cbo.gov/sitesldefault/fileslcbofiles/attachmenLsI03-06-FueISllndEncrgy BrietpdO. 
5 

3 

First established in 1916 to stimulate domestic production of oil and natural gas, energy tax 

preferences were expanded in the 1970's-primarily under the Carter Administration-to 

include energy efliciency, alternative fuels and renewable energy technologies. These were 

reduced considerably in the 1980's during the Reagan Administration, and then expanded again 

during the George H.W. Bush, Clinton, George W. Bush, and Obama Administrations.4 As 

shown in Figure I above, the cost of these energy tax preferences grew rapidly after 2005-

particularly for renewable energy. And, as shown in Figure 2, the Congressional Budget Oflice 

(CBO) recently estimated the FY 2011 tax preference costs for all sources of energy at $20.5 

billion. Renewable energy tax preferences account for $13.9 billion, or 68%, of this amount, far 

exceeding DOE's $3.2 billion in direct financial support for overall energy technology 

development. 

Figure 2. FY 2011 Cost of Energy-Related Tax Preferences and 

DOE's Support for Energy Technologies5 

FY 2011 Energy-Related Tax Preferences 

($Billion (B)) 

FY 2011 DOE Energy Technologies 

Financial Support ($Billion (B)t 

EIt'ctridty DeliYt'l'Y 

antI 

'Molly F. Sherlock, Energv Tax Polic),: lTistorical Perspectives on and Current Status o([;nergv Tax Expenditures, 

CRS Report R41227, May 2, 2011, pp. 2-10. 

5Terry Dinan and Philip Webre. Federal Financial Support.!"r the Development and Production of Fuels and 

Energy Technologies, Congressional Budget Office, Issue Brief, March 2012, Table I, p. 3 and Figure 2, p. 5 

(http://www.cbo.gov/sitcs/defaultlfilcs/cbofiles/attachmcntsl03-06-FudsandEncrgy Bricf.pdD; and Department of 

Energy, FY 2013 Congressional Budget Request Budget Highlights, Office of Chief Financial Officer, DOEICF0077, February 2012, p. 17 (http://www.mbc.doc.govlbudgeti13budgct/Contcnt/Highlight5.pdO. 

'DOE's FY 2011 energy technologies financial support figures include budget authority (BA) for energy efficiency 

and renewable energy R&D and weatherization, fossil energy R&D, nuclear energy R&D and facilities 

management, electricity and energy reliability, and ARPA-E programs. 
6 

4 

Current energy tax preferences and their FY 2011- FY 2015 cost are shown Table I and in 

Figure 3. The five-year total is $70.2 billion, with renewable energy accounting for $43.1 billion 

(61.4%), fossil energy for $12.5 billion (17.8%), other/miscellaneous for $7.6 billion (10.8%), 

energy efficiency and conservation for $4.5 billion (6.4%), and alternative technology vehicle for 

$2.5 billion (3.6%). 

Table 1. Cost of Energy Tax Preferences: FY 2011-FY 20157 

Cllndicates that the provision was extended or modified by The Tax Relicf, Unemployment Illsunmce Reauthorization, and Job 

Creation Act of2010 (P.L. 111-312). 

'Molly F. Sherlock and Margot L. Crandall-Hollick, Eller,,!\, Tltt Policl': Iss,,<,s in the Ill" Congl'ess, CRS Report 

R41769, March 28, 2012, Table I, pp. CRS-8 ~ CRS-I3. Table excludes provisions estimated to have a revenue 

loss of less than $50 million over the 2011 through 2015 period. See Appendix I for more details. 

8This figure includes the reduction in excise tax receipts for alcohol fuels, biodiesel, and alternative fuel. 
7 

5 

bQualifying property that was under constmction prior to the end of 20 11 may be eligible for the Section 1603 Grant in Lieu of 

Tax Credit 

Figure 3. Cost of Energy Tax Provisions: FY 2011-20159 

Alternatiw· Tl:'rlmotogy' -",hidl." 

S2.!iB 

(3,60 0) 

FY 20H-fY20l5.Costof 

CUJ'l'f'ut Enf'~··RtI3t('d 

Tax P1'~ftl't>n("t''l 

(SBiUiQD (D)) 

T otnt=S 70.2 D 

4. Renewable Energy-Related Tax Preferences 

The hearing is expected to focus primarily on four major renewable energy-related tax 

preferences: the investment tax credit (lTC), the production tax credit (PTC), the Section 1603 

Program, and the Advanced Energy Manufacturing Tax Credit ("48C"j Program, each of which 

is discussed below. A subsection on the credit for alcohol fuels, biodiesel, and alternative fuels is 

also included. 

4.1 Energy Investment Tax Credit (ITC)IO 

The Energy lTC, first established as part of the Energy Tax Act of 1978 (P.L. 95-618), has been 

modified many times since. 

As shown in Table 2, section 48 of the Internal Revenue Code (IRC) provides a non-refundable 

income tax credit for business investments in solar, fucl cells, small wind turbines (up to 100 

kilowatt (kW) in capacity), geothermal systems, microturbines, and combined heat and power 

9Source: Molly F. Sherlock and Margot L. Crandall-Hollick, £nerfJl' Tin PO/itT: Issues iI/the Ill" COll!:ress, CRS 

Report R41769, March 28, 2012, Table I, pp. CRS-8 - CRS-13. 

lOFor additional background, sec U.S. Senate, Committee on Budget, Tax Expenditures: Compendium oj' 

Background Material on Individual Provisions. prepared by the Congressional Research Service, S. Pr!. 111-5R, 

December 2010, pp. 185-190 

(http://www.gpo.gov/!Osys/pkglCPRT-IIISPRT62799/pdf/CPRT -1 1 ISPRT62799.pdt). 
8 

6 

(CHP). Solar, fuel cell, and small wind turbine investments qualify for a 30% credit. The tax 

credit for investments in geothermal systems, microturbines, and ClIP is 10%. For fuel cells, the 

30% credit is limited to $1,500 per 0.5 kW of capacity. For microturbines, the credit is limited to 

$200 per kW of capacity. Generally, the ITC is available for property placed in service by 

December 31, 2016. For geothermal property, except geothermal heat pumps, there is no sunset 

date for the credit (the credit for geothermal heat pumps expires at the end of 20 16). In 2017, the 

credit rate for solar property becomes 10%. The estimated 2011-2015 cost is $2.5 billion. 

Table 2. Summary of Energy ITe Provisions II 

QuaUfifl\ EDel'~' Prop.rty (sec. 48) Cr.dit r.t. .:\Inximmn Expiration cr.dit 

Eqnipment to produce energy from. 10~t;) None None 

geotbennal deposit 

Equipment to use grouod or grouud wate .. for 10% None December 31. 2016 

beatlog or cooUng 

)!icrotu .. bioe pmp ... ty « 2 :Uw el.ch·lcal 10% $200perKw Decembe .. 31.2016 

g.o .... tlon pow ... plaots of >16% .ftidenc~·) of capacity 

Combined b.at aud pow ... prop.rty 10% None Decemb .... 31. 2016 

(simnltaneous pmductlon of 

eleen'leallmecbanical pow.r and mefnl b.at " 

60% effiden~') 

Solar el.chic 01' sol.r bot water prop.r~· 30% None None 

(10% after 

December 

31. 2016) 

Fuel c.n propet·ty (generat ... lecllidty 30~j'o $1,500 for Decemb .... 31. 2016 

through electrochemical proce,s) e-3ch%Kw 

ofcopacity 

Sman (<100 Kw c.p.ci~·) \\io<1 elechicat 3~/Q None D.c.mb .... 31. 2016 

generation propel~' 

4.2 Production Tax Credit (PTCl 12 

The PTC, first adopted as part of the Energy Policy Act of 1992 (P.L. 102-486), has also 

undergone many modifications. Taxpayers producing energy from a qualified renewable energy 

resource--which include wind, closed-loop biomass, open-loop biomass, geothermal energy, 

solar cnergy, small irrigation power, municipal solid waste (trash combustion and landfill gas), 

qualified hydropower production, and marine and hydrokinetic renewable energy sources-may 

IIU.S. Congress, Joint Commiltee on Taxation, Present Law and Analvsis afEnergy-Reiated Tax Expenditures, 

lCX-28-12, March 27, 2012, p. 4 (http://w .. w.jct.g0Ylnublications.html?func=stnrtdown&id·'4414). 

I2For additional background, see U.S. Senate, Committee Oil Budget, Tax Expenditures: Compendium or 

Background Material on Individual Provl:,,'ons, prepared by Ihe Congressional Research Service, S. Prt. 111-58, 

December 2010, pp. 197-203 

(!illni/www.gpo.gov/fdsys/pkg/CPRT-11ISPRT62799ipdf/CPRT-11ISPRT62799.pdt). 
9 

7 

qualify for the PTC, which is generally available for 10 years, beginning on the date the facility 

is placed in service. 13 As shown in Table 3 below, the credit amount in 2011 for electricity 

produced using wind, closed-loop biomass, and geothermal energy resources was 2.2¢ per 

kilowatt hour (kWh). Other resources qualify for a credit equal to half the full credit amount, or 

1.1 ¢ per kWh in 2011. The credit amount is based on the 1993 value of 1.5¢ per kWh, which is 

adjusted annually for inflation. The production tax credit (PTC) is generally available for 10 

years, beginning on the date the facility is placed in service. Certain facilities placed in service 

prior to August 8, 2005 are only eligible to receive the PTC for 5 years. To qualify for the credit, 

wind facilities must be placed in service by December 31, 2012. The placed-in-service deadline 

for other technologies is December 31, 2013. The estimated 2011-2015 cost is $9.1 billion. 

Table 3. Summary of PTe Provisions" 

Eligible Electlicity Production Credit Amount for 

AdMty (we. 45)1 20n: (cents per Expirn tioul 

kilowatt-bonr) 

Wind 2.2 December 31, 2012 

Closed-loop biomass 2.2 December 31, lOB 

Open-loop biomass 1.1 December 3 L 2013 

(inclttding agricultural 

livestock waste nunient 

facilities) 

Geotbel'mal 2.2 December 31, 2013 

Solar (pre-2006 facilities onl)') 2.2 December 31,2005 

SmaU inigatiou power 1.1 December 31, 2013 

)Iuoidpal solid waste 1.1 December 3 L 2013 

(including landfill gas 

facilities and n'asb 

combustion facilities) 

Qualified lI~'dropower 1.1 December 31. 2013 

)Ialine and b~'drokinetic 1.1 December 31.2013 

I Except where otherwise provided. all •• etion references are to the Intemal Revenue Code of 1986.", amended. 

! In general. the credit i. available for electricity producod during the fir,t 10 years after a facility has been pl~ced 

in service. Th. inflation adJll.ted credit amount for 2012 i, expect.d to be rel .... d in April. Taxpayers mayaho 

eiectlo get a 30-percent investment tax credit in lieu of this production tax credit 

, Expire. for property placed in ,ervice after thi, date. 

I3Certain facilities placed in service prior to August 8. 2005 are only eligible to receive the PTC for 5 years. 

14U.s. Congress, Joint Committee on Taxation, Present Law and Ana(ysis afEnergy-Reiated Tax Expenditures. 

JCX-28-l2, March 27, 2012, p. 2 (http://www.jctgovlpublications.html?func...Startdown&id=l414). 
10 

8 

4.3 Section (§) 1603 Program 15 

Section 1603 ofthe ARRA provides cash grants for investments in renewable energy 

production projects in lieu of the PTC or the ITC available under Section 45 or Section 48 of 

the Internal Revenue Code, respectively, depending on the technology type. Qualifying 

technologies include biomass, combined heat and power, fuel cells, geothermal, incremental 

hydropower, landfill gas, marine hydrokinetic, microturbine, municipal solid waste, solar, 

and wind. The value of the grant is equivalent to 30 percent of the project's total eligible 

cost basis, except for geothermal heat pumps, microturbines, and combined heat and power 

projects, where the value is 10 percent. The estimated 2011-2015 cost is $15.9 billion. 

The § 1603 Program is administered by the Department ofthe Treasury's Office of Financial 

Secretary (OFAS). DOE's National Renewable Energy Laboratory (NREL) manages the 

technical review of Program applications and advises OFAS on award decisions. 16 

The Department of the Treasury recently reported that more than $11.0 billion had been paid 

to 5,529 awardees under the Program, 17 and in its most recent "Overview and Status Update of 

the § 1603 Program" report, it noted that as of March 29, 2012J8 

• 34, I 04 projects were funded for a total of $11.2 billion. 

• Total private and federal investment in §1603 projects $37 billion. 

• Total installed capacity of funded projects = 16.5 billion watts (OW). 

Total estimated electricity generation from funded projects = 42 trillion watt-hours (TWh). 

Projects located in all 50 States, the District of Columbia and Puerto Rico are eligible for § 1603 

grants. As shown in Table 4, as of March 29, 2012, California had the largest number of 

proiects-17,250, or 50.6% of the total, Texas projects have received more than $1.7 billion, or 

15.2% of the total, and Texas also had the most installed capacity under the program-2,962.8 

megawatts (MW) or 17.9%. 

Table 4. §1603 Program Grant Projects by Locationl9 

i5For additional background. see Phillip Brown and Molly F. Sherlock, ARRA Sectioll 160] Grants in Licu ,,{Ttt< 

Credits fOr Renewable Energv: Oven·it'll' Ana/v,,;s and Policv Options, CRS Report R41635, November 9. 2011. 

I60FAS makcs the final decision on whether or not award §1603 Program funds. 

17U.S. Department ofthe Treasury, "Scction 1603 - Payments for Specified Renewable Energy Property in Lieu of 

Tax Credits, Awardees as ofMareh 13,2012" 

(http://www . treasury .gov/initiativeslrecovery/DocumcntsJSection%20 1603 %20A wards.xlsx) 

""Overview and Status Update oflhe §1603 Program," U.S. Department of the Treasury, Mareh 29. 2011, p. 

(http://www.trcasury.gov/initiativcs/rccovery/DocumentsIStatus%20overvi~w.pdt). 

!9 Ibid., pp. 3-4 (http://\VVt'w.treasury.gov/initiatives/recoverv/DocumentsIStatusl%20overview.pdf). 
11 

9 

Figure 4 shows § 1603 grant projects by technology. The 34, I 04 solar projects, accounting for 

97.3 % of the total projects, have received $2.138 billion, or 19.1 % of the total grant value. The 

623 wind projects-I. 8% ofthe total-have received over $8.396 billion, or 75.0% ofthe total 

grant value. 
12 

10 

Figure 4. §1603 Projects by Technoiogy20 

Number of §1603Projects Amount of § 1603 Grants ($BiJlion (B» 

Generation Capacity by §1603 Project Type (Megawatts (MW) G",otb~nmll 

!Q~:'\[W 

2°Ibid., p. 2 (http://www.treasurv.gov/initiativ.<;)ilrecov~IYiP9CUll1el1t;;/Status%20overvi~4.D. 
13 

II 

A recent NREL analysisZ! used its Jobs and Economic Development Impacts (JED!) models to 

estimate the gross national employment and economic impacts of large wind and PV projects 

funded by the § 1603 Program from the Program's inception in September 2009 through 

November 10,20 II. The analysis estimated that up to 75,000 direct and indirect jobs and up to 

$44 billion in total economic output were supported by the design, manufacturing, construction, 

and installation of solar photo voltaic (PV) and wind projects funded by the § 1603 Program. In 

addition, the study estimated that the operation and maintenance of these solar and wind facilities 

would continue to sustain up to $1.8 billion per year in economic output over the lifetime of the 

facilities (20-30 years).22 

However, as the authors note, "this analysis does not include impacts from displaced energy or 

associated jobs, earnings, and output related to existing or planned energy generation resources 

(e.g., jobs lost in the operation of natural gas or coal plants due to the need for less electricity 

production from these plants, givcn increased generation from wind) or increases or decreases in 

jobs related to changes in electric utility revenues and consumer energy bills, among other 

impacts.,,23 And further, they state that "[tJhe results prescnted in this report cannot be attributed 

to the § 1603 grant program alone. Some projects supported by a § 1603 award may have 

progressed without the award, while others may have progressed only as a direct result of the 

program; therefore, the jobs and economic impact estimates can only be attributed to the total 

investment in the projects."Z4 

4.4 Advanced Energy Manufacturing Tax Credit ("48C") Program 

Section 1302 of the ARRA amended the Internal Revenue Code by adding a new Advanced 

Energy Manufacturing Tax Credit ("48C") ono percent for investments in manufacturing 

facilities for clean energy technologies.25 The estimated 2011-20 IS cost is $1.4 billion. 

The ARRA limited total credits to $2.3 billion, and required the Secretary of the Treasury, in 

consultation with the Secretary of Energy, to establish a program to consider and award 

2IDaniel Stenberg, Gian Porro, and Marshall Goldberg, Preliminmy Ana(ysis a/the Jobs and Economic Impacts 0/ 

Renewable Energy Project., Supported by the §1603 Treasury Grant Program, NRELlTP-6A20-52739, April 2012 

(http://www.nrel.gov/docs/fyI2osti/52739.pdt). 

"U.S. Department of Energy, "NREL Report Highlights Positive Economic Impact and Job Creation from 1603 

Renewable Energy Grant Program," April 6, 2012 (http://encrgy.govlarticlc&lnrcl-report-highlights-positiveeconomic-impact -and-job-creation-1603 -renewable-energy). 

"Ibid., Footnote 2, p. iv. 

24Ibid., p. vi. 

25Tcchnically, the tax credit is provided for investment in "eligible property" used in a ""qualifying advanced energy 

projeet." Under §48C(c)(1 )(A)(i), a "qualifying advanced energy project" is a project that "re-equips, expands, or 

establishes a manufacturing facility for the production of': (I) property designed to produce energy from renewable 

resources; (2) fuel cells, microturbines, or an energy storage system for usc with electric or hybrid-electric vehicles; 

(3) electric grids to support the transmission, including storage, of intermittent sources of renewable energy; (4) 

property designed to capture and sequester carbon dioxide emissions; (5) property designed to refine or blend 

renewable fuels or to produee energy conservation teehnologies; (6) electric drive motor vehicles that qualify for tax 

credits or components designed for usc with such vehicles; and (7) other advanced energy property designed to 

reduce greenhouse gas emissions. §48C( e )(2) defines "eligible property" as any property: (I) that is necessary for 

the production of qualifying advanced energy project property; (2) that is tangible personal property or other 

tangible property (not including a building and its structural components) that is used as an integral part of a 

qualifying faeility; and (3) with respect to which depreciation (or amortization in lieu of depreciation) is allowable. 

(See General E<planatians althe Administration's Fiscal Year 2013 Revenue Proposals, U.S. Department of the 

Treasary, February 2012, p. 7 (ht!Pi6vww.trcasury.govlresource-centeritax-poIicv/DocumentslGeneralExplanations-FY2013.pdf.)) 
14 

12 

certifications for qualified investments eligible for credits within 180 days of the date of 

enactment. Under §48C(d)(3)(A), credits may be allocated only to projects where there is a 

reasonable expectation of commercial viability. In addition, §48C(d)(3)(B) required 

consideration be given to which projects: (I) will provide the greatest domestic job creation 

(both direct and indirect) during the credit period (February 17,2009 through February 17, 

2013); (2) will have the greatest net impact in avoiding or reducing air pollutants or 

anthropogenic emissions of greenhouse gases (OHOs); (3) have the greatest potential for 

technological innovation and commercial deployment; (4) have the lowest levelized cost of 

generated or stored energy, or of measured reduction in energy consumption or OHO emission 

(based on the cost ofthe full supply chain); and (5) have the shortest completion time26 

Treasury's Internal Revenue Service (IRS) issued Notice 2009-7227 containing detailed 48C 

Program guidance that was effective on August 14,2009. The Notice stated that the IRS would 

consider projects under the 48C Program "only if' DOE provided "a recommendation and 

ranking for the project," and that DOE would "provide a recommendation and ranking only if it 

determines that the project has a reasonable expectation of commercial viability and merits a 

recommendation based on the criteria in §48C(d)(3)(B),,28 

The DOE recommendations were to "include a ranking of projects in descending order (that is, 

first, second, third, etc.) with "[t]hc project receiving the highest ranking)" being "allocated 

the tull amount of credit requested before any credit" was "allocated to a lower-ranked 

project." TIle same process was to bc repeated on the "second and lower-ranked projccts until 

the amount available for allocation" was "exhausted." DOE was to "recommend and rank 

projects only to the extent necessary to exhaust the amount available for allocation. ,,29 

IRS Notice 2009-7 also elaborated on the project eligibility and evaluation criteria DOE would 

use to base its review of and recommendations on projects; these are shown in Table 5 below. 3o 

Under the IRS criteria, companies applied for tax credits for 594 projects, requesting a total of 

$10,902,251,709; 176 requesting $2,783,932,005 were ineligible because they did not meet the 

specified requirements-:leaving 418 eli~tble applicants requesting a total of $8, 118,319,704 

competmg for the $2.3 bIllion aVaIlable: 

26Ceneral Explanations of the Administration's Fiscal Year 2013 Revenue Proposals j U.s. Department of the 

Treasury, Febmary 2012, p. 7 (hup:!lww\V.trea~Uly.gov/rcsource-ccnter/tax-policyjnocumcntslGcncn:tlExplanations-FY20 13 .pdf). 

""Notice 2009-72, Qualirying Advanced Energy Project Credit." Internal Revenue Bulletin, Bulletin 3009-37, 

Department of the Treasury, Internal Revenue Service, September 14.2009. pp. 325-362 

(http://www.irs.govlpublirs-irbsiirb09-37.pdD· 

"Ibid., p. 326. 

"Ibid. 

,oIbid., p. 334. Missing from these criteria is the §48C(d)(3)(B)(iv) requirement that the Secretary of the Treasury 

"sball take in to consideration which projects" "have the lowest levelized cost of generated or stored energy, or of 

measured reduction in energy consumption or greenhouse gas emission (based on the cost of the full supply chain)". 

"Statement of Henry Kelly, Principal Deputy Assistant Secretary, Office of Energy Efficiency and Renewable 

Energy, U.S. Department of Energy Before the Subcommittee on Energy, Natural Resources, and Infrastructure 

Committee on Finance, United States Senate, Hearing on Re-establishing U.S. leadership in Clean Energy, High 

Technology Manufacturing, May 20,2010, p. 6, footnote 11 

(http://linance.senate.govlimo/medialdoc/052010HKtestpill). 
15 

\3 

Table 5. Notice 2009-7 48C Program Project Eligibility and Evaluation Criteria 

· Evaluation Criterion 1: provides the greatest domestic job creation (both direct and indirect) during the credit 

period (February 17, 2009, through February 17, 2013). 

· Evaluation Criterion 2: provides the greatest net impact in avoiding or reducing air pollutants or 

anthropogenic emissions of greenhouse gases, 

I. Evaluation Criterion 3: has the greatest potential for technological innovation and commercial 

deployment, as indicated by (i) the production of new or significantly improved technologies, (ii) 

improvements in levelized costs and performance, and (iii) manufacturing significance and value. 

· Evaluation Criterion 4: has shortest project time from certification to completion. 

· Program Polic.y factors ". Program Policy Factor 3: Project Size 

". Program Policy Factor 1: Geographic Diversity Diversity 

". Program Policy Factor 2: Technology Diversity ". Program Policy Factor 4: Regional Economic 

Development 

§48C( d)(5) required public disclosure of the names of companies allocated 48C Program credits 

and the amounts.32 On January 8, 2010, President Obama announced awardees "competitively 

selected through a rigorous merit review process" of the entire $2.3 billion in available tax 

credits "for investments in 183 manufacturing facilities for clean energy products across 43 

states.")) The President's announcement also said that "the companies chosen say they will 

create more than 17,000 jobs. ,,34 

Of the nearly 600 project requests, tax credits were awarded to 183 projects submitted by 136 

different companies. Descriptions for 140 projects were voluntary submitted by companies 

awarded $1,67 billion. There are also an additional 43 projects awarded $632 million that do not 

have any descriptions. In the interim, two of the companies awarded tax credits-Stirling 

Energy Systems, Inc.,35 which received two tax credits totaling $10.4 million and United Solar 

Ovonic, LLC,36 which received one totaling $13.2 million- have declared bankruptcy. 

Table 6 presents 48C Program credits summary data by technology type. Based on infonnation 

voluntarily submitted by companies, solar energy projects received the largest number of tax 

credits (48 or 26.2% of total) and the largest amount of tax credits ($861,312,199 or 37.5% 

total), followed by wind (35 tax credits or 19.1 % of total, and $258,519,981 or 11.2% of total). 

Biomass, geothennal, solar, and wind technologies received 87 tax credits (47.5% of total) 

amounting to $1,158,190,786 (50.4% of (olal). 

"Intemal Revenue Service. "Frequently Asked Questions About the Quali fying Advanced Energy Project Credit 

(Internal Revenue Code section 48C)" (http://www.irs.gov/businc,,es/artic1e10,,id-242505,OO.html). 

""President Obama Awards $2.3 Billion for New Clean-Tech Manufacturing Jobs," The White House, Office of the 

Press Secretary, January 8, 2010 (http://www. whitchousc.gov!thc-nrcss-o(l1cclpresidcnt-obnma-awaros-23-billionnew-cican-tC'ch-manufacturing-iobs); and "Fact Sheet: $2.3 Bil1iou in New Clean Energy Manufacturing Tax 

Credits," The White House, Office of the Press Secretary. January 8, 2010 at (http://www.whitehouse.govlthe-pressoffice/fact-sheet-23-billion-new-clean-energy-manufacturi.1.lg,:i~-credits). 

""President Obama Awards $2.3 Billion for New Clean-Tech Manufacturing Jobs," The White House, Office of the 

Press Secretary, January 8, 2010 (http://www. whitchousc.gov!thc-press-omce/pn:sidcnt~()bama-.r."1wards-23-billionncw-clc~m-tcch-manur~cturing-jobs). 

"Jennifer Runyon "Solar Shakeout Continues: Stirling Energy Systems Files for Chapter 7 Bankruptcy," 

RenewableEnergyWorld.com, September 28, 2011 

http://www.renewab(cenergyworld.com/rea/ncws/artickJ20 I I J09/solar-shakcout-Qill!in1!.CS-stirlil1.g:CnCmv-svstcmsfiles-fo.r:£llimtcr-7 -lLankntptcy). 

""Energy Conversion Devices, United Solar Ovonic Filc For Bankruptcy," Solar Industry Magazine, February 14 

2012 (http://www.solarindustrymag.com!el 07 pluginslcontentlcontent.php'?content. 9703). 
16 

14 

Table 6. 48C Program Credits Summary Data by Techuology Type37 

Table 7 lists the top 25 companies ranked by amount of tax credits reccivcd-33% of credits 

went to companies who are subsidiaries or affiliates of foreign-domiciled parents. 38 

Table 7. Top 20 Recipients of 48C Tax Credits 

37Dcrived from 48C award data available at 

http://www.whitehousc.gov/sites/dcluuIUfilcs/48c selection OIBIO.xls. 

18Testimony of Kevin Book, Managing Director, Research, Clearview Energy Partners, LLC Before the 

Subcommittee on Energy, Natural Resources, and Infrastructure, Committee on Finance. United States Senate, 

Hearing on Re-establishing U.S. leadership in Clean Energy, High Technology Manufacturing. May 20,2010, p. 4 

(http://tinance. sennte. go" limo/media/doclO52 0 1 OKBtest.pdt). 
17 

15 

4.5 Tax Credits for Alcohol Fuels, Biodiesel, and Alternative Fuels39 

Tax credits for alcohol fuels were tirst enacted in 1980 as part of the Crude Oil Windfall Profit 

Tax Act of 1980 (P.L. 96-223) and subsequently modified many times in the interim. As shown 

in Table 8 below, almost all of the tax credits for alcohol fuels, biodiesel, and alternative fuels 

expired on December 31,2011; the only exception being the $1.01per gallon credit for cellulosic 

biofuels, which expires on December 31,2012. Even though these credits have expired, they 

have an estimated cost of$11.8 billion over the 2011-215 time period, with most of the cost 

coming from the impact they have on reducing excise tax receipts as opposed to revenue losses 

associated with income tax credits40 

Table 8. Summary of Alcohol Fuels, Biodiesel, and Alternative Fuels Provisions41 

Fuel Type Pt'r Gallon Inrt'utin' Amollnt Expiration 

Agli-bI6dl ... 1 and blo<U ... 1 $1.00 per gallon. plus December 31, 2011 

(5."'. 40..1., 6426, and 6427) $0.10 per gallon for sll1nll 

agri-biodi.,.l produce" 

Renfwable die~el $1.00 per gallon December 31. 2011 

(5ee,. 40..1., 6426, au(1 6427) 

Aleollol fu.1 (otll.r tllan .tb.nol .nd $0.60 per gallon December 31, 1011 

alcobol from Datural ga~ 01' conI) 

(sees. 40, 6426, aud 6427) 

Etbanol fuel $OA5 per gallon, plus Decemher 31, 2011 

(,.",.40.6426, and 64!7) $0.10 per' gallon for smun 

produce~ 

CeUuloslc biofuel (sec. 40) $1.01 per gallon (including December 31. 20U 

cellulosic akohol) 

Altf'l"Datin.' fUf'l (~cs. 6426 and 6427): $0.50 per gallon December 31, 2011 

· liquefied petroleum gas (September 30. 2014, III 

· P Serl",Fneh the- case ofliquefied 

hydrogen) 

· comprf'iljed or liquefied natural 

go. 

· Jiquf'fit'd IJ:"'dJ:ogrD 

· any Hquid fUf'l df'J'jYf'd fl'om coal 

through tbe FI«ber-Tl'ops<h 

pro('f's~ 

· compn'i'Sf'd or liquf'fied gao; 

dnin-d from biomas'S 

· liqUid fUf'l dE'ti'-ed from biomao;s 

"For additional background, see U.S. Senate, Committee on Budget, Tax Etpenditures: Compendium oj' 

Background Material on Individual Provisions, preparcd by the Congressional Research Service, S. pr(. III-58, 

December 201 0, pp. 163-170 (h.t\n:i/ww;v.gpo.gov/fdsvsipkgKr..RT -111SPRT62799IpdfICPRTIIISPRT62799.pd!). 

'"Molly F. Sherlock and Margot L. Crandall-Hollick, CRS Report 

R41769, March 28, 2012, Table 2 Notes, p. 16. 

41U.S. Congress, Joint Committee on Taxation, Present Law and Analvsis qj' Energy-Related Tax Expenditures, 

JCX-28-l2, March 27, 2012, p. 3 (http://www.jcLgov/publications.html?fbnc=startdown&id=4414). 
18 

16 

5. Administration's FY 2013 Budget Proposal and Recent Congressional Action42 

The President's FY 2013 revenue proposal for renewable energy includes extending the PTC and 

ITC for wind to facilities and property placed in service in 2013, extending the Treasury § 1603 

Program cash grant to all otherwise qualifying property placed in service in 2012 (including 

property on which construction begins in 2012), and extending tax credits for alcohol fuels, 

biodiesel, and alternative fuels by one year. For property that is placed in service after 2012, the 

proposal would replace the § 1603 Program grant with a refundable tax credit administered by the 

IRS. The refundable tax credit would be available for property on which construction begins in 

2009,2010,2011,2012, or 2013. The credit would be allowed with respect to property placed in 

service in 2013 (in the case of property, including wind facility property, that is part of a facility 

eligible for the renewable electricity production tax credit) and for property placed in service in 

2013,2014,2015, or 2016 (in the case of any other energy property). Qualification requirements 

for the refundable credit would be the same (except for the effectivc date provisions) as the 

qualification requirements currently applicable under the Treasury § 1603 Program grant 

program.43 It is estimatcd that cnacting these proposals would cost $3.9 billion over 10 years44 

The Administration has once again proposed an additional $5.0 billion for the 48C Program,45 

identical to its FY 201146 and FY 201247, proposals, which Congress did not approve. 

In recent Congressional action, the Senate has twice failed to approve an additional $4.6 billion 

for the 48C Program and a number of the renewable energy tax extcnsions proposed by the 

Administration contained in Senator Stabenow's amendment48 to S. 1813, the "Moving Ahead 

for Progress in the 21st Century Act" ("MAP-21 "), and in Section 112(a) of S. 2204, the Repeal 

Big Oil Tax Subsidies Act. 49 The Senate rejected Senator Stabenow's amendment on March 13 

by 49-49 and S. 2204 on March 29 by 51-47 -in both cases falling short of the 60 votes needed 

for adoption. 

42Por additional details, sec General Explanations a/the Administration's Fiscal Year 2013 Revenue Proposals. 

U.S. Department oflhe Treasury, February 2012, p. 7 (http://www.treusurv.govlrcsoUTcc-ccnlerltnxllolicylDocumcnts/General-Explanutions-FY2013.pd£)) 

"Ibid., pp. 35-36, and 207. 

44Molly F. Sherlock and Margot L. Crandall-Hollick, CRS Report 

R4l769, March 28, 2012, Table 2 Notes, p. 21. 

4'General Explanations of the Administration's Fiscal Year 2013 Revenue Proposals, U.S. Department of the 

Treasury, February 2012, pp. 7-8 (http://www.trcasury.gov!rcsource-c<'ntcr/tax-policylDocumentsiGencralExplanations-FY20 13.pdt). 

"General Explanations ottlte Administration's Fiscal Year 201lRevenue Proposals, U.S. Department of the 

Treasury, February 2010, pp. 6-7( http://www.lreasmy.gov/resource-center/tax-policyJDocumentsIGeneralExplanations-FY20 II.pdf). 

47 General Explanations 0/ the Administration's Fiscal Year 2012 Revenue Proposals, U.S. Department of the 

Treasury, February 2011. pp. 15-16 (http://www.tn::asury.gov/~csourcc-ccntcr/~~olicv/Documcnts/GencralExplanations-FY20l2.pdf). 

" Available at (http://www.congTcss.gov/cgi-lis/querylR?r112:FLDOO l:S51598,S5159R) 

49 Available at (http://www.gpo.govlfdsysLrJWJllLLS-112s22jL4!'..£SlQ,WIllLLS-112s2204pcs.pdO 
19 

Amortization of air and 

pollution control 

facilities 

17 

Appendix 1. Energy Tax Preferences so 

Allows the pre-1976 5~year amortization period for 

investments in pollution control equipment for coalfired electric generation plants available to those 

plants placed in service on or after January I, 1976. 

The 5-year amortization incentive for pre-I 976 

plants applies only to pollution control equipment 

with a useful life of 15 years or less. In that case 

100% ofthc cost can be amortized over five years. 

lfthe property or equipment has a useful life greater 

than 15 years, then the propo:tion of costs that can 

$0.8 None. 169 

SOSource: Moiley r. Sherlock and Margot L. Crandall-IIollick, Ellf'¥\' Tax Polin: ls.V1U>S in (he 112m Clm&'1"CSS, CRS Report 

R41769, March 28, 2012, Table 1, pp. CRS-8 ~ CRS-13. Table docs not include provisions estimated to have a revenue loss of 

less than $50 million over the 20 I] through 2015 period. 
20 

Energy credit ("[TC" 

or "investment tax 

credit")b 

Credits for holders of 

clean renewable 

energy bonds 

18 

Tax credit t..'tlual to 10% ofinvestmcnt in energy 

production using geothennal, microturhine, or 

combined heat and power methods. The tax credit 

is equal to 30% of investment in energy production 

using solar electric, solar hot water. fuel cell or 

small wind methods. 

against its income tax. Clean Renewable Energy 

Bonds ("CREBs") are subject 10 a volume cap of 

$1.2 hillion with a credit rate set to allow the bond 

to be issued at par and without interest. New Clean 

Renewable Energy Bonds ("New CREBs") are 

subject to a volume cap of$2.4 billion with a 

credit rate set at 70% of what would permit the 

bond to be issued at ar and without interest. 

$2.5 

$0.4 

None 

(geothermal 

excluding 

geothermal heat 

pumps); 

12/31116 (other 

technologies; 

solar has 

Volume limited 

(all authorized 

CREB and new 

CREBfunds 

have been 

allocated). 

48 

54.54C 
21 

Credit for alcohol 

fuels, biodiesel, and 

alternative fuelsa 

Qualified Energy 

Conservation Bonds 

(QECBs) 

19 

Coordinated income and excise tax credits. Ethanol 

tax credit generally 45¢ per galion (extra lOi for 

small producers); alcohol tax credit generally 60¢ 

per gallon for alcohol other than ethanol; $1 pcr 

gallon for biodiescl, agri-hiodieseL and renewable 

diesel (extra IO¢ for small producers of agribiodiesel); alternative fuels generally 50¢ per 

gallon; cellulosic biofucls generally Sl.0 1 per 

gallon. Passage of various legislation in 111th 

Congress made black liquor ineligible for both the 

cellulosic biofuel producer credit and the 

altemative fuels tax credit. Depending on the 

incentive, tax credits go to fuel producers 

$ll.R" 

$0.2 

12/31/2011 

(except for 

cellulosic biofuels production 

credit)cellulosic 

biofuels 

production 

credit), 

Volume limited. 

40,40A, 

6426, 6427(c) 

54D 

SIThis figure includes the reduction in excise tax receipts for alcohol fuels, biodicsel, and alternative fuel mixtures. 
22 

20 
23 

Exceptions for encrgyrelated publicly traded 

partnerships 

Exclusion of interest 

on State and local 

21 

Publicly traded partnerships are generally treated 

as corporations. The exception from this rule 

occurs if at least 90 percent of its gross income is 

derived from interest, dividends, real propct1y 

rents, or certain other types of qualifying 

income. Qualitying income includes income 

derived . 

A taxpayer may elect to recognize the gain from 

the sale of certain electric transmission properly 

over an eight year period. 

$1.2 None. 7704,851 

SO.2 None. 14L 142 

alndicates that the provision was extended or modified by The Tax Relief: Unemployment Insurance Reauthorization, and Job 

Creation Act of2010 (P.L. III-J 12). 

bQualifying property that was under construction prior to the end 0[2011 may he eligible for the Section 1603 Grant in Lieu of 

Tax Credit. 
24 

Chairman BROUN. Good morning. This is a joint hearing of the 

Subcommittee of Investigations and Oversight as well as the Subcommittee on Energy and Environment. I call this meeting to 

order. 

Good morning. Welcome to today’s joint hearing entitled, ‘‘Impact 

of Tax Policies on the Commercial Application of Renewable Energy 

Technology.’’ In front of you are packets containing the written testimony, biographies, and truth in testimony disclosures for today’s 

witnesses. 

Before we get started, since this is a joint hearing involving two 

Subcommittees, I want to explain how we will operate procedurally 

so all Members will understand how the question-and-answer period will be handled. As always, we will alternate between the Majority and Minority Members to allow all Members an opportunity 

for questioning before recognizing a Member for a second round of 

questions. We will recognize those Members present in the gavel in 

order of seniority on the full Committee and those coming in after 

the gavel will be recognized in order of their arrival. 

And I recognize myself for five minutes for my opening statement. 

Taxes were due to the IRS two days ago. With this fresh on everyone’s mind, it is timely for the Committee to fulfill its obligation 

under House Rule X Clause 2(c) to ‘‘review and study on a continuing basis the impact or probable impact of tax policies affecting 

subjects within its jurisdiction.’’ In this instance we are looking at 

an important piece of our Committee’s jurisdiction, the commercialization of energy technology. 

As Congress debates extending renewable energy tax provisions, 

it is important for this Committee to evaluate the merits of these 

provisions as well as the President’s overall request. At a fundamental level, we have to understand whether these subsidies have 

a positive net affect, not only on energy production but also on jobs 

and the economy as a whole. 

More specifically, we also need to evaluate whether the mechanisms previously employed, the tax credits and grants, are the 

most efficient ways to proceed. 

Until the passage of the stimulus bill, the primary tax mechanisms for incentivizing renewable energy were the Production Tax 

Credit and Investment Tax Credit. The passage of the Stimulus 

Bill brought about additional methods, including the Advanced Energy Manufacturing Tax Credit, also known as 48C, and the 1603 

Program, which provided cash grants in lieu of tax credits. Both of 

these are administered by the Department of Treasury with support from the Department of Energy and the National Renewable 

Energy Laboratory. Altogether the PTC, ITC, 1603, and the 48C 

and other renewable energy provisions are estimated to cost $43.1 

billion between 2011 and 2015. 

A lot of attention has been paid to the failures of Solyndra, Beacon Power, and Ecotality, which received questionable support from 

DOE, and rightfully so. What many don’t realize, however, is that 

these direct expenditures from DOE are a mere drop in the bucket 

compared to what these technologies received from tax provisions. 

In 2011 alone, tax preferences for all energy technologies cost $20.5 

billion, far exceeding the $3.2 billion in direct support from DOE. 
25 

Unfortunately, these significantly greater expenditures have not 

shared the same level of oversight. 

Today’s hearing will examine the efficacy of renewable energy 

tax policy, the Administration’s 2013 renewable tax energy proposals, and the 1603 and 48C Programs in detail. 

Regarding the 1603 Program, it is important to understand just 

how many new jobs were actually observed as opposed to how 

many jobs a model predicts could have been created. It is also important to understand the net impact on jobs and energy production as a result of this specific provision, not simply what is happening on one side of the ledger. I also want to know how many 

of these jobs were actually created here in the United States as opposed to overseas. 

Ultimately, our goal should be to ensure an efficient, all-of-theabove strategy with—that respects market decision and does not 

pile more debt on our children and grandchildren that they will 

have to pay in years to come. The current national debt is over 

$15.6 trillion. China currently holds 1.18 trillion of our Nation’s 

$5.1 trillion foreign-owned debt. It doesn’t make any sense for us 

to borrow more money from China and then use it to buy foreign 

renewable energy components. These technologies, I might add, are 

unfortunately not cost competitive and will make our domestic energy more expensive. 

All of this, by the way, is done to reduce our own greenhouse gas 

emissions when China and the rest of the developing world account 

for most of the emissions growth. 

[The prepared statement of Mr. Broun follows:] 
26 

OPENING STATEMENT 

The Honorable Paul Broun M.D. (R-GA), Chairman 

Subcommittee on Investigations & Oversight 

Joint hearing with 

Subcommittee on Encrgy and Environment 

Impact o/Tax Policies on the Commercial Application of Renewable Energy Technology 

April 19, 2012 

Taxes were due to the IRS two days ago. With this fresh on everyone's mind, it is timely for the 

Committee to fulfill its obligation under House Rule X clause 2(c) to "review and study on a 

continuing basis the impact or probable impact oftax policies affecting subjects within its 

jurisdiction." In this instance, we are looking at an important piece of our Committee's 

jurisdiction, the "Commercialization of Energy Technology." As Congress debates extending 

renewable energy tax provisions, it is important for this Committee to evaluate the merits of 

these provisions as well as the President's overall request. At a fundamental level, we have to 

understand whether these subsidies have a positive net effect on not only energy production, but 

also jobs, and the economy as a whole. More specifically, we also need to evaluate whether the 

mechanisms previously employed tax credits and grants - are the most efficient ways to 

proceed. 

Until the passage of the stimulus bill, the primary tax mechanisms for incentivizing renewable 

energy were the Production Tax Credit and the Investment Tax Credit. The passage of the 

stimulus bill brought about additional methods including the Advanced Energy Manufacturing 

Tax Credit, known as "48C," and the 1603 program which provided cash grants in lieu of tax 

credits. Both ofthese are administered by the Department of Treasury with support from the 

Department of Encrgy and the National Renewable Energy Laboratory. Altogether, the PTC, 

lTC, 1603, 48C and other renewable energy provisions are estimated to cost $43.1 billion 

bctwecn 2011 and 2015. 

A lot of attention has been paid to the failurcs of Solyndra, Bcacon Power, and Ecotality which 

received questionable support from DOE, and rightfully so. What many don't realize, however, 

is that these direct expenditures from DOE arc a merc drop-in-the-bucket compared to what these 

technologies received from tax provisions. In 2011 alone, tax preferences for all energy 

tcchnologies cost $20.5 billion, far excceding thc $3.2 billion in dircct support from DOE. 

Unfortunately, these significantly greater expenditures have not shared the same level of 

oversight. 

Today's hearing will examine the efficacy ofrencwablc energy tax policy, the Administration's 

FY 2013 renewable energy tax proposals, and the 1603 and 48C programs in detail. Regarding 

the 1603 program, it is important to understand just how many new jobs wcrc actually observed, 

as opposed to how many jobs a model predicts could have been created. It's also important to 

understand the net impact on jobs and energy production as a result of this specific provision, not 

simply what is happening on one side of the ledger. I also want to know how many of these jobs 

were actually created here in the U.S. as opposed to overseas. 
27 

Ultimately, our goal should be to ensure an efficient "all of the above strategy" that respects 

market decisions and does not pile on more debt that our children and grandchildren will have to 

pay for in years to come. The current national debt is over $15.6 trillion. China currently holds 

$1.l8 trillion of our nation's $5.1 trillion foreign-owned debt. It doesn't make any sense for us 

to borrow more money from China and then use it to buy foreign renewable energy components. 

These technologies, I might add, are unfortunately not cost-competitive, and will make our 

domestic energy more expensive. All of this, by the way, is done to reduce our own greenhouse 

gas emissions when China and the rest of the developing world account for most of the emissions 

growth. 

### 
28 

Chairman BROUN. Now the Chair will recognize Mr. Miller, I 

guess, for his opening statement. 

Or Mr. Tonko. I didn’t see you sitting over there, my friend. I 

will recognize Mr. Tonko, my counterpart on I & O. 

Mr. TONKO. Thank you, Chairman. 

To Chairs Broun and Harris, thank you for holding the hearing 

today on renewable energy tax credits. Although the legislation authorizing these incentive programs is not in our jurisdiction, it is 

good for this Committee, I believe, to examine the subsidies that 

can influence markets in those technology sectors where we authorize research. 

Here in the Science Committee we authorize the full suite of research, development, and technology demonstration programs that 

bring new ideas and new technologies forward. Many things fall by 

the wayside along that path, but even the most promising demonstrated technology still has to overcome many barriers to entry 

into the marketplace. 

We have a long tradition of government support for business, 

particularly for the energy business: government procurement, tax 

credits, government certification programs, patent and copyright 

laws, and public, private partnerships to name a few. All of these 

instruments and more have been used to help businesses get established and flourish. 

We have a pressing need for an affordable staple supply of energy. Renewable energy must move forward and become a larger 

share of our energy supply. The investment and production tax 

credits, the 1603 Program, and the depreciation benefits for renewable energy properties are all needed to accelerate the entry into 

the market of renewable energy technologies, grow the domestic 

market for these technologies, and certainly create jobs. 

I support these programs because they work. Some of them need 

to be expanded to promote wider applications of new energy technologies. A number of them need to be sustained for longer periods 

of time that are more appropriate to invest horizons, to investment 

horizons than the Congressional budget cycle. 

On April 15 of last year I introduced H.R. 1659, a bill to expand 

the existing credit for fuel cell motor vehicles to include industrialuse vehicles. The United States is currently the leader in the manufacture of fuel cell technologies. If we grow the domestic market, 

we will continue to lead in this area. But if we withdraw our support, as we did with solar in the 1980s, we risk losing this manufacturing edge. 

In my former position as president and CEO of the New York 

State Energy Research and Development Authority, I saw how effective and essential State and federal investment was to the development of these businesses. The partnership between the federal 

and State government, universities, and entrepreneurs in New 

York State is paying dividends in the form of jobs and energy. 

I am very pleased to have Mr. Steven Erby sit before the committee today. He is the vice president of Monolith Solar Associates, 

which is a solar energy company from my district. Mr. Erby and 

his associates know firsthand the value of these tax policies to entrepreneurs. Starting your own business is not a task for the faint 

of heart. Convincing customers to try something new is, indeed, dif-
29 

ficult. But, Mr. Erby and his partner, Mark Fobare, have achieved 

success and continue to create jobs and hire residents in the Capital Region. 

This is an economic success story that I would like to see repeated throughout our country. The 1603 Program helped them to 

achieve success. It made the Federal Government a true partner in 

job creation and deployment of solar energy in the Northeast Region, and it put government on their side, not on their backs. We 

need to make a sustained commitment to expand alternative energy production and to improve energy efficiency, the two most reliable ways to reduce our dependence on foreign oil, insulate ourselves from volatile fuel prices, and maintain a clean environment. 

We have relied on fossil fuel since the start of the Industrial Revolution, and we have invested a tremendous amount of taxpayer 

funds to support the oil, gas, and coal industries. Nuclear energy, 

the newer kid on the block, has received federal support for over 

70 years as we all know. The oil industry has been in business 

since 1918, and made profits of over $100 billion last year alone, 

and they will still receive over $4 billion in subsidies each year. 

It is impossible to make a case for the necessity of maintaining 

this level of support for such a mature industry. In fact, we might 

say it is mindless in terms of the handout of that benefit. 

Renewable energy technologies must compete against the existing energy sources with federal support that constantly threatens 

to pull the rug out from under their feet. A move to renewable energy sources requires a similar level of support and commitment to 

the one we offer to oil and gas and our nuclear industry. 

The renewable tax credits we are examining today are working. 

They are working and need to be continued. We talk a lot about 

supporting small business, having affordable domestically produced 

energy, and a healthy environment. It is meaningless if we do not 

back that rhetoric with real resources. 

I look forward to hearing from our witnesses today. It is unfortunate that we are only examining the tax provisions relevant to the 

renewable energy community. A fair evaluation of our tax policy requires a view of the entire energy tax landscape, including centuryold oil and gas tax breaks. I hope our colleagues on Ways and 

Means will move forward with the renewal of these important 

clean energy tax provisions so that companies eager to provide the 

market with clean energy technologies will, indeed, have a fair 

chance, a fair chance to deliver them. 

With that I thank you and yield back, Mr. Chair. 

[The prepared statement of Mr. Tonko follows:] 
30 

Opening Statement 

Rep. Paul D. Tonko, Ranking Member 

Subcommittee on Investigations and Oversight 

Hearing on: 

The Impact of Tax Policies on the Commercial Application of 

Renewable Energy Technology 

April 19, 2012 

Thank you, Chairman Broun and Chairman Harris for holding the hearing 

today on renewable energy tax credits. Although the legislation authorizing these 

incentive programs are not in our jurisdiction, it is good for this Committee to 

examine the subsidies that can int1uenee markets in those technology sectors where 

we authorize research. 

Here in the Science Committee we authorize the full suite of research, 

development, and technology demonstration programs that bring new ideas and 

new technologies forward. Many things fall by the wayside along that path, but 

even the most promising demonstrated technology still has to overcome many 

barriers to entry into the marketplace. 

We have a long tradition of government support for business - particularly 

for the energy business. Government procurement, tax credits, government 

certification programs, patent and copyright laws, and public-private partnerships -

all of these instruments and more have been used to help businesses get established 

and t1ourish. 

We have a pressing need for an affordable, stable supply of energy. 

Renewable energy must move forward and become a larger share of our energy 

supply. The investment and production tax credits, the 1603 program, and the 

depreciation benefits for renewable energy properties are all needed to accelerate 

the entry into the market of renewable energy technologies, grow the domestic 

market for these technologies, and create jobs. I support these programs because 

they work. Some of them need to be expanded to promote wider applications of 

new energy technologies. A number of them need to be sustained for longer 

periods of time that are more appropriate to investment horizons than the 

Congressional budget cycle. 
31 

On April 15 last year, I introduced H.R. 1659, a bill to expand the existing 

credit for fuel cell motor vehicles to include industrial-use vehicles. The U.S. is 

currently the leader in the manufacture offue! cell technologies. Ifwe grow the 

domestic market, we will continue to lead in this area. But, if we withdraw our 

support, as we did with solar in the 1980s, we risk losing this manufacturing edge. 

In my former position with the New York State Energy Research and Development 

Authority, I saw how effective and essential state and federal investment was to the 

development of these businesses. The partnership between the federal and state 

government, universities, and entrepreneurs in New York is paying dividends in 

the form of jobs and energy. 

I am very pleased to have Mr. Stephen Erby sit before the committee today. 

He is the Vice President of Monolith Solar Associates, which is a solar energy 

company from my district. Mr. Erby and his associates know first-hand the value 

of these tax policies to entrepreneurs. Starting your own business is not a task for 

the faint-of-heart. Convincing customers to try something new is difficult. But 

Mr. Erby and his partner, Mark Fobare, have achieved success and continue to 

create jobs and hire residents of the Capital Region. This is an economic success 

story that I would like to see repeated throughout the country. The 1603 program 

helped them to achieve success. It made the federal government a partner injob 

creation and deployment of solar energy in the northeast region. It put government 

on their side, not on their backs. 

We need to make a sustained commitment to expand alternative energy 

production and to improve energy efficiency - the two most reliable ways to 

reduce our dependence on foreign oil, insulate ourselves from volatile fuel prices, 

and maintain a clean environment. We have relied on fossil fuels since the start of 

the industrial revolution, and we have invested a tremendous amount of taxpayer 

funds to support the oil, gas, and coal industries. Nuclear energy, the newer kid on 

the block, has received federal support for over 70 years. The oil industry has been 

in business since 1918 and made profits of over $100 billion last year alone. And 

they will still receive over S4 billion in subsidies each year. It is impossible to 

make a case for the necessity of maintaining this level of support for such a mature 

industry. 

Renewable energy technologies must compete against the existing energy 

sources with federal support that constantly threatens to pull the rng out from under 

their feet. A move to renewable energy sources requires a similar level of support 

and commitment to the one we offered to oil and gas and the nuclear industry. The 

renewable tax credits we are examining today are working and need to be 
32 

continued. We talk a lot about supporting small business, having affordable 

domestically-produced energy, and a healthy environment. It is meaningless if we 

do not back the rhetoric with real resources. 

I look forward to hearing from our witnesses today. It is unfortunate that we 

are only examining the tax provisions relevant to the renewable energy 

community. A fair evaluation of our tax policy requires a view of the entire energy 

tax landscape - including century old oil and gas tax breaks. I hope our colleagues 

on Ways and Means will move forward with a renewal ofthese important clean 

energy tax provisions so that companies eager to provide the market with clean 

energy technologies will have a fair chance to deliver them. 
33 

Chairman BROUN. Thank you, Mr. Tonko. The Chair now recognizes the Chairman of the Subcommittee on Energy and Environment, Dr. Harris, for your opening statement. You have five minutes, sir. 

Dr. HARRIS. Thank you very much, Mr. Chairman. As you said, 

as millions of Americans filed their taxes this week, many surely 

stopped to ponder what happens to the thousands of dollars they 

send to Uncle Sam. A good chunk of that money, nearly $14 billion 

last year, according to CBO, is spent offsetting the cost of renewable energy tax credits. Despite their staggering price tag, which 

is more than five times greater than renewable energy research 

and development spending, these programs have operated in relative obscurity. Today’s hearing is intended to examine the impact 

and effectiveness of these credits as Congress considers President 

Obama’s call to extend funding them with taxes on hardworking 

American taxpayers. 

As we evaluate these subsidies, it is important to remember that 

the President promoted them as not only central to his effort to 

fight global warming but also as generating jobs that would drive 

America’s economic recovery. By this metric, the results have been 

extremely disappointing. 

For example, a recent Wall Street Journal report found that the 

Section 1603 Program created in the Stimulus Bill to provide companies lump sum cash payments of up to 30 percent of a project’s 

cost resulted in far fewer jobs than expected. The report noted that 

collectively applicants stated in program applications that their 

projects would create more than 100,000 jobs. However, the Journal’s analysis of $4.3 billion of those wind projects, representing 

about 40 percent of the total program funding, estimated that only 

7,200 jobs were created at the peak of construction and that those 

projects now employ only 300 people. 

Similarly, Reuters reported last week that the wind industry has 

lost 10,000 jobs since 2009, while the oil and gas industry added 

75,000 jobs during that time. 

In addition to concerns associated with the high cost and weak 

job creation resulting from these programs, the electricity produced 

by wind and solar represents less than three percent of current 

generation, can cost up to five times as much to produce per kilowatt hour, and must be backed by additional baseload capacity to 

take over when the wind doesn’t blow and the sun doesn’t shine. 

Perhaps most importantly even with generous government subsidies consumers are ultimately required to shoulder the costs of 

renewable electricity directly in the forms of higher electric bills 

and indirectly in the higher costs passed onto them by businesses 

that also pay more for electricity. 

This exact situation is currently under consideration in my home 

State of Maryland, where Governor O’Malley continues to push and 

mandate, push to mandate and subsidized with federal taxpayer 

dollars development of a $1.5 billion offshore wind farm. If adopted, 

his plan would increase significantly the electricity bills of nearly 

every resident in the State. 

I would note as an aside that this proposal has generated concerns of Solyndra-like cronyism, as the governor’s former chief of 
34 

staff is now managing partner at an offshore wind energy firm that 

could stand to benefit from passage of the plan. 

As this debate continues, the free market in energy is already 

providing a cost saving alternative in the form of a technology-driven revolution in natural gas production that can deliver clean, reliable, baseload electricity to consumers at lower prices. 

The contrast between these two paths is stark. The President’s 

one is a centrally planned, politically driven path requiring taxpayers and ratepayers to pick up the tab for more expensive energy. The alternative would allow technology in the free market to 

determine the best and most affordable mix of electricity sources 

without burdening hardworking taxpayers and driving up already 

huge federal deficits. 

As Congress considers the President’s call to extend these subsidies, I hope these choices are the subject of thorough and open 

debate, taking into account the hardworking American taxpayer 

and the hardworking American electricity rate payer. 

Thank you, Mr. Chairman. 

[The prepared statement of Dr. Harris follows:] 
35 

OPENING STATEMENT 

The Honorable Andy Harris (R-MD), Chairman 

Subcommittee on Energy and Environment 

Joint hearing with 

Subcommittee on Investigations & Oversight 

Impact of Tax Policies on the Commercial Application of Renewable Energy Technology 

April 19, 2012 

As millions of Americans filed their taxes this week, many surely stopped to ponder what 

happens to the thousands of dollars they send to Uncle Sam. 

A good chunk of that money-nearly $14 billion last year according to CBO-is spent offsetting 

the cost of renewable energy tax credits. Despite their staggering price tag-which is more than 

five times greater than renewable energy R&D spending-these programs have operated in 

relative obscurity. Today's hearing is intended to examine the impact and effectiveness of these 

credits as Congress considers President Obama's call to extend them. 

As we evaluate these tax preferences, it is important to remember that the President promoted 

them as not only central to his effort to fight global warming, but also as generating jobs that 

would drive America's economic recovery. By this metric, the results have been extremely 

disappointing. For example, a recent Wall Street Journal report found that the "Section 1603 

Program"-created in the Stimulus bill to provide companies lump-sum cash payments of up to 

30 percent of a project's cost-resulted in far fewer jobs than expected. 

The report noted that, collectively, applicants stated in program applications that their projects 

would create more than 100,000 jobs. However, the Journal's analysis of $4.3 billion of wind 

projects-representing about 40 percent of total program funding---estimated that only 7,200 

jobs were created at the peak of construction, and that those projects now employ only 300 

people. Similarly, Reuters reported last week that the wind industry has lost 10,000 jobs since 

2009, while the oil and gas industry added 75,000 jobs during that time. 

In addition to concerns associated with the high costs and weak job creation resulting from these 

programs, the electricity produced by wind and solar represents less than three percent of current 

generation, can cost up to three times as much to produce per kilowatt-hour, and must be backed 

by additional baseload capacity to take over when the wind doesn't blow or the sun doesn't 

shine. 

Perhaps most importantly, even with generous government subsidies, consumers are ultimately 

required to shoulder the costs ofrenewable electricity directly in the form of higher electric bills 

and indirectly in the higher costs passed on to them by businesses that also pay more for 

electricity. 

This exact situation is currently under consideration in my state of Maryland, where Governor 

O'Malley continues to push to mandate and subsidize development of a $1.5 billion offshore 
36 

wind farm. If adopted, his plan would increase significantly the electricity bills of nearly every 

resident in the state. I would note as an aside that this proposal has generated concerns of 

Solyndra-like cronyism, as the Governor's former chief of staff is now managing partner at an 

energy firm that could stand to benefit from passage of the plan. 

As this debate continues, the free market in energy is providing a cost-saving alternative in the 

form of a technology-driven revolution in natural gas production that can deliver clean, reliable 

baseload electricity to consumers at lower prices. The contrast between these two paths is 

stark-onc is a centrally-planned, politically-driven path requiring taxpayers and ratepayers pick 

up the tab for more expensive energy; the other allows technology and the free market to 

determine the best and most affordablc mix of electricity sources without burdening taxpayers 

and driving up federal deficits. 

As Congress considers the President's call to extend these tax preferences, I hope these choices 

are the subject ofthorough and open debate, taking into account the hard-working American 

taxpayer. 
37 

Chairman BROUN. Thank you, Dr. Harris. 

The Chair now recognizes Mr. Miller for your opening statement. 

You have five minutes, sir. 

Mr. MILLER. Thank you, Mr. Chairman. 

It is funny to remember that when I was first elected to Congress, first entered Congress nine years ago, I found partisan warfare tedious and wanted to pick committee assignments that would 

not just put me in one litmus test battle after another. The issues 

I had worked on the state legislature would have been in the jurisdiction more of the Judiciary Committee or of the Education and 

Labor or Education and the Workforce Committee, but those Committees were just seen as partisan battlegrounds with one litmus 

test vote after another and no real opportunities for imaginative, 

constructive work by Members of Congress. 

I apologize to the Members of those Committees if they think 

that is an unfair characterization, but that was the impression of 

those Committees and why I did not particularly want to be on 

those Committees. I picked Committees that traditionally had not 

been divided along partisan lines—Financial Services and Science 

and Technology—now two Committees that are one partisan litmus 

test after another, it appears. 

In the past, there seemed to be broad agreement about the importance of science, the importance of research for its own sake, to 

satisfy our curiosity—a deep human need—but also in recognition 

that our economy depended upon research, and it depended upon 

getting ideas from the laboratory to the marketplace; that we prospered because we were the most agile, innovative, energetic economy in the world. 

Within our lifetimes, we have seen our economy transformed by 

information technology, and that revolution, that technological revolution, like others, has not been the result just of an unfettered 

free market, but it has been the work of the whole Nation—the 

public sector and the private sector. The internet began as a 

DARPANET, created by government research, and it is very clear, 

or should be very clear, that our energy future is going to be different from our energy past, and we need to be in the forefront of 

developing those new technologies as well. 

But instead of having that broad agreement about the need to 

help emerging technologies that are obviously our future, it 

leaves—had one partisan litmus test, vote, or issue after another. 

There is doctrinaire opposition to clean energy as picking winners 

or losers or crowding out private investment, when in fact the conventional sources of energy have benefited spectacularly over the 

last century from hundreds of billions of dollars of taxpayer support. They have not been the result of a free market, whether it 

is from outright subsidies or tax breaks, limitations of liability. And 

if you wonder if the Price-Anderson Act really is a significant subsidy for the nuclear industry, look at what is happening right now 

in Japan. 

Yes, there has been a large government involvement in encouraging new energy sources. The ones that we have now had benefited from that, and the energy sources of our future need to as 

well. 
38 

I think we all on this Committee sometimes covet the jurisdiction 

of other Committees, and we are frustrated at the limitations of 

our legislative authority, our legislative jurisdiction, and we take a 

more expansive view of our jurisdiction for hearings. I was guilty 

of that when I was Chairman of the Subcommittee, Oversight Subcommittee, this Committee, for four years. We certainly had hearings where if we had actually legislated, we probably would have 

been in a fistfight with the Energy and Commerce Committee or 

other Committees. 

But this hearing does not appear to be within hailing distance, 

within sight, of this Committee’s jurisdiction if we actually try to 

legislate in this area. I think we are interested in how we need to 

help, or whether we should help emerging energy technologies, but 

this is a very imaginative reading of the Committee’s jurisdiction. 

With that, I look forward to hearing the testimony of our witnesses today. Thank you. 

[The prepared statement of Mr. Miller follows:] 
39 

OPENING STATEMENT 

RANKING MEMBER BRAD MILLER 

Joint 1&0 and E&E hearing, "impact of Tax Policies on the Commercial Application of 

Renewable Energy Technology" 

Thank you, Mr. Chairman. 

During the first eight years that I served on this committee there was a genuine feeling of 

bipartisanship. What united the Members of this committee was a support for new and 

emerging technologies and a beliefthat American innovation was going to create and 

sustain our future economy. 

After this past experience I have been suprised that my Republican colleagues in this 

Congress, spend so much of our lime trying to tear down the clean energy industry. It 

appears that my colleagues believe that sacrificing a homegrown, fledgling industrial 

sector is a small price to pay for scoring a few political points against the President. 

The American public rejects the Republican's assertions that we cannot innovate our way 

into a cleaner, more sustainable, and more affordable energy future for the country. 

Will it happen overnight, or even with the first-term of a Presidency? Nope. The 

problem is too big. Will the conventional technologies be a part of our economy for the 

foreseeable future? You bet. For the most part, they are plentiful enough and the 

infrastructure is in-place. And they're not going anywhere soon. 

But, by starting now we can capitalize on the innovative capacity of our country and 

build the momentum required to upgrade our aging energy infrastructure with new, more 

sustainable tcchnologies, meanwhile keeping our wealth at home. By taking these steps 

now, we'll have another system in place as those conventional resources run out or get 

too expensive, or prove to be too toxic to our health. 

That common sense approach gets mired in a tired and stale policy debate about the 

government "picking winners and losers" and "crowding out private investment". As if, 

any government support for clean energy - from basic research to tax credits - amounts to 

unacceptable interference in the free market. 

So, to my colleagues, if you don't like tax incentives for clean energy projects, then I've 

got something that you should really hate it is the hundreds of billions of taxpayer 

dollars spent over the last century subsidizing the oil, gas, nuclear and coal industries. 
40 

Ifwe are sitting here to ostensibly meet some House rule requiring us to examine the 

implications of tax incentives on programs in our jurisdiction which this is not - then 

why are we not looking at tax and other forms of subsidies for ALL of the energy sector. 

From straight tax breaks, to land deals, to limiting corporate liability in the case of 

accidents, let's at least be honest about what picking a winner really looks like. What we 

started recently doing [or renewables is tiny in comparison to the decades 0 f government 

support for conventional energy technologies. 

For thosc that still think that wc should lct thc frcc markct dccidc on thc bcst cncrgy 

technologies, I have some bad news. There is no "[ree" market. Winners were chosen a 

long time ago, and Americans just have to make do with what we have, no matter the cost 

to our pockct books, national sccurity, environmcnt, and public hcalth. 

What we are trying to do with instruments like the 1603 program is level the playing 

field, and for thc first timc introducc REAL competition into thc encrgy markctplace. 

Only when these vibrant new industries are up and running will consumers have a 

genuine choice about their energy use, and will America once again secure its position as 

a leader in a global tcchnology race. 

Thank you, and I yield back. 
41 

Chairman BROUN. Thank you, Mr. Miller. I would like to remind 

you that the hearing is conducted pursuant to Clause 1P6 of House 

Rule X, which assigns the Committee on Science, Space, and Technology jurisdiction over the commercial application of energy technology, and Clause 2C of House Rule X, which requires each standing committee to review and study on a continuing basis the impact or probable impact of tax policies affecting subjects within its 

jurisdiction. 

So we do have jurisdiction over this subject today, and I am sure 

my good friend from North Carolina has probably just overlooked 

that. 

Going forward, I thank Mr. Miller for your opening statements 

and wish—if there are any other Members who wish to submit additional opening statements, your statements will be added to the 

record at this point. 

At this time, I would like to introduce our first panel of witnesses. First is Dr. Molly Sherlock, a Specialist in Public Finance 

to the Congressional Research Service. Mr. John Parcell, the Acting 

Deputy Tax Legislative Counsel of the U.S. Department of Treasury, and Mr. Michael Pacheco, the Vice President of Deployment 

and Market Transformation at the National Renewable Energy 

Laboratory. 

As our witnesses know, I think you all know, spoken testimony 

is limited to five minutes each, after which Members of the Committee will have five minutes each to ask questions. Your written 

testimony will be included in the record of the hearing. It is the 

practice of the Subcommittee on Investigations and Oversight to receive testimony under oath. We will use that practice as well today. 

Do any of you have an objection of taking an oath? 

Let the record reflect that all witnesses shook their head from 

side to side in the common notion of no. 

You also may be represented by counsel. Do any of you have 

counsel here today with you? 

No. Okay. Let the record reflect also that the witnesses have indicated that none have counsel. 

If you would now please stand, raise your right hand. 

[Witnesses sworn.] 

Chairman BROUN. Yes. Okay. Let the record reflect, you all may 

be seated, that all the witnesses have taken the oath of truth. 

We will now recognize our first witness from the first panel, Dr. 

Sherlock, with the Congressional Record Service. You have five 

minutes. 

STATEMENT OF DR. MOLLY F. SHERLOCK, 

SPECIALIST IN PUBLIC FINANCE, 

CONGRESSIONAL RESEARCH SERVICE 

Dr. SHERLOCK. Thank you. Mr. Chairman and Members of the 

Subcommittee, on behalf of the Congressional Research Service, I 

thank you for the opportunity to appear before you today. 

There are three main points I was asked to discuss in today’s testimony. First, I will identify the primary tax incentives that support renewable energy. Second, I will briefly discuss renewable energy proposals in the President’s fiscal year 2013 budget request. 
42 

Finally, I will note the characteristics of an economically efficient 

energy tax policy. These comments summarize longer written testimony, which has been submitted for the record. 

Historically, the primary tax incentives for renewables have been 

the Renewable Energy Investment Tax Credit, or ITC, and the Renewable Energy Production Tax Credit, or PTC. The ITC was first 

introduced in 1978. Currently, a 30 percent tax credit is available 

for investments in solar energy property, fuel cells, and small wind 

systems. A 10 percent tax credit is available for geothermal systems, microturbines, and combined heat and power property. The 

ITC is scheduled to expire at the end of 2016, although there is a 

permanent 10 percent ITC for certain solar property. In fiscal year 

2011, the renewable energy ITC cost $300 million in terms of foregone revenue. 

The PTC was first introduced in 1992. While the PTC was introduced as a temporary tax incentive, in the past it has regularly 

been extended. The PTC for wind is scheduled to expire at the end 

of 2012. The PTC for other eligible technologies, including biomass, 

geothermal, landfill gas, municipal solid waste, certain hydroelectric, and marine and hydrokinetic technologies, is scheduled to 

expire at the end of 2013. In fiscal year 2011, the renewable energy 

PTC cost $1.4 billion in terms of foregone revenue. 

The American Recovery and Reinvestment Act of 2009 introduced 

two new tax-related provisions for renewable energy that have increased the overall cost of renewable energy tax incentives in recent years. 

First, investors eligible for the renewable energy ITC or PTC 

could elect to receive a one-time grant from the Treasury in lieu 

of these tax benefits. This provision, often referred to as the Section 1603 Grant, is only available to projects that were under construction before the end of 2011. 

As of March, more than $11 billion has been paid out under the 

Section 1603 Grant Program. Of this, $4.7 billion was paid out in 

2011. Additional grants will be paid out as qualifying projects are 

completed. Through the end of 2017, it has been estimated that an 

additional $11.5 billion will be paid out in Section 1603 grants, 

bringing the total estimated cost of the program to $22.6 billion. 

Also established as part of the Recovery Act was the Advanced 

Energy Manufacturing Tax Credit. In January, 2010, $2.3 billion in 

tax credits were awarded to 183 advanced energy manufacturing 

projects. These tax credits were allocated through a competitive 

process, and a number of technically eligible projects were not 

awarded tax credits. 

The President’s fiscal year 2013 budget contains a number of proposals that would extend and modify certain tax incentives for renewable energy. The Administration supports extending the PTC 

for wind, as well as an extension of the Section 1603 Grant Program. Under the Administration’s proposal, the Section 1603 grant 

would be replaced with a refundable tax credit starting in 2013. 

The Joint Committee on Taxation has estimated that these proposals would cost $5.7 billion. The Administration has also proposed an additional $5 billion allocation for advanced energy manufacturing tax credits. 
43 

I would like to conclude by noting some characteristics of an economically efficient energy tax policy. 

First, cost-effective incentives are those that encourage changes 

in behavior rather than those that reward current practices. 

Second, incentives made available to a broad range of technologies avoid picking winners. 

Third, if the goal is renewable energy production, incentives that 

reward production are preferred to those that reward investment. 

And finally, energy tax policy does not exist in a vacuum. Tax 

policies may interact with, or be redundant to, other policies supporting renewable energy. 

Thank you, again, for inviting me to appear today. I am happy 

to respond to your questions. 

[The prepared statement of Dr. Sherlock follows:] 
44 

Statement of Molly Sherlock 

Specialist in Public Finance 

Congressional Research Service 

Before 

House Committee on Science, Space, and Technology 

Subcommittee on Investigations and Oversight 

& 

Subcommittee on Energy and Environment 

April 19, 2012 

on 

Impact of Tax Policies on the Commercial Application of Renewable Energy 

Technology 

Mr. Chairmen and Members of the Subcommittees---on behalf of the Congressional 

Research Service, I thank you for the opportunity to appear before you today. 

I have been invited here to discuss tax incentives for renewable energy. In this testimony, 

I will provide background on tax incentives designed to support renewable energy 

technologies. In doing so, I will highlight several recently expired provisions that were 

enacted as part of the American Recovery and Reinvestment Act in 2009. I will also 

provide a brief overview of the renewable energy tax policy proposals contained in the 

President's FY2013 Budget request. Finally, I will comment on the characteristics of an 

economically efficient renewable energy tax policy. 

I. Tax Incentives for Renewable Energy 

Tax incentives for renewable energy were first introduced in the 1970s. Historically, the 

renewable energy investment tax credit (lTC), and later the renewable energy production 
45 

tax credit (PTC), have been the primary tax incentives supporting renewable energy 

technologies.! 

Investment tax credit 

The investment tax credit (ITC) for renewable energy was first introduced in 1978? The 

1978 version of this incentive was scheduled to expire in 1982. Prior to the scheduled 

expiration date, the provision was further extended through 1985. Since the mid-1980s, 

the renewable energy ITC has repeatedly been modified and extended.3 For most 

technologies, the ITC is set to expire at the end of 20 16. 

Currently, several renewable energy technologies qualify for the ITC. A 30% tax credit is 

available for investments in solar energy property, fuel cells, and small wind systems. 

Geothermal systems, microturbines, and combined heat and power (CHP) property can 

qualify for a 10% tax credit.4 There is a permanent 10% ITC for solar that will remain 

available after the 30% rate expires at the end of 20 16. 

Historically, the annual revenue cost associated with the renewable energy ITC has been 

small. Prior to 2011, Ioint Committee on Taxation (JCT) estimates of annual revenue loss 

from the renewable energy ITC were less than $100 million.5 The estimated annual 

revenue cost of the renewable energy lTC is expected to increase in coming years. For 

I For background information on the current status of U.S. energy tax policy. see CRS Report R41769, 

Energy Tax Policy: L,sues in the 112th Congress, by Molly F. Sherlock and Margot L. Crandall-Hollick 

and U.S. Congress, Joint Committee on Taxation, Present Law And Ana(l'Sis of Ener!''Y-Related Tax 

Expenditures, committee print, I 12th Cong., March 23,2012, JCX-28-l2, available at: 

http://www.jct.gov/publications.html?ti.mc~startdown&id~4414. 

2 A history of U.S. energy tax policy can be found in CRS Report R41227, Energy Tax Policy: Historical 

Perspectives on alld Current Statlls afEnergy Tax Expendirures, by Molly F. Sherlock. 

3 The investment tax credit for solar was allowed to lapse at the beginning of 1986, before being 

retroactively extended through the end of 1988. The credit was again extended in 1989 and 1991. In 1992, 

the 10% investment tax credit was made permanent. Legislation in 2005 temporarily increased the 

renewable energy investment tax credit for solar from 10% to 30%. Subsequent legislation in 2006 and 

2008 extended this 30% rate through the end of 2016. 

4 Currently, PTC-eligible property can elect to receive a 30% ITC in lieu of this PTe. This option is 

available through 2012 for wind, and through 2013 for other PTC-eligible technologies. 

-' Past JCT tax expenditure tables are available online at: 

http://www.jct.gov/publications.htmJ?func~select&id=5. 

2 
46 

2011, the JCT tax expenditure estimate for the renewable energy ITC was $300 million. 

Over the 2011 - 2015 budget window, the JCT estimates that the renewable energy ITC 

will cost $2.3 billion. The JCT estimates also indicate that nearly all of the expected 

revenue loss is due to investment in solar technologies, as opposed to other qualifying 

resources. 

Production tax credit 

Since being introduced in 1992, the renewable energy production tax credit (PTC) has 

been the primary federal incentive supporting wind power. While the PTC is a temporary 

tax provision, in the past, it has regularly been extended.6 Under current law, the PTC for 

wind-produced electricity will expire at the end of 20 12. 

Several other technologies also qualifY for the renewable energy PTC, including closedloop and open-loop biomass, geothermal energy, landfill gas, municipal solid waste, 

certain hydroelectric, and marine and hydrokinetic technologies.' The PTC expiration 

date for qualifYing technologies other than wind is the end of 20 13. 

The JCT has estimated that the renewable energy PTC resulted in $1.4 billion of forgone 

revenue in 20 II. Of this, roughly 80% (or $1.1 billion), was claimed by wind. Between 

1992 and 2010, cumulative PTC revenue losses were approximately $7.9 billion (in 2010 

dollars).8 Over the 2011-2015 budget window, the JCT cstimates that the renewable 

energy PTC will cost $9.1 billion. 9 Of this $9.1 billion in revenue cost, roughly 75% (or 

$6.8 billion) is for credits paid for the production of electricity using wind. 

6 The PTC has been extended seven times since 1992. In three of these cases, the PTC was allowed to lapse 

prior to being extended. 

7 Open-loop biomass, geothermal energy, landfill gas, municipal solid waste, hydroelectric, and marine and 

hydrokinetic technologies qualify for a taX credit that is half of the amount available to other qualifying 

technologies. 

8 See CRS Report R41227, Energy Tax Policy: Historical Perspectives on and Current Status of Energy 

Tax Expenditures, by Molly F. Sherlock, Appendix B. 

9 This cost likely would have been higher absent the Section 1603 grants in lieu of tax credit program 

discussed below. 

3 
47 

Other incentives for renewable energy 

A number of other specially targeted tax incentives are available for renewable energy. 

Technologies that qualify for the renewable energy ITC or PTC also qualify for 

accelerated depreciation under the Modified Accelerated Cost Recovery System 

(MACRS). The cost of investments in most renewable energy property is recovered over 

a five-year period. 10 

Other provisions that have supported renewable energy in recent years include tax-credit 

bonds (specifically, Clean Renewable Energy Bonds (CREBs) and Qualified Energy 

Conservation Bonds (QECBs».1l Further, renewable energy benefits from a number of 

other tax provisions that are not industry-specific. For example, investments in renewable 

energy may be eligible for temporary bonus depreciation deductionsl2 and those 

producing electricity using renewable energy resources may qualifY for the Section 199 

domestic production activities deduction. lJ 

2. Incentives for Renewable Energy in the American Recovery and 

Reinvestment Act 

The American Recovery and Reinvestment Act of2009 (ARRA; P.L. 111-5) introduced 

two new tax-related provisions for renewable energy.l4 First, under ARRA, investors 

eligible for the renewable energy PTC or ITC could elect to receive a one-time grant 

from the Treasury in lieu of these tax benefits. Second, ARRA provided funds for an 

10 Certain biomass property is treated as seven-year property under MACRS. Accelerated depreciation for 

renewable energy property is a permanent feature of the tax code. 

" CREB financing is not currently available, as all CREB authority has been allocated. For additional 

background, see CRS Report R41573, Tax-Favored Financingfor Renewable Energy Resources and 

Energy Efficien'J" by Molly F. Sherlock and Steven Maguire. 

12 For more infonnation on bonus depreciation, see CRS Report RL31852, Section 179 and Bonus 

Depreciation Expensing Allowances: Current Law. Legislative Proposals in the J J 2 til Congress. and 

Economic Effects, by Gary Guenther. 

13 For more information on the Section 199 production activities deduction, see CRS Report R41988, The 

Section 199 Production Activities Deduction: Background and Analysis, by Molly F. Sherlock. 

'4 For information on all energy-related provisions in ARRA, see CRS Report R40412, Energy Provisions 

in the American Recavel)! and Reinvestment Act ol2009 (PL 111-5), coordinated by Fred Sissine. 

4 
48 

advanced enerf:,'Y technology manufacturing tax credit. Many of the beneticiaries of this 

program were in the renewable energy sector. 

Allowing PTC-property to claim the fTC and the introduction o/Section 1603 grants 

Under ARRA, property that was generally eligible for the PTC could instead elect to 

receive a 30% ITC. This option is scheduled to remain available until the current PTC 

expires at the end of 2012 for wind, and at the end of 20 13 for other technologies. 

In addition, under ARRA, in lieu of either the PTC or lTC, renewable energy investors 

could elect to receive a one-time grant from the U.S. Treasury.IS This provisioncommonly referred to as the "Section 1603 grant"-was intended to compensate for weak 

tax-equity markets. 16 Initially, the Section 1603 grant program was made available for 

property either placed-in-service or under construction in 2009 and 20 I O. The placed-inservice and construction start date was extended through 2011 as part of the Tax Relief, 

Unemployment Insurance Reauthorization, and Job Creation Act of 20 1 0 (P.L. 111-312). 

As of the end of 20 II, the grant option is not available for new projects. 17 

As of March 15,2012, more than $11.0 billion had been paid out under the Section 1603 

grant program. 18.19 Through the end of2017, it has been estimated that another $11.5 

billion will be paid out in Section 1603 grants,20 bringing the total estimated cost of the 

IS Scc CRS Report R4163S, ARRA Section 1603 Grants in Lieu ofTcLr Credits for Renewable Energv: 

ave/view, Analysis, and Policy Options, by Phillip Brown and Molly F. Sherlock. 

16 Beforc the recession, largc-scale renewable energy projects relied on tax-equity markets to convcrt tax 

credits into cash. Tax-equity markets dried lip during the recession, making it harder for many market 

participants to realizc the value of rcncwable energy tax benefits. The Treasury grants in lieu oftax credits 

program supported the renewable energy industry during the recession, when tax equity availability was 

limited. 

17 Tax credits for wind are scheduled to remain available for one year, through the end of2012. Currently 

available credits for other technologies are scheduled to expire in 2013 or 2016. Grants are still being paid 

out to qualifying projects as these projects come online. 

18 A frequently updated list of Section 1603 grant awards Can be found on the Treasury Department's 

website, available at: http://www.treasllry.gov/initiatives/recovery/PagesIl603.aspx. 

19 This includes $1.7 billion paid out in 2009, $3.3 billion paid out in 2010, $4.7 billion paid out in 2011, 

and $1.3 billion paid out through March 15,2012. 

20 See Analytical Perspectives, Budget of the United States Government, FY2013, available at: 

http://www . whi tehouse. gov / omb/budget! Analytical_ Perspectivcs. 

5 
49 

program to nearly $22.6 billion. Through March 15,2012, $8.2 billion (74.7%) of the 

grants paid were for wind and another $2.0 billion (17.4%) were for solar electricity. 

The advanced energy manufacturing tax credit 

The advanced energy manufacturing tax credit (Internal Revenue Code (IRC) § 48C) was 

also established in ARRA. This provision allowed the Treasury to award up to $2.3 

billion in tax credits for qualified advanced energy manufacturing projects. These tax 

credits were competitively awarded. Selection criteria for projects, as laid out in ARRA, 

included: I) commercial viability; 2) job creation; 3) pollution or greenhouse gas 

emissions reduction; 4) potential for technological innovation; 5) cost-effectiveness; and 

6) time to completion.21 

In January 2010, all $2.3 billion in advanced energy manufacturing tax credits were 

awarded to 183 projects.22 There were a number of technically eligible projects that were 

not awarded tax credits through the competitive process. Specifically, the DOE and 

Treasury identified 235 technically eligible projects requesting a total of $5.8 billion in 

tax credits for which funding was not available.23 

While the advanced energy manufacturing tax credit was available for a range of 

technologies, renewables accounted for an estimated 69% of credit recipients, in 20 I 0.24 

Manufacturers of solar photovoltaics (PV) and wind turbincs and related cquipment 

among the largest recipients. 

21 Section 1302 of ARRA. 

21 A full list of awards was included in a White House press release, available at: 

http://www.whitehouse.gov/the-press-office/president-obama-awards-23-billion-new-clean-techmanufacturing-jobs. 

23 Testimony of Senior Advisor to the Secretary of Energy Matt Rogers, in U.S. Congress, Committee on 

Ways and Means, Hearing on Energ)' Tax Incentives Driving the Green Job Economy, hearings. Ill'" 

Cong., 2,d sess., April 14,2010 (Washington, DC: GPO, 2010). Testimony available online at: 

htlp:llcnergy.gov/sites/prodifiles/ciprod/documents/Final_ Tcstimony%286%29.pdf. 

24 U.S. Energy Information Administration (ErA), Direct Federal Financial Interventions ond Subsidies in 

Energy in Fiscal Year 2010, Washington, DC, July 2011, available at: 

http://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf. 

6 
50 

The actual cost of the advanced energy manufacturing tax credit program willlikcly be 

less than the $2.3 billion in tax credits awarded. Ultimately, the value of the credits that 

are actually claimed may be less than the amount that was allocated. This is because 

some credit recipients may have limited profits, or credits may be carried forward outside 

of the budget window. When ARRA was enacted, it was estimated that the program 

would have a 10-year revenue cost of $1.6 billion. 25 

3. Renewable Energy Tax Policy in the President's FY2013 Budget 

Request 

The President's FY2013 Budget contains a number of proposals that would extend, 

expand, or reinstate certain tax incentives for renewable energy.2ii 

ModifY and extend the Section 1603 program 

The President's FY2013 Budget proposes to extend the Section 1603 grant program, 

making the grant option available to property with a construction start date of 2012. This 

extended grant option would only be available to property that is also placed in service in 

2012. The proposal would also extend the PTC for wind, as well as the option to elect the 

ITC in lieu of the PTC, through 2013. 

For property that is placed in service after 2012, the Administration proposes replacing 

the Section 1603 grant with a refundable tax credit. Thus, PTC-eligible property placed in 

service during 2013, including wind energy property, would qualify for a 30% refundable 

tax credit. lTC-eligible property placed in service between 2013 and 2016 would also 

have the option of receiving a refundable tax credit under the Administration's proposal. 

25 U.S, Congress, Joint Committee on Taxation, General Explanation o!,Tax Legislation Enacted in the 

liith Congress, committee print, Illth Cong., March 2011, JCS-2-11. Between 2010 and 2015, JCT 

estimates suggest forgone revenues of $1.8 billion due to advanced energy manufacturing tax credit 

awards, 

26 Additional details on the Administration's tax policy proposals can be found in Department of the 

Treasury, General Explanations of the Administration's Fiscal Year 2013 Revenue Proposals, Washington, 

DC, February 2012, available at: http://www,treasury,govlresource-center/tax-policy/Documents/GeneralExplanations-FY2013,pdf 

7 
51 

The JCT has estimated that extending the PTC and the option to elect the ITC in lieu of 

the PTC for wind through 2013, extending the Section 1603 grant in lieu of tax credit 

program through 2012, and converting the Section 1603 grant into a refundable tax credit 

for 2013 through 2016, would cost an estimated $5.7 billion over the 2012 2022 budget 

window?7 

Provide an additional allocation for advanced energy manufacturing tax credits 

The President's FY2013 Budget proposes to provide an additional $5 billion allocation 

for advanced energy manufacturing tax credits. The President's FY2012 Budget 

contained a similar proposal, which was not enacted. 

The JCT has estimated that providing an additional allocation of $5 billion in tax credits 

would have a 10-year revenue cost of $3.3 billion.28 

Extend certain expired and expiring energy tax provisions 

As was mentioned above, the President's FY2013 budget proposes extending the PTC for 

wind through 2013. Under this proposal, the option to claim a 30% ITC instead of the 

PTC would also be extended. The President's FY2013 Budget also proposes to extend a 

number of other energy-related (but not necessarily renewable energy) provisions.29 

27 Sec U.S. Congress, Joint Committee on Taxation, Estimated Budget Ejjects Of The Revenue Provisions 

Contained In the President's Fiscal Year 2013 Budget Proposal, committee print, 112th Cong., March 21, 

2012, JCX-27-12, available at: http://w .... w.jct.gov/publications.html?func=startdown&id=4413. The 

Treasury estimated that this provision would cost $4.3 billion over the same time period. Both the JCT and 

the Treasury estimates include outlay effects. The Treasury estimates that outlays resulting from extending 

the Section 1603 grant program will be $1.3 billion, while the JCT estimates that outlays from extending 

the Section 1603 grant program under this proposal will be $4.7 billion. 

28 U.S. Congress, Joint Committee on Taxation, Estimated Budget Effects O(The Revenue Provisions 

Contained In the President's Fiscal Year 2013 Budget Proposal, committee print, 1 12th Cong., March 21, 

2012, JCX-27-12, available at: htlp:llwww.jct.gov/publications.html?func=startdown&id=4413. 

29 In addition, the President's FY2013 Budget would extend a number of other recently expired energy tax 

provisions. These provisions include those designed to support renewable and alternative fuels (e.g., 

incentives for biodiesel, renewable diesel, and alternative fuels; incentives for cellulosic biofuels and 

cellulosic biofucl plant property; and incentives for alternative file! vehicle refueling property) as well as a 

number of incentives designed to promote energy efficiency (e.g., tax credits for energy-efficient new 

8 
52 

Revenue estimates of provisions in the President's FY2013 Budget proposal do not 

separately estimate the cost of extending the PTC as a stand alone provision. The cost of 

extending the current PTC for one year, through 2013 for wind and 2014 for other 

eligible technologies, was estimated to cost $4.1 billion over the lO-year budget 

window.30 

4. Characteristics of Economically Efficient Renewable Energy Tax 

Policy 

From an economic pcrspective, energy prices would ideally reflect the full social cost of 

energy production and consumption. Having accurate cost and price signals would direct 

economic resources towards their most productive use. An economically efficient way to 

achieve this outcome would be to tax energy resources that have negative external social 

costs, such as pollution. Increasing the price of energy resources would not only reduce 

overall demand for energy, but would also create incentives for investment in nonpolluting alternatives. 

The history of U.S. energy tax policy indicates a preference for subsidies, rather than 

direct taxes. Given this preference, this testimony provides some economic analysis 

related to designing efficient energy tax incentives. 

homes; tax credits for energy-efficienl appliance manufacturers; and residential energy efficiency tax 

incentives). The President's FY20 13 Budget also proposes modifications to a number of other tax 

incentives related to energy efficiency and alternative technology vehicles. 

)0 u.s. Congress, Joint Committee on Taxation. Estimated Budget Effects ofS. 2204, the "Repeal Big Oil 

Tax Subsidies Act" Scheduledfilr Consideration all the Senate Floor March 26, 2012, committee print, 

112th Cong., March 23, 2012, JCX-29-12, available at: 

http://www.jct.gov/publications.html?func=startdown&id=4415 . 

9 
53 

Cost-effective incentives are those that encourage changes in behavior, rather than 

simply rewarding current practices 

The goal of energy tax incentives is to encourage, promote, or support production or 

consumption of targeted energy resources. Tax subsidies for residential energy efficiency, 

for example, are intended to promote investment in residential ener/:''Y-saving property. 

Tax subsidies for residential energy efficiency (as well as other energy-related tax 

subsidies) reward two types of consumers: those who would not have installed the 

energy-saving property without the tax incentive, and those who would have installed the 

energy-saving property even if a tax incentive were not available. In practice, it is very 

difficult to target tax incentives such that only the first group benefits. 

Economists find that tax incentives arc more efficient (and cost-effective) when a larger 

proportion of taxpayers change their behavior to become eligible for the tax incentive. If 

few taxpayers actually change their behavior to benefit from a tax incentive, tax 

incentives either I) provide windfall gains to taxpayers already engaged in the activity 

the incentive was designed to promote; or 2) the incentive is ineffective. 

For renewable energy projects with longer planning horizons, tax unccrtainty might 

prevent marginal projects from moving forward. These marginal projects are those that 

would likely respond directly to the tax incentive, but without a tax incentive, are not 

viable. In the face of tax uncertainty, other investments in renewable energy are still 

likely to take place. These investments, however, are not those that are motivated by tax 

incentives. If tax incentives happen to be available when these projects are placed in 

service, these projects will benefit. For the latter class of projects, however, tax incentives 

did not cause additional renewable energy investment. Instead, tax incentives provided a 

windfall benefit without motivating additional investment in renewable energy. 

To the extent that tax uncertainty prevents marginal projects from moving forward, and 

allows other projects to receive windfall benefits, tax uncertainty is inefficient and 

diminishes the cost-effectiveness of tax policies. 

10 
54 

Effective energy tax incentives support technologies that would be competitive if energy 

prices reflected the full social cost of energy consumption and production 

Subsidies for low-carbon energy resources can be viewed as compensating for the fact 

that polluting energy resources are under-priced. In other words, in a market where 

pollution is not priced, subsidies for clean energy can help level the playing field. Overly 

generous subsidies, however, might support technologies that would otherwise not be 

viable (or do not have the potential to become viable at some point in the future). 

Supporting technologies with limited viability can create economic distortions, diverting 

economic resources away from more promising alternatives. 

Incentives made available to a broad range of technologies avoid "picking winners" 

Renewable energy tax incentives may seek to achieve varied policy goals. One goal 

might be reduced CO2 emissions. Another goal might be to strengthen domestic 

manufacturing and promote job creation. A third goal might be to enhance energy 

security. Ideally, energy tax policy should be designed to allow markets to choose which 

technologies best meet energy policy objectives. This point is illustrated by expanding on 

the policy goal of reducing CO2 emissions. 

If the policy goal is to reduce carbon emissions, a tax on carbon would create market 

incentives for businesses and individuals to find low-cost, low-carbon alternatives. A 

direct tax on carbon would prevent policymakers from making explicit choices regarding 

which low-carbon technologies should be employed. Tn contrast, subsidies for low-carbon 

technologies require the identification of certain technologies as being explicitly eligible 

for the subsidy. This may create a bias against newly emerging technologies, as it takes 

time to update the tax code to expand the list of qualifying technologies.3

! 

31 This point was made in U.S. Congress, House Committee on Ways and Means, Subcommittee on Select 

Revenue Measures, Energy Policy and Tax Reform, Statement of Donald B. Marron, I 12th Cong., 1st sess., 

September 22, 20 II. 

II 
55 

If the goal is renewable energy production, incentives that reward production are 

preferred to those that reward investment 

Production incentives reward the generation of electricity using renewable energy 

resources. When production is rewarded, investors will strive to maximize the output of 

qualifying energy, given the resources available. Alternatively, instead of directly 

rewarding energy production, investment tax incentives reward capital investment. By 

rewarding investment rather than production, there is a concern that investments may not 

translate into maximum production capacity. Further, incentives that reward investment 

as opposed to production may lead firms to use more capital at the expense oflabor.l2 

Energy tax policy does not exist in a vacuum; tax policies may interact with or be 

redundant to other policies supporting energy 

Tax incentives are one of many tools that can be used to support energy policy objectives. 

One goal for the design of energy-related tax incentives should be to avoid policy 

redundancy: if policy goals are being achieved through the use of another policy 

instrument, tax incentives may not achieve purported policy goals efficiently. 

In the case of renewable energy tax credits, one concern is that state-level Renewable 

Portfolio Standards (RPS) might drive up the costs associated with federal tax 

incentives.33 If energy investment is being driven by state-level policies mandating 

renewable energy usc, then tax expenditures for renewable energy incentives may 

increase without an associated increase in renewable energy investment. In other words, 

if investment is being driven by state-level renewable energy policies, tax credits might 

simply be rewarding existing activity.34 

32 This point was made in U.S. Congress, House Committee on Ways and Means, Subcommittee on Select 

Revenue Measures, Energy Policy and Tax Reform, Statement of Donald B. Marron, J 12th Cong., 1st sess., 

September 22, 2011. 

33 Gilbert E. Metcalf, "Tax Policies for Low-Carbon Technologies," National Tax Journal, voL 62, no. 3 

(September 2009), p. 517. 

34 Similar concerns have been raised with respect to tax incentives for biofuels under the Renewable Fuel 

Standard (RFS). Consumption ofbiofuels is largely driven by the RFS. To the extent that biofucl 

consumption is driven by this mandate, tax credits do not lead to additional production. While tax 

12 
56 

Thank you again for inviting me to appear today. I am happy to respond to your 

questions. 

incentives for biofuels may have limited effects on production under the RFS, the tax credits still provide 

financial support to biofuel blenders, producers, as weIl as purchasers of blended fuel. See Congressional 

Budget Office. Using Biofuel Tax Credits to Achieve Energy alld Environmental Policy Goals, 

Washington, DC, July 2010, p. 18 and U.S. Government Accountability Office, Biof;lels: Potential Effects 

and Challenges ()fRequired Increases in Production and Use, GAO-09-446, August 2009, pp. 99-105, 

http://www.gao.gov/new.items/d09446.pdf. 

13 
57 

Chairman BROUN. Thank you, Doctor. 

Our next witness is John Parcell, Department of Treasury. You 

have five minutes, sir. 

STATEMENT OF MR. JOHN PARCELL, 

ACTING DEPUTY TAX LEGISLATIVE COUNSEL, 

U.S. DEPARTMENT OF THE TREASURY 

Mr. PARCELL. Good morning, Chairman Broun, Chairman Harris, 

Ranking Member Tonko, Ranking Member Miller, and Members of 

the Subcommittees. Thank you for inviting me to testify before 

your Subcommittees today. I appreciate this opportunity to discuss 

the energy proposals in the President’s fiscal year 2013 budget. 

By way of background, the Administration believes in an all-ofthe-above energy strategy, a strategy that relies on producing more 

oil and gas here in America but also producing more wind power, 

more solar power, more fuel-efficient cars, and other renewable 

power and energy-efficiency improvements. The American Recovery 

and Reinvestment Act of 2009, or the Recovery Act, took an impor- tant step in that direction by providing more than $80 billion for 

investment in clean energy technologies, the largest investment in 

clean energy in history. As a result, the United States has nearly 

doubled renewable energy generation since 2008. 

With this as background, let me turn to the tax-related proposals 

in our budget relating to renewable energy and energy conservation. 

First, the budget proposes to expand the Recovery Act tax credit 

for investments in advanced energy manufacturing facilities. This 

credit, under Section 48C of the Code, was designed to help America take the lead in the manufacture of wind turbines, solar panels, 

electric vehicles, and other clean energy and energy conservation 

products. 

The Treasury Department and the Department of Energy have 

cooperated in awarding the $2.3 billion of credits authorized by the 

Recovery Act, awarding credits to 183 projects in 43 States to support the development of a clean, of a domestic clean energy manufacturing base and the new clean energy jobs that entails. 

The $2.3 billion cap on the credit has resulted in the funding of 

less than one-half of the technically acceptable applications that 

have been received. The budget proposes an additional $5 billion in 

credits that would support at least $15 billion in total capital investment. Because there is already an existing pipeline of worthy 

projects and substantial interest, this additional credit could be deployed quickly to create jobs and support economic activity. 

Second, the budget proposes to extend the Production Tax Credit 

under Section 45 of the Code, and the Investment Tax Credit under 

Section 48 of the Code, for wind facilities for an additional year. 

Thus, the two credits would apply to wind facilities placed in service in 2013. 

In addition, the budget proposes to extend the Section 1603 Program. This program, as Dr. Sherlock pointed out, allows taxpayers 

to receive a cash payment instead of the Section 45 and Section 48 

credits. The proposal would extend the Section 1603 Program to all 
58 

otherwise qualifying property placed in service in calendar year 

2012. 

Under current law, property placed in service in 2012 would be 

eligible for a Section 1603 payment only if construction had begun 

before the end of 2011. 

For property placed in service after 2012, the budget proposes to 

replace Section 1603 Program with the Refundable Tax Credit. 

This refundable credit would apply to all property placed in service 

after 2012 that would be eligible for a Section 1603 payment under 

current law, as well as to otherwise eligible property that would 

not have been eligible under current law because construction on 

the property began in 2012 or 2013. 

Next, I would like to briefly mention some other tax initiatives 

in the budget that will help spur the development of America’s renewable energy potential. 

The budget proposes to focus the current nine percent credit for 

domestic production activities more narrowly on manufacturing 

and to increase the deduction for the manufacture of advanced 

technology property to approximately 18 percent. 

The budget also proposes to make permanent an expanded research and experimentation credit to expand the tax credit for advanced technology vehicles, provide a new credit for alternative fuel 

trucks, and to convert the existing deduction for energy-efficient 

commercial buildings into a more valuable tax credit. 

Finally, the budget proposes to extend through 2013 a number 

of expired or expiring energy-related tax provisions. 

The invitation to testify requested discussion of the implementation of the Section 1603 and 48C Programs. I will focus on the 48C 

Program and leave the Section 1603 Program to Dr. Pacheco. 

The 48C Program is administered by the Internal Revenue Service. As in the case of Section 1603, it requires energy and—engineering and scientific expertise from the Energy Department, and 

we have contracted with the Office of Energy Efficiency and Renewable Energy and DOE to assist in the review process, which is 

largely complete at this point. 

I see my time has expired. I thank you. 

[The prepared statement of Mr. Parcell follows:] 
59 

STATEMENT OF JOHN H. PARCELL 

DEPUTY TAX LEGISLATIVE COUNSEL 

DEPARTMENT OF THE TREASURY 

BEFORE THE 

HOUSE COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT 

AND 

SUBCOMMITTEE ON ENERGY AND ENVIRONMENT 

April 19,2012 

Good morning Chairman Broun, Chainnan Harris, Ranking Member Tonko, Ranking Member 

Miller, and members of the Subcommittees. Thank you for inviting me to testify before your 

Subcommittees today. I appreciate this opportunity to discuss the energy proposals in the 

President's FY 2013 Budget. 

Overview ofthe Administration's Environmental and Energy Policy 

First, I will briefly discuss the Administration's environmental and energy policy in order to 

provide context for a discussion of tax incentives for renewable energy. 

The Administration believes in an all-of-the-above energy strategy - a strategy that relies on 

producing more oil and gas here in America, but also producing more wind power, more solar 

power, other renewable power, more fuel-efficient cars, and energy efficiency improvements. 

The American Recovery and Reinvestment Act of 2009 (Recovery Act) took an important step in 

that direction by providing more than $80 billion for investment in clean energy 

technologies. As a result, the United States has nearly doubled renewable energy generation 

since 2008. Since 2009, the Department ofInterior has approved 29 onshore renewable energy 

projects on public lands with a total capacity of 6,000 megawatts. Through loan programs, the 

Department of Energy has supported nearly 40 clean energy projects. Some of these are 

expected to generate enough clean electricity to power nearly 3 million homes. Others are 

expected to displace nearly 300 million gallons of gasoline annually. These loan programs 

support the world's largest wind farm, the first new U.S. nuclear plant in three decades, and 

several of the world's largest solar photovoltaic generation facilities. In addition, the 

Administration has proposed new fuel economy standards that by 2025 will require automobile 

fleets to average 54.5 miles per gallon. The new standards will save consumers $1. 7 trillion at 

the pump - roughly $8,200 per vehicle. In addition, the new standards will reduce oil 

consumption by 2.2 million barrcls per day by 2025 and reduce greenhouse gas emissions by 6 

billion metric tons over the lifetime of vehicles covered by the new standards. The President has 

also called on Congress to invest in a new HomeStar program of rebates for consumers who 

make energy efficiency retrofits to their homes. Such a program will harness the power of the 

private sector to help drive consumers to make energy-saving and cost-saving investments in 

their homes. 

1 
60 

Budget Tax Proposals Relating to Energy 

With this as background, let me tum to the tax proposals in the President's FY 2013 Budget 

relating to energy. More details on the proposals (other than those that involve only an extension 

of an existing tax provision) can be found in the Appendix. 

1. Provide additional tax credits for advanced energy mal1lifacturingfacilities 

The Recovery Act provided $2.3 billion in tax credits for investments in advanced energy 

manufacturing facilities. The credit, under section 48C of the Internal Revenue Code (Code), 

was designed to help our country take the lead in the manufacture of wind turbines, solar panels, 

electric vehicles, and other clean energy and energy conservation products. Eligible 

manufacturers receive a 30-percent credit for their investments in facilities to manufacture these 

products. 

The Treasury Department and the Department of Energy cooperated to award the $2.3 billion of 

credits authorized by the Recovery Act. Credits were awarded to 183 projects in 43 states to 

support tens of thousands of high quality clean energy jobs and the development of a domestic 

clean energy manufacturing base. 

The $2.3 billion cap on the credit has resultcd in thc funding of less than one-half of thc 

technically acceptable applications that were received. The President's FY 2013 Budget 

proposes an additional $5 billion in credits that would support at least $15 billion in total capital 

investment. Because there is already an existing pipeline of worthy projects and substantial 

intcrest, thc additional credit could be deployed quickly to create jobs and support cconomic 

activity. 

2. Extend and modify renewable energy incentives 

A production tax credit (Code section 45) is provided for the production of renewable energy 

from wind, solar, biomass, and various other sources. For most facilities, including wind 

facilities, the credit rate is 2.2 cents per kilowatt hourI and the credit is allowed for the electricity 

produced at a facility for the first ten years after it is placed in service. In addition, an 

investment tax credit (Code section 48), generally at a 30-percent rate, is available for energy 

property. Energy property includes any property that is part of a facility that could qualify for 

the production tax credit as well as certain other listed energy-related property. (A taxpayer must 

choose between the production tax credit and the investment tax credit and may not claim both 

credits for the same facility.) Finally, section 1603 of Division B of the Recovery Act requires 

the Treasury Department to make payments, generally at a 30-percent rate, to persons that place 

in service property that would otherwise qualify for the investment tax credit for energy property 

(the section 1603 program). (Again, a taxpayer must choose between the payment, the 

investment tax credit, and the production tax credit, and may not claim more than one of the 

incentives for the same facility.) To date, the section 1603 program has helped fund over 34,000 

projects located in every state. 

1 The rate is subject to an annual inflation adjustment. 
61 

The production credit is available for wind facilities placed in service before the end of 20 12 and 

for other renewable energy facilities placed in service before 2014. The investment tax credit is 

also available for these facilities. Certain other property may qualify for an investment tax credit 

even if placed in service after 2013. For example, the investment credit is available for solar 

facilities at a 30-percent rate through 2016 and at a lO-percent rate thereafter. Payments under 

the section 1603 program are snbject to the same expiration dates as the investment tax credit, 

with two exceptions. First, no payments are allowed nnder the section 1603 program for 

property placed in service after 2016. Second, no payments are allowed for property placed in 

service after 2011 unless construction of the property began during 2009, 20 I 0, or 20 II. 

Investments in property qualifying for these renewable energy incentives further the 

Administration's policy of supporting a clean energy economy, reducing reliance on oil, and 

cutting greenhouse gas emissions. The extension of incentives for these investments is necessary 

to the continued success of that policy. 

The President's FY 2013 Budget would extend the production tax credit for wind facilities and 

the investment tax credit for wind facility propeliy to facilities and property placed in service in 

2013. The proposal would also extend the section 1603 program to all otherwise qualifying 

property placed in service in 2012 (including property on which construction begins in 2012). 

For property that is placed in service after 2012, the proposal would replace the payment under 

the section 1603 program with a refundable tax credit administered by the Internal Revenue 

Service. The credit would be allowed with respect to property placed in service in 2013 (in the 

case of property, including wind facility property, that is part of a facility eligible for the 

renewable electricity production tax credit) and for property placed in service during the period 

2013-2016 (in the case of any other energy property). The refundable tax credit would be 

available for property on whieh construction begins during the period 2009-2013. Qualification 

requirements for the refundable credit would be the same (except for the effective date 

provisions) as the qualification requirements currently applicable under the section 1603 

program. 

3. Additional energy-related tax initiatives 

The President's FY 2013 Budget proposes a number of other tax initiatives that will help spur the 

development of America's renewable energy potential, including the following: 

• A proposal to focus the 9-percent deduction for domestic production activities more 

narrowly on manufacturing activities. The savings would be invested in a two-tier 

increase in the deduction, with the larger increase (to approximately 18 percent) going to 

manufacturers of advanced technology property, including renewable energy property. 

• A proposal to make permanent an expanded research and experimentation credit. This 

change would contribute to the domestic development of cutting-edge renewable energy 

technologies. 

• Making advanced vehicles more affordable by expanding the tax credit for electric 

vehicles to a broader range of advanced vehicle technologies, making the credit scalable 

based on performance up to a maximum cap of $1 0,000, making tlle credit available to 

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dealers so it can be provided to consumers as a point-of-sale rebate, and replacing the 

per-manufacturer cap with a phase-out of the credit over time. 

Providing a tax credit for 50 percent of the incremental cost (relative to the cost of a 

comparable diesel or gasoline vehicle) of a dedicated alternative-fuel truck, including one 

powered by natural gas or electricity. The credit would be allowed for a five-year period, 

with a phase-down in the last year of the period. 

Converting the existing deduction for energy efficient commercial buildings into a more 

valuable tax credit, making the credit scalable (from $0.60 per square foot to $1.80 per 

square foot) depending on the energy efficiency achieved, specifying prescriptive 

standards that can be llscd to qualify for the credit (in lieu of the whole-building auditing, 

modeling, and simulation required under current law), and allowing the credit to benefi t a 

real estate investment trust (REIT) or its shareholders. 

4. Extend expiring provisions 

The Budget proposes to extend through 2013, without other changes, a number of tax provisions 

that either have expired or are scheduled to expire at the end of 2012. The following energy 

incentives are included in the extension proposal: 

Incentives/or biodiesel and renewable diesel. A $I.OO-per-gallon incentive for biodiesel 

and renewable diesel is provided as an income tax credit, an excise tax credit, or a 

refundable payment. In addition, a $O.IO-per-gallon income tax credit is available for 

small producers. The incentives expired at the end of 20 Il. 

• Incentives/or alternativefilels. A $0.50-per-gallon (or gasoline gallon equivalent) excise 

tax credit or refundable payment is provided for alternative fuels such as liquefied 

hydrogen, natural gas fuels, liquefied petroleum gas, liquid fuels derived from coal, and 

liquid fuels derived from biomass. The incentives expired at the end of 20 11 for fuels 

other than liquefied hydrogen. 

• Incentivesjor cellulosic biofitel. A $1.01-per-gallon incentive for cellulosic biofuel is 

provided as an income tax credit. In addition, 50-percent bonus depreciation is allowed 

for plants that produce cellulosic biofuel in the year they are placed in service. The 

incentives expire at the end of2012. 

• Tax credits jar alternativefitel refiteling property. A 50-percent income tax credit is 

provided for alternative fuel (including electricity) refueling property, subject to a 

$30,000 cap for depreciable property and a $1,000 cap for nonbusiness property. The 

credit expired at the end of 20 II except for property relating to hydrogen. 

Tax credits/or energy efficient new homes. A $2,000 dollar income tax credit is allowed 

for the construction of an energy efficient home ($1,000 in the case of a manufactured 

horne). The credit expired at the end of 20 Il. 

• Tax credits/or energy efficiency improvements to existing homes. A 10-percent income 

tax credit is allowed for various energy-efficient home improvements (improvements to 

the building envelope and the installation of energy-efficient heating and cooling 

equipment). The aggregate credit is limited to $500. The credit expired at the end of 

201 I. 

Tax credits/or energy efficient appliances. A tax credit ranging from $25 to $225 is 

allowed to manufacturers of energy efficient dishwashers, clothes washers, and 

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63 

refrigerators. The credit is limited (except in the case of refrigerators) to $25 million per 

manufacturer and is further limited for a taxable year (including in the case of 

refrigerators) to 4 percent of average gross receipts for the preceding three years. The 

credit expired at the end of 20 II. 

• Tax creditfor plug-in hybrid conversions. A 10-pcrccnt credit (up to $4,000) is allowed 

for the cost of converting a used vehicle into a plug-in electric drive motor vehicle. Thc 

credit expired at the end of 20 II. 

Deferral of gain on sales to implement electric restructuring policy. Utilities selling 

transmission facilities to implement federal or state electric restructuring policy are 

permitted to report the gain over an 8-year period rather than in the year of sale. This 

treatment expired at the end of 20l1. 

Implementation of Section 1603 and 48C Programs 

Section 1603 

The section 1603 program is administered within the Treasury Department by the Office of the 

Fiscal Assistant Secretary (OFAS). Because the program incorporates many tax concepts, 

technical assistance is provided by the Office of Tax Policy in the Treasury Department, the 

Internal Revenue Service Office of Chief Counsel, and other offices as necessary. In addition, 

the Treasury Department has entered into an inter-agency agrecment with the Department of 

Energy (DOE) so that Treasury may utilize, as necessary, DOE's engineering, scientific, and 

other expertise when reviewing applications. 

Section 1603 is not a discretionary program, and Treasury is required to make payments to all 

eligible applicants. Application reviews are focused on determining whether the statutorily 

mandated eligibility criteria have been met and whether the amount claimed has been 

appropriately calculated. Recipients are required to make annual reports on the use of the 

property for a period of five years after receipt of the payment. If the property ceases to mcet thc 

eligibility criteria during the five-year period, part or all of the payment will be recaptured. 

Section 48C 

Unlike section 1603, implementation ofscction 48C is largely complete. Section 48C also 

differs from scction 1603 in that section 48C is a discretionary program that authorized the 

Treasury Department to allocate $2.3 billion dollars in tax credits among advanced energy 

projects. In addition, awards were limited to projects that had a reasonable expectation of 

commercial viability. Within this class of projects, Treasury, in consultation with DOE, 

allocated the limited supply of credits using specified selection criteria including commercial 

viability, job creation, pollution and greenhouse gas reduction, technological innovation, lowest 

cost, and shortest completion timc. 

Because section 48C is a tax provision, the section 48C program is administered within the 

Treasury Department by the Internal Revenue Service. As in the case of section 1603, the 

Internal Revenue Service entered into an inter-agency agreemcnt with DOE that enabled the 

Internal Revenue Service to draw on the expertise ofthe Office of Energy Efficiency and 

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Renewable Energy (EERE). During the review process, EERE considered more than 500 

applications and, at the conclusion of the review, ranked the projects in descending order of 

priority. The tax credits were awarded to taxpayers based on this ranking until the $2.3 billion in 

available credits was fully allocated. 

Based on the experience gained in the 2009 review process, the IRS and EERE are confident that 

any additional credits authorized by Congress could be quickly and efficiently allocated. 

Conclusion 

Mr. Chairmen, this concludes my prepared testimony. I will be pleased to answer any questions 

you or other members of the Committee may have. 

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APPENDIX: GENERAL EXPLANA nONS OF THE ADMINISTRA nON'S FISCAL 

YEAR 2013 REVENUE PROPOSALS RELATED TO ENERGy2 

PROVIDE ADDITIONAL TAX CREDITS FOR INVESTMENT IN QUALIFIED 

PROPERTY USED IN A QUALIFYING ADVANCED ENERGY MANUFACTURING 

PROJECT 

Current Law 

A 30-percent tax credit is provided for investments in eligible property used in a qualifying 

advanced energy project. A qualifying advanced energy project is a project that re-equips, 

expands, or establishes a manufacturing facility for the production of: (I) property designed to 

produce energy from renewable resources; (2) fuel celis, microturbines, or an energy storage 

system for usc with electric or hybrid-electric vehicles; (3) electric grids to support the 

transmission, including storage, of intenllittent sources ofrenewable energy; (4) property 

designed to capture and sequester carbon dioxide emissions; (5) property designed to refine or 

blend renewable fuels or to produce energy conservation technologies; (6) electric drive molor 

vehiclcs that qualify for tax crcdits or components designed for use with such vehiclcs; and (7) 

other advanced energy property designed to reduce greenhouse gas emissions. 

Eligible property is property: (I) that is necessary for the production of the property listed above; 

(2) that is tangible personal property or other tangible property (not including a building and its 

structural components) that is used as an integral part of a qualifying facility; and (3) with 

respect to which depreciation (or amortization in lieu of depreciation) is allowable. 

Under the American Recovery and Reinvestmcnt Act of 2009 (ARRA), total credits were limited 

to $2.3 billion, and the Treasury Department, in consultation with the Department of Energy, was 

required to establish a program to considcr and award certifications for qualified investments 

eligible for credits within 180 days of the date of enactment of ARRA. Credits may be allocated 

only to projects where thcrc is a reasonable cxpectation of commercial viability. In addition, 

consideration must be given to which projects: (I) will provide the greatest domestic job 

creation; (2) will have the greatest net impact in avoiding or reducing air pollutants or 

greenhouse gas emissions; (3) have the greatest potential for technological innovation and 

commercial deployment; (4) have the lowcst levclized cost of generatcd or stored energy, or of 

measured reduction in energy consumption or greenhouse gas emission; and (5) have the shortest 

completion time. Guidance under currcnt law requires taxpayers to apply for the credit with 

respect to their entire qualified investment in a project. 

Applications for certification under the program may be made only during the two-year period 

beginning on the date the program is cstablished. An applicant that is allocated credits must 

provide evidence that the requirements of the certification have been met within one year of the 

2 The complete set of the General Explanations of the Administration's Fiscal Year 2013 Revenue Proposals can be 

found on Treasury's website here: http://www.treasurv.gov!resource-center!tax-policy!Documents!GeneralExplanations-FY2013.pdf. The relevant energy-related proposals are included in this Appendix. 

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date of acceptance of the application and must place the property in service within three years 

from the date of the issuance of the certification. 

Reasons for Change 

The $2.3 billion cap on the credit has resulted in the funding ofless than one-third of the 

technically acceptable applications that have been reccivcd. Rathcr than turning down worthy 

projects that could be deployed quickly to create jobs and support economic activity, the 

program - which has proven successfi.ll in leveraging private investment in building and 

equipping factories that manufacture clean energy products in America - should be expanded. 

An additional $5 billion in credits would support nearly $17 billion in total capital investmcnt, 

creating tens of thousands of new construction and manufacturing jobs. Because there is already 

an existing pipeline of worthy projects and substantial interest in this area, the additional credit 

can be deployed quickly to create jobs and support economic activity. 

The proposal would authorize an additional $5 billion of credits for investments in eligible 

property used in a qualifying advanced energy manufacturing project. Taxpayers would be able 

to apply for a credit with respect to part or all of their qualified investment. If a taxpayer applies 

for a credit with respect to only part of the qualified investment in the project, the taxpayer's 

increased cost sharing and the project's reduced revenue cost to the government would be taken 

into account in determining whether to allocate credits to the project. 

Applications for the additional credits would be made during the two-year period beginning on 

the date on which the additional authorization is enacted. As under current law, applicants that 

are allocated the additional credits must provide evidence that the requirements of the 

certification have been met within one year of the date of acceptance of the application and must 

place the propcrty in service within three years from the date of the issnance of the certification. 

The change would bc effective on the date of enactment. 

EXTEND AND MODIFY CERTAIN ENERGY INCENTIVES 

Current Law 

The general business tax credit includes a production tax credit for wind facilities placed in 

service in 2012 and certain other renewable energy facilities placed in service before 2014 (the 

renewable electricity production tax credit). The general business credit also includes an 

investment tax credit for energy property. Energy property is (I) property that is part of a facility 

that, but for the clection to claim an invcstment tax credit, would qualify for the renewable 

electricity production tax credit and (2) certain other listed property (including solar energy 

property). 

The Secretary ofthe Treasury is required to make grants to persons that place in service property 

that, but for the receipt of the grant, would be energy property qualifying for the investment tax 

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credit. In general, the grant is 30 percent of the basis on which the investment tax credit could be 

claimed. For qualified microturbine, combined heat and power systems, and geothennal heat 

pump property, the grant is 10 percent of such basis. If a grant is paid with respect to any 

property, no renewable electricity production tax credit or investment tax credit is allowed with 

respect to that property. 

The grant was available for property that was originally placed in service in 2009, 2010, and 

2011. For propcrty placed in servicc after 2011, the grant is available only if construction of the 

property began in 2009, 2010, or 2011, and the property is placed in service before 2013 (in the 

case of wind facility property), 2014 (in the case of other property that is part of a facility that 

could, but for the receipt of the grant, qualify for the renewable electricity production tax credit), 

or 2017 (in the case of any other energy property). 

Reasons for Change 

Investments in property qualifying for the renewable electricity production tax credit and the 

investment tax credit for energy property further the Administration's policy of supporting a 

clean energy economy, reducing our reliance on oil, and cutting carbon pollution. The extension 

of incentives for these investments is necessary to the continued success of that policy. The 

administration of the incentives could be improved, however, if they were delivered entirely 

through the Internal Revenue Code by substituting a refundable tax credit for the Treasury grant 

program. 

Proposal 

The proposal would extend the production tax credit for wind facilities and the investment tax 

credit for wind facility property to facilities and property placcd in service in 2013. The proposal 

would also extend the Treasury grant program to all otherwise qualifying property placed in 

service in 2012 (including property on which construction begins in 2012). For property that is 

placed in service after 2012, the proposal would replace the Treasury grant with a refundable tax 

credit administered by the Internal Revenuc Service. The refundable tax credit would bc 

available for property on which construction begins in 2009, 2010, 2011, 2012, or 2013. The 

crcdit would be allowed with respect to propcrty placed in service in 2013 (in the case of 

property, including wind facility property, that is part of a facility eligible for the renewable 

electricity production tax credit) and for property placed in service in 2013,2014,2015, or 2016 

(in the case of any other energy property). Qualification requirements for the refundable credit 

would be the same (except for the effective date provisions) as the qualification requiremcnts 

currently applicable under the Treasury grant program. 

TARGET THE DOMESTIC PRODUCTION DEDUCTION TO DOMESTIC 

MANUFACTURING ACTIVITIES AND DOUBLE THE DEDUCTION FOR 

ADVANCED MANUFACTURING ACTIVITIES 

Current Law 

Current law allows a deduction to taxpayers that generate qualified production activities income. 

Such incomc is gencrally calculated as a taxpaycr's domcstic production gross receipts (DPGR) 

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less the cost of goods sold and other expenses, losses, or deductions attributable to such receipts. 

DPGR are those gross receipts derived from any lease, rental, license, sale, exchange, or other 

disposition of (I) qualifying production property (tangible personal property, computer software, 

and sound recordings) manufactured, produced, grown, or extracted by the taxpayer in whole or 

in significant part within the United States; (2) any qualified film produced by the taxpayer 

(where not less than 50 percent ofthe total compensation is for labor services perfonned in the 

United States); or (3) electricity, natural gas, or potable water produced by the taxpayer in the 

United States. DPGR also include gross receipts derived from the construction of real property 

perfonned in the Unitcd States, including receipts derived from the conduct of related 

engineering or architectural services. 

The domestic production deduction is generally equal to nine percent of the taxpayer's qualified 

production activities income (or of its taxable income, computed before the deduction, ifless) for 

the taxable year. It is computed at a 6 percent rate for income attributable to the production, 

refining, processing, transportation, or distribution of oil, gas, or any primary product thereof. 

The deduction may not exceed 50 percent of wages (including amounts of elective deferrals and 

deferred compensation) paid by the taxpaycr for thc taxable year that are attributable to DPGR. 

Reasons for Change 

The current domestic production deduction applies to a broad range of activities beyond corc 

manufacturing activities. Broadening the income tax base by narrowing the scope of the 

domestic production deduction would allow an increased deduction rate for the activities 

remaining subject to the provision, and would allow for an even greater incentive for the 

manufacture of certain advanced technology property. 

The proposal would limit the extent to which the domestic production deduction is allowed with 

respect to nonmanufacturing activities by excluding from the definition of DPGR any gross 

receipts derived from sources such as the production of oil and gas, the production of coal and 

other hard mineral fossil fuels, and certain other nonmanufaeturing activities. Additional 

revenue obtained from this retargeting would be used to increase the general deduction 

percentage and to fund an increase of the deduction rate for activities involving the manufacture 

of certain advanced technology property to approximately 18 percent. The proposal would be 

roughly revenue neutral over the ten-year budget window. 

The proposal would be effective for taxable years beginning after December 31, 2012. 

ENHANCE AND MAKE PERMANENT THE RESEARCH AND EXPERIMENTATION 

(R&E) TAX CREDIT 

Current Law 

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The R&E tax credit is 20 percent of qualified research expenses above a base amount. The base 

amount is the product of the taxpayer's "fixed base percentage" and the average of the taxpayer's 

gross receipts for the four preceding years. The taxpayer's fixed base percentage generally is the 

ratio of its research expenses to gross receipts for the 1984-88 period. The base amount cannot 

be less than 50 percent of the taxpayer's qualified research expenses for the taxable year. 

Taxpayers can elect the alternative simplified research credit (AS C), which is equal to 14 percent 

of qualified research expenses that exceed 50 percent of the average qualified research expenses 

for the three preceding taxable years. Under the ASC, the rate is reduced to six percent if a 

taxpayer has no qualified rescarch expenses in anyone of the three prcceding taxable years. An 

election to use the ASC applies to all succeeding taxable years unless revoked with the consent 

of the Secretary. 

Thc R&E tax credit also provides a credit for 20 percent of: (I) basic research payments above a 

base amount; and (2) all eligible payments to an energy research consortium for energy research. 

The R&E tax credit expired on December 31, 20 II. 

Reasons for Change 

The R&E tax credit encourages technological developments that are an important component of 

economic growth. However, uncertainty about the future availability of the R&E tax credit 

diminishes the incentive effect of the credit because it is difficult for taxpayers to factor the 

credit into decisions to invest in research projects that will not be initiated and completed prior to 

the credit's expiration. To improve the credit's etlectiveness, the R&E tax credit should be made 

permanent. 

Currently, a taxpayer must choose between using an outdated formula for calculating the R&E 

credit that provides a 20-percent credit rate for research spending over a certain base amount 

related to the business's historical research intensity and the much simpler ASC that provides a 

14-percent credit in excess of a base amount based on its recent research spending. Increasing 

the rate of the ASC to 17 percent would provide an improved incentive to increase research and 

would make the ASC a more attractive alternative. Because the ASC base is updated annually, 

the ASC more accurately reflects the business's recent research experience and simplifies the 

R&E credit's computation. 

The proposal would make the R&E credit permanent and increase the rate of the ASC from 14 

percent to 17 percent, effective after December 31, 20 II. 

PROVIDE A TAX CREDIT FOR THE PRODUCTION OF ADVANCED 

TECHNOLOGY VEHICLES 

Current Law 

A tax credit is allowed for plug-in electric drive motor vehicles. A plug-in electric drive motor 

vehicle is a vehicle that has at least four wheels, is manufactured for use on public roads, is 

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treated as a motor vehicle for purposes of title II of the Clean Air Act (that is, is not a low-speed 

vehicle), has a gross vehicle weight ofless than 14,000 pounds, meets certain emissions 

standards, draws propulsion energy using a traction battery with at least four kilowatt hours of 

capacity, is capable of being recharged from an extemal source, and meets certain other 

requirements. The credit is $2,500 plus $417 for each kilowatt hour of battery capacity in excess 

of four kilowatt hours, up to a maximum credit of $7,500. The credit phases out for a 

manufacturer's vehicles over four calendar quarters beginning with the second calendar quarter 

following the quarter in which 200,000 ofthe manufacturer's credit-eligible vehicles have been 

sold. The credit is generally allowed to the taxpayer that places the vehicle in service (including 

a person placing the vehicle in service as a lessor). In the case of a vehicle used by a tax-exempt 

or govemmental entity, however, the credit is allowed to the person selling the vehicle to the taxexempt or govemmental entity, but only if the seller clearly discloses the amount of the credit to 

the purchaser. 

Reasons for Change 

In 2008, the President set a goal of putting I million advanced technology vehicles on the road 

by 2015 which would reduce dependence on foreign oil and lead to a reduction in oil 

consumption of about 750 million barrels through 2030. To help achieve that goal, the President 

is proposing increased investment in R&D and a competitive program to encourage communities 

to invest in the advanced vehicle infrastructure, address the regulatory barriers, and provide the 

local incentives to achieve deployment at critical mass. The President is also proposing a 

transformation of the existing tax credit for plug-in electric drive motor vehicles into one that is 

allowed for a wider range of advanced technologies and that is allowed generally to the seller. 

Making the credit available to a wider range of technologies, removing the cap placed on the 

number of vehicles per manufacturer that can receive the credit, and allowing for a scalable 

credit up to a maximum of $1 0,000 will help increase production of advanced vehicles that 

diversify our fuel use and bring down the cost of producing such vehicles. Moving eligibility for 

the credit from the purchaser to the person that sells or finances the sale of the vehicle to the 

ultimate owner would enable the seller or person financing the sale to offer a point-of-sale rebate 

to consumers. Disclosure requirements, similar to those currently applicable in the case of sales 

to tax-exempt and governmental entities, would help ensure that the benefit of the credit is 

passed on to consumers. Shifting the process of claiming the credit from a large number of 

individual consumers to a relatively small number of business entities would also simplify tax 

preparation for individuals and reduce the potential for taxpayer error. 

Proposal 

The proposal would replace the credit for plug-in electric drive motor vehicles with a credit for 

advanced technology vehieles. The credit would be available for a vehicle that meets the 

following criteria: (I) the vehicle operates primarily on an altemative to petroleum; (2) as of the 

January 1,2012, there arc few vehicles in operation in the U.S. using the same technology as 

such vehicle; and (3) the technology used by the vehicle exceeds the footprint based target miles 

per gallon gasoline equivalent (MPGe) by at least 25 percent. The Secretary ofthe Treasury, in 

consultation with the Secretary of Energy, will detennine what constitutes the same technology 

for this purpose. The credit would be limited to vehicles that weigh no more than 14,000 pounds 

and are treated as motor vehicles for purposes of title II of the Clean Air Act. In general, the 

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credit would be the product of $5,000 and 100 and the amount by which the vehicle's footprint 

gallons per mile exceeds its gallons per mile, but would be capped at $\0,000 ($7,500 for 

vehicles with an MSRP above $45,000). The credit for a battery-powered vehicle would be 

determined under current law rules for the credit for plug-in electric drive motor vehicles if that 

computation results in a greater credit. The credit would be allowed to the person that sold the 

vehicle to the person placing the vehicle in service (or, at the election of the seller, to the person 

financing the sale), but only if the amount of thc credit is disclosed to the purchaser. 

The credit would be allowed for vehicles placed in service after the date of enactment and before 

January 1,2020. The credit would be limited to 75 pcrcent of the otherwise allowable amount 

for vehicles placed in service in 2017, to 50 percent of such amount for vehicles placed in service 

in 2018, and to 25 percent of such amount for vehicles placed in service in 2019. 

PROVIDE A TAX CREDIT FOR MEDIUM- AND REA VY -DUTY AL TERNA TIVEFUEL COMMERCIAL VEHICLES 

Current Law 

A tax credit is allowed for fuel-cell vehicles purchased before 2015. The credit is $20,000 for 

vehicles weighing more than 14,000 pounds but not more than 26,000 pounds and $40,000 for 

vehicles weighing more than 26,000 pounds. There is no other tax incentive for vehicles 

weighing more than 14,000 pounds. 

Reasons for Change 

Currently, medium- and heavy-duty trucks consume more than two million barrels of oil every 

day and account for 20 percent of greenhouse gas emissions related to transportation. Most of 

these vehicles are powered by diesel fuel. Alternative-fuel vehicles have the potential to reduce 

petroleum consumption and greenhouse gas emissions. A tax credit would encourage the 

purchase of such vehicles and the development of a commercially viable manufacturing base for 

alternative-fuel medium and heavy-duty vehicles. 

Proposal 

The proposal would allow a tax credit for dedicated alternative-fuel vehicles weighing more than 

14,000 pounds. The credit would be equal to 50 percent of the incremental cost of such vehicles 

compared to the cost of a comparable diesel or gasoline vehicle. The credit would be limited to 

$25,000 for vehicles weighing up to 26,000 pounds and $40,000 for vehicles weighing more than 

26,000 pounds. In the case offuel-cell vehicles, the proposed credit would be reduced by the 

amount of the credit allowed with respect to the vehicle under current law. The credit would be 

allowed to the person placing the vehicle in service or, in the case of a vehicle placed in service 

by a tax-exempt or governmental entity, to the person that sold the vehicle to such entity (or, at 

the election of the seller, to the person financing the sale), but only if the amount of the credit is 

disclosed to the purchaser. 

The credit would be allowed for vehicles placed in service after December 31, 2012, and before 

January 1, 2019. For vehicles placed in service in calendar year 2018, the credit would be 

limited to 50 percent of the otherwise allowable amount. 

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PROVIDE TAX CREDIT FOR ENERGY-EFFICIENT COMMERCIAL BUILDING 

PROPERTY EXPENDITURES IN PLACE OF EXISTING TAX DEDUCTION 

Current Law 

Taxpayers are allowed to deduct expenditures for energy efficient commercial bnilding property. 

Energy efficient commercial bnilding property is defined as property that (1) is installed on or in 

any building that is located in the United States and is within the scope of Standard 90.1-2001, 

(2) is installed as part of (i) the interior lighting systems, (ii) the heating, cooling, ventilation, and 

hot water systems, or (iii) the building envelope, (3) is certified as being installed as part of a 

plan designed to reduce the total annual energy and power costs with respect to the interior 

lighting, heating, cooling, ventilation, and hot water systems of the building by 50 percent or 

more in comparison to a reference building that meets the minimum requirements of Standard 

90.1-2001, and (4) with respect to which depreciation (or amortization in lieu of depreciation) is 

allowable. Standard 90.1-200 I, as referred to here, is Standard 90.1-200 I of the American 

Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating 

Engineering Socicty of North America (ASHRAE/IESNA) as in effect on April 2, 2003 a 

nationally accepted building energy code that has been adopted by local and state jurisdictions 

throughout the United States. The deduction with respect to a building is limited to $1.80 per 

square foot. 

In the case of a building that does not achieve a 50-percent energy savings, a partial deduction is 

allowed with respect to each separate building system (interior lighting; heating, cooling, 

ventilation, and hot water; and building envelope) that meets the system-specific energy-savings 

target prescribed by the Secretary of the Treasury. The applicable system-specific savings 

targets are those that would result in a total annual energy savings with respect to the whole 

building of 50 percent, if each of the separate systems met the system-specific target. The 

maximum allowable deduction for each of the separate systems is $0.60 per square foot. 

Thc deduction is allowed in the year in which the propcrty is placed in service. If the energy 

efficient commercial building property expenditures are made by a public entity, the deduction 

may be allocated under regulations to the person primarily responsible for designing the 

property. The deduction applies to property placed in service on or before December 31, 2013. 

Reasons for Change 

The President has called for a new Better Buildings Initiative that would over 10 years reduce 

energy usage in commercial buildings by 20 percent. This initiative would catalyze private sector 

investment in upgrading the efficiency of commercial buildings. Changing the current tax 

deduction for energy efficient commercial building property to a tax credit and allowing a partial 

credit for achieving less stringent efficiency standards would encourage private sector 

investments in energy efficicncy improvements. In addition, allowing a credit based on 

prescriptive efficiency standards would reduce the complexity of the current standards, which 

require whole-building auditing, modeling, and simulation. 

14 
73 

The proposal would replace the existing deduction for energy efficient commercial building 

property with a tax credit equal to the cost of property that is certified as being installed as part 

of a plan designed to reduce the total annual energy and power costs with respect to the interior 

lighting, heating, cooling, ventilation, and hot water systems of the building by 20 percent or 

more in comparison to a reference building which meets the minimum requirements of 

ASHRAE/IESNA Standard 90.1-2004, as in effect on the date of enactment. 

The credit with respect to a building would be limited to $0.60 per square foot in the case of 

energy efficient commercial building property designed to reducc the total annual energy and 

power costs by at least 20 percent but less than 30 percent, to $0.90 per square foot for qualifying 

property designed to reduce the total annual energy and power costs by at least 30 percent but 

less than 50 percent, and to $1.80 per square foot for qualifying property designed to reduce the 

total annual energy and power costs by 50 percent or more. 

In addition, the proposal would treat property as meeting the 20-, 30-, and 50-percent energy 

savings requirement if specified prescriptive standards are satisfied. Prescriptive standards would 

be based on building types (as specified by Standard 90.1-2004) and climate zones (as specified 

by Standard 90.1-2004). 

Special rules would be provided that would allow the credit to benefit a REJT or its shareholders. 

The tax credit would be available for property placed in service during calendar year 2013. 

15 
74 

Chairman BROUN. Thank you, Mr. Parcell, and I really appreciate your being here and the Department working with us, and 

thank you so much for working with us and giving us your expertise. 

Dr. Pacheco, you are recognized for five minutes. We are fixing 

to have some votes. They are scheduled right now. You will have 

time to finish, but we will not be able to get into questioning. We 

are going to have to rush off to vote, so what we will do is recess 

the Committee after Dr. Pacheco, so we will have about a 25- to 

30-minute recess. We will resume 10 minutes after the last vote begins, so if everybody would come on back quickly so we can get 

through the questioning of this panel and get to the second panel. 

Dr. Pacheco, you are recognized for five minutes. 

STATEMENT OF DR. MICHAEL PACHECO, 

VICE PRESIDENT, DEPLOYMENT AND MARKET 

TRANSFORMATION, 

NATIONAL RENEWABLE ENERGY LABORATORY 

Mr. PACHECO. Good morning, Chairman Broun, Chairman Harris, Ranking Members Miller, Tonko, and other Members of the 

Subcommittees. Thank you for this opportunity to discuss the technical role that the U.S. Department of Energy’s National Renewable Energy Laboratory or NREL has played in designing, developing, and implementing and doing some preliminary analysis on 

the impact of 1603. 

Section 1603, the Grant Program, was created under the Recovery Act to support the deployment of renewable energy resources 

and to help address the financial crisis at a time when the lack of 

financing, coupled with a steep decline in tax equity investors, was 

severely limiting the ability of renewable energy developers to 

move forward with projects. 

1603 offered businesses the option of a one-time cash payment in 

lieu of the Production Tax Credit or the Investment Tax Credit 

found in Revenue Codes 45 and 48, respectively. To be eligible for 

the program, projects originally had to meet the requirements by 

the end of 2010, which was later extended to the end of 2011. 

NREL’s involvement in 1603 began almost immediately after the 

President’s signing of the Recovery Act in 2009. Treasury and Energy officials came to NREL requesting the lab’s support in implementing the newly enacted 1603 provisions. 

Congress clearly intended, and economic conditions demanded, 

that a working 1603 Program be rolled out quickly. Pivoting from 

the existing tax credits to cash payments required very careful 

scrutiny and deliberate execution of the prior tax credit rules in the 

form of new cash payments, and the development of an application, 

review, and payment procedures. Working very closely, a group 

from NREL got together the Internal Revenue Service, Treasury, 

Department of Energy. This group worked for a period of several 

months early in 2009, to develop and put in place the 1603 Program. 

A key early task was developing the guidance document with explicit definitions of which technologies would met the requirements 

of the IRS Tax Code. 
75 

We also had to assemble a team of skilled individuals in order 

to manage the application process and review the applications. 

While assembling the project team, we also worked on a daily basis 

with Treasury to design the most credible, effective, and transparent review program possible. Our work has also included the 

design, the development, and the maintenance of an effective and 

secure Web-based system for the applications in the data base for 

that information. This has become known as the external face of 

the program. 

We instituted a very rigorous review process to ensure careful 

technical scrutiny of every application, making certain the projects 

are eligible for the payment that they would receive from Treasury. 

Reviews of submitted applications are conducted in a systematic 

way by an interdisciplinary team with experts educated in, and 

very experienced in, engineering, accounting, legal, and a variety 

of other technical and business disciplines. 

The 1603 team also draws on the deep and broad expertise 

across all of NREL to provide whatever technical expertise is needed for the project. 

We developed a staffing strategy early in 2009 to ensure that the 

1603 Project would have all the skills needed, and the capabilities, 

plus the flexibility to flex the staffing up or down as the applications increased or decreased, recognizing that the review process 

and the staffing strategy had to meet the statutory requirement to 

reply to applicants within 60 days. 

Some of the applications are more, are much more complex by 

nature and require a back-and-forth communication with the applicant. All applications are rigorously evaluated against the criteria 

based on the tax codes. Every application goes through two reviews 

at NREL and then a third review at Treasury. 

On average, NREL completes our reviews in about 35 days. Once 

our reviews are complete, the applications, along with our recommendations, go to Treasury. Treasury officials conduct their own 

review and make the final decision on approving or denying the 

grants and fulfilling any payments that are forthcoming. 

To date, some 41,000 applications have been received, and approximately 35,000 have been reviewed. About 3,000 are awaiting 

completion to be processed and about another 3,000 have been 

withdrawn or disqualified. 

Totally independent from our work for Treasury, the Department 

of Energy’s Energy Efficiency and Renewable Energy Office asked 

NREL to conduct a study in late 2011, on the economic impact of 

1603. The study, entitled ‘‘A Preliminary Analysis of the Jobs and 

Economic Impacts of the Renewable Energy Projects Supported by 

Section 1603 of the Treasury Grant Program,’’ found that as of November 10, 2011, up to 75,000 direct and indirect jobs, and up to 

$44 billion in total economic output, were supported by just the PV 

and the large wind projects that received a cash grant under 1603. 

The same NREL study estimates that operation and maintenance of these facilities will support another $5,000—5,000 jobs per 

year and up to $1.8 billion annually in economic output over the 

20- to 30-year lifetime of these projects. If that study were completed again today with the up-to-date figures from 1603, the eco-
76 

nomic estimates and the jobs estimates would be significantly higher. 

Mr. Chairman, thank you for the opportunity to testify here 

today, and I would also like to thank my colleagues at U.S. Treasury and Department of Energy for calling on NREL to support 

them on the implementation and the analysis of 1603. 

I would welcome any questions after the break. 

[The prepared statement of Mr. Pacheco follows:] 
77 

Invited Testimony for the House Committee on Science, Space & Technology 

Investigations & Oversight and Energy & Environment Subcommittees 

Prepared Statement of 

Dr. Michael Pacheco 

Vice President, National Renewable Energy Laboratory 

Golden,CO 

April 19, 2012 

Mr. Chairman and members of the Committees, thank you for this opportunity to discuss the 

technical role that the U.S. Department of Energy's (DOE) National Renewable Energy 

Laboratory (NREL) has played in administering the U.S. Dcpartment of Treasury's 1603 

Program. The Section 1603 Treasury grant program was created under the American Recovery 

and Reinvestment Act to support the deployment of renewable energy resources to help address 

the financial crisis at a time when a lack of available financing, coupled with a steep decline in 

tax equity investors, severely limited the ability of renewable energy developers to move forward 

with projects. 

As adopted by Congress, the 1603 Program offered businesses that installed energy projects the 

option of a one-time cash payment, in lieu of the Production Tax or Investment Tax credits found 

in the Internal Revenue Code Sections 45 and 48, respectively. The Investment Tax Credit in 

place since 2005 - provides a tax credit for up to 30 percent of the total costs of many types of 

renewable energy projects. The Production Tax Credit - in place since 1992 provides a tax 

credit for production of energy from renewable energy projects. A 1603 payment is made after 

the energy property is placed in service; a 1603 payment is not made prior to or during 

construction of the energy property. Accepting an award under 1603 disqualifies a project for 

the ITC or PTC, and vice-versa. 

The Partnership for Renewable Energy Finance and other industry observers have credited the 

1603 Program for substantially lessening the negative impact that the weakened tax-equity 

market was having on renewable energy deployment. The program, originally approved through 

the end of 20 I 0, was extended for an additional year and expircd on December 31, 2011. A 

project may still be eligible for a 1603 award if the developer commenced construction by 

December 31, 2011. 

Because the technologies that qualify under the Internal Revenue Code are primarily renewable 

energy technologies, the Department of Treasury, in consultation with the Department of Energy, 

selected the National Renewable Energy Laboratory to provide technical assistance to the 
78 

program. NREL is the only National Laboratory dedicated solely to research, development, and 

deployment of renewable energy and energy efficiency systems. Our 35 years of research and 

credible analyses have contributed to the successful establishment of the growing U.S. industries 

that manufacture and deploy a broad range of clean energy technologies, including wind power, 

solar photovoltaics, concentrating solar power, biomass fuels and power, geothermal power and 

others. 

NREL was selected to assist in the technical design and implementation of Treasury's 1603 

Program because of its I) broad and deep technical experience, 2) knowledge of these renewable 

energy industries, 3) its work on behalf of the Departments of Agriculture and Energy on earlier 

federal energy grant programs, and 4) its demonstrated history of intricate projeet management 

and achievement. This work was crucial becausc it ensured that 1603 program funds would be 

made available only to those applicants who met the statutory eligibility requirements. 

NREL's involvement began almost immediately upon the President's signing of the Recovery 

Act in February 2009. Energy Department officials came to NREL requesting assistance in 

advising the Treasury Department on how best to implement the newly enacted 1603 provisions. 

The Laboratory's previous experience working with the USDA and DOE on grants for rural 

energy efficiency and renewable energy projects gave us important, parallel insights. 

The challenges were understood to be significant. Congress clearly intended - and economic 

conditions demanded that a working program be rolled out quickly. Pivoting from the existing 

tax credits to cash payments required careful scrutiny and deliberative execution of the prior tax 

credit rules in the form of the new cash payments, and development of application and payment 

procedures. A working group was fonned with NREL, thc Intcrnal Revenue Service (IRS), 

Treasury and DOE representatives. The working group met in Washington, D.C. one week to 

formulate plans, and then went back the following week to their respective organizations to forge 

the details and consult on next steps. This method of development was repeated over a period of 

three months, to reach final consensus. 

The group was guided by two fundamental questions: Would this aspect of the plan fillfill what 

Congress had intended? Would it meet the requirements of businesses which Congress sought to 

use the provisions of 1603 to continue development of new energy systems? 

One early task was to draft an explicit definition of the technologies that met the requirements of 

the Act, as it now applied to cash payments, and additionally to define what portions of 

individual projects were eligible for those payments. On these and other aspects of the program, 

NREL gathered needed information and provided options for Treasury, which made final 

decisions on program design and implementation. The definitions and requirements had to be 

aligned with the existing provisions of the IRS tax code. 
79 

We attempted to take into account the needs of all pertinent factions in producing a program 

guidance document, which Treasury used to solicit feedback from industry and others. The final 

plans included input from a variety of external constituencies. 

Our next step was to work with Treasury in standing up an effective program that would fully 

implement Section 1603 of the Act. While the Act was clear in its intent, the complexity of the 

issues required technical and business expertise to ensure the interests of both applicants and the 

nation's taxpayers were well and carefully represented. The tax policies involved little new 

territory, the underlying tax policies were in fact well known. Early on, we saw the biggest need 

to be one of strong due diligence and we designed, staffed, and managed the program to 

accomplish that. 

As an applied science lab, NREL not only conducts needed basic research into promising new 

technologies, we also place considerable emphasis on each and every subsequent step of the 

technology development process. Our ever-present goal is to see these new technologies put to 

good use, to benefit the nation and its economy. As a result we have come to appreciate the 

value of sound business acumen in technology development. To implement the 1603 

applications review program, NREL assembled a qualifIed team that understood the business 

cases for these energy systems. 

We assessed the skills and experience of existing NREL staff, identified key team members, and 

then went outsidc the Lab to recruit individuals with strategic knowledge to fill any gaps. Wherc 

necessary, we developed specific criteria for newly created positions, and proactively went 

outsidc of our organization to hire the most demonstrably qualified candidates for those 

positions. 

At the same time, we worked on a daily basis with Treasury to design the most credible, 

effective and transparent review program possible. That included the engineering, development 

and maintenance of an effective and secure Web-based information, application and database 

system that would come to be the external "face" ofthe program. Considerable time and effort 

has gone into the program's Web capabilities, and this one-stop, on-line resource has contributed 

greatly to the successful implementation of the program, for both applicants and the government. 

A link to the Web site is provided here: www.treasury.gov!initiatives!recovery/Pages!1603.aspx 

The review process we put in place was infused with an overriding ambition and goal: Give full 

scrutiny to the projects to make sure they are affinnativeiy and unquestionably eligible for the 

payment they would receive. For example, the first step is to ensure the applicant is a qualified 

business and that the project has in fact been in put in service. 

Reviews of submitted applications are conducted in a systematic way by interdisciplinary teams, 

with experts educated in and experienced with a broad range of engineering, financial, 

accounting, legal, and other technical and bnsiness aspects. Wherever necessary, the 1603 team 

3 
80 

reaches beyond their ranks to draw upon the broad and deep expertise across the National 

Renewable Energy Laboratory to address technical issues that arise. 

From the beginning of the project, NREL's management developed a staffing strategy to ensure 

this critical project would have all the skills and capabilities needed, and the staffing plan was 

designed to provide sufficient tlexibility in rcsource planning to allow the 1603 staffing levcl to 

tlex up or down as the tlow of applications increased and decreased. The process and staffing 

strategy also had to ensure that NREL and Treasury would meet the statutory requirement to 

respond to applicants within 60 days of receiving a fully completcd application. 

The 1603 project team lcader was recruitcd from outside NREL bascd strong business 

experience performing due diligence on behalf of private equity and lending institutions 

investing in large-scale energy projects, excellent project management skills, and a solid 

grounding in engineering sciences. Members of the review team collectively possess 450 years 

of professional experience in accounting, law, engineering, business, economics, physics and 

finance, with education encompassing 17 advanced degrees, five MBAs, two PhDs, and two juris 

doctoral degrees. 

All review team members at NREL, and several from the Treasury Department, received training 

in the newly established process. The beginning training session for each reviewer set forth 

system functions and reviewer expectations. Each member of the team was required to execute a 

Contlict of Interest agreement and the training emphasized the impoliance of strict reviewcr 

anonymity and strict non-disclosure of applicant information, both within NREL and outside of 

thc Lab. 

We adopted a methodical approach and a set of operating procedures in which thc review 

process works as a system, in step-by-step fashion, to answer a series of qucstions, ineluding: Is 

the project eligible under the tax code? Is the technical description consistent with Sections 45 

and 48 of the tax code? Has the project been actively placed into service? Are the costs eligible 

under the tax code? Does the applicant's documentation credibly support their claims? Our goal 

is to be absolutely consistent on how we review each and every project. 

Some of applications are by nature more complex, with considerable back and forth 

communication resulting from the review process. The guiding principle is: every determining 

factor is appropriately weighed, and applications are rigorously evaluated against criteria. Thus, 

every application goes through two reviews at NREL, and a third at the Treasury Department. 

The average time (in calendar days) for NREL to complete an application review (in duplicate) is 

35 days. Once the review is complete, applications with our recommendations are delivered to 

the Treasury Department. Treasury officials then conduct thcir own review and makc the final 

decisions, approving or denying grants, and fulfilling any payment that may be forthcoming. 

4 
81 

In addition to the application review process, NREL is also managing the 1603 Program's annual 

review process for Treasury. Every recipient is required to submit to an annual review, in which 

they verifY that they haven't sold or transferred the project, and state what the actual production 

of energy ofthe project has been during that year. 

In conclusion, let me summarize our accomplishments on behalf of the 1603 Program. To date, 

some 41,000 applications have been received, and approximately 35,000 have been revicwed. 

About 3,000 are awaiting project completion to be processed; another 3,000 have been 

withdrawn or disqualified. In less than three years, the Treasury Department has issued cash 

payments for nearly 35,000 renewable energy projects, small to large, across the range of 

technologies, and in every state. Cash payments under the 1603 Program totaled $11.2 billion, 

which has helped leverage several times that amount in additional private investment. In total, 

the 1603 program has assisted in the development of $3 7 billion in new energy facilities for the 

nation. 

In a separate but related project, DOE's Energy Efficiency and Renewable Energy office 

requested that NREL conduct a study of the economic impact of the 1603 Program. That work 

was distinct from our program management work for Treasury, and was conducted by a different 

organization within the Laboratory. NREL has deep knowledge of renewable technologies and 

their deployment in the marketplace, and is frequently engaged to perform economic impact 

analyses. The Laboratory has developed a suite of validated models which are used extensively 

by the Laboratories, universities and other external organizations and individuals to estimate the 

economic impacts of individual renewable generation projects, as well as the impacts of broader 

investment in renewable generation technologies. 

The study, entitled, "Preliminary Analysis ofthe Jobs and Economic Impacts of Renewable 

Energy Projects Supported by the §1603 Treasury Grant Program," found that up to 75,000 

direct and indirect jobs, and up to $44 billion in total economic output were supported by the 

design, manufacturing, construction and installation of photo voltaic and wind projects funded by 

the 1603 Treasury. In addition, the study estimates that the operation and maintenance ofthese 

facilities will continue to sustain more than 5,000 jobs per year, and up to $1.8 billion annually in 

economic output over the 20- to 30-year lifetime of the facilities. At the time the study was 

conducted (data as of Nov 10,2011), the 23,000 photovoltaic and large wind projects funded by 

the program added 13.5 gigawatts (GW) of renewable energy to America's electricity generation 

capacity, representing about half of all the added non-hydropower renewable energy capacity in 

2009-20 II. The more up-to-date figures on the Treasury 1603 website are over 34,000 projects 

and 16.5 GW of renewable energy; so the jobs and economic impact figures would be higher if 

the study were conducted again today. 

It is important to note that the NREL study provides estimates of direct and indirect jobs related 

to facility construction and operation, but does not attempt to estimate the overall economic 

impact produced by those jobs. No attempt was made to estimate if or how many jobs were lost 

5 
82 

or displaced in other sectors by the installation of these RE projects. In addition, the study does 

not attempt to quantify which projects were completed directly because of the 1603 Program, nor 

does it address relative effectiveness of these or other tax incentives. It is clear that some portion 

ofthe jobs, earnings, and economic output supported by these projects can be directly 

attributable to the 1603 Program, but no attempt was made to estimate that portion in this 

analysis. 

Thank you for the opportunity to testify. I would welcome any questions you may have. 

6 
83 

Chairman BROUN. Dr. Pacheco, thank you so much. You hear all 

these buzzers going off. That is the indication on our votes. What 

we will do is, if you all will just stand by, I am going to recess the 

Committee until 10 minutes after the beginning of the last recorded vote. We will hurry back so we can turn you all loose, and 

I thank you all for your patience. 

[Recess.] 

Chairman BROUN. Committee comes back to order. I thank you 

all for your testimony. I want to remind Members that the Committee rules limit questioning to five minutes per Member, and at 

this point the Chair will open the first round of questions, and I 

will recognize myself for five minutes. 

Dr. Pacheco, a recent NREL study analyzing the jobs and economic impacts of the 1603 Program estimated that it supported between 50,000 to 75,000 jobs a year. Very quickly, I would like to 

clear up some confusion as to what this report does as well as what 

it does not say. 

Did NREL attempt to calculate how many jobs were actually created, or did it enter grant application data to calculate how many 

jobs could have been created? 

Dr. PACHECO. Congressman Broun, the NREL approach on that 

was what we did was took the total number of projects, the types 

of projects, and the size of those projects, and we used that information on the—at the time the study was done around 23,000 

projects as opposed to the current number. And from that we went 

ahead and calculated how many jobs were supported by those 

projects. 

Chairman BROUN. So formally we don’t really know. 

Dr. PACHECO. I wouldn’t say that we don’t really know. It is 

based on the models that—— 

Chairman BROUN. It was based on a model and not actual calculation of jobs. Correct? 

Dr. PACHECO. It is based on a calculation of jobs. 

Chairman BROUN. How many of the projected jobs are direct jobs 

rather than indirect jobs, Dr. Pacheco? 

Dr. PACHECO. I have the detailed numbers, but the split is in 

favor of the direct jobs, and I would have to look at the numbers 

to give you the exact numbers, which I have right here. 

Chairman BROUN. Could you do that quickly because—— 

Dr. PACHECO. Yeah. 

Chairman BROUN [continued]. My time is limited? 

Dr. PACHECO. Yes, I can. 

Chairman BROUN. Okay. 

Dr. PACHECO. So of those numbers the—well, actually, I don’t 

have the split that you are looking for. 

Chairman BROUN. If you would get that for us—— 

Dr. PACHECO. Sure. I will provide that. 

Chairman BROUN. And, again, is this just calculated jobs, or is 

this actual—this is a calculation also? 

Dr. PACHECO. It is calculated. Yes. 

Chairman BROUN. Okay. The study also estimated that only between 30 to 70 percent of the components of projects, which is a 

wide range of turbines, towers, et cetera, were manufactured in the 
84 

U.S. but also that these estimates, ‘‘should not be construed as full 

bounding uncertainty.’’ 

Could these projects contain less than 30 percent of domestically 

produced components? 

Dr. PACHECO. Yes. It is possible. 

Chairman BROUN. So we don’t really know what it could be. It 

could be 10 percent, it could be 70 percent, it could be anything. 

Right? 

Dr. PACHECO. That is correct. 

Chairman BROUN. Thank you. How many of these jobs and how 

much economic support went to China, Europe, and elsewhere as 

opposed to being here in the U.S.? 

Dr. PACHECO. This was a very preliminary report, and we did not 

have those details from this report. 

Chairman BROUN. So, again, it is just an estimation. Is that correct? 

Dr. PACHECO. That is correct. 

Chairman BROUN. Okay. The NREL study also indicated that job 

estimates cannot be attributed to the 1603 Program alone and that 

it does not calculate the net effects of displaced jobs from other industry sources. NREL was very specific characterizing what its report said, going to great lengths to caveat its findings. DOE, on the 

other hand, has indicated that the NREL study makes clear that 

projects receiving payments from the 1603 Program has supported 

tens of thousands of jobs ‘‘then.’’ 

This is at odds with the findings of the February 24 Wall Street 

Journal report that questions the actual job impact of the 1603 

Program. Additionally, last November, CRS Report on the Section 

1603 Program that Dr. Sherlock co-authored with Phillip Brown 

stated, ‘‘Any job creation estimate’’ attributed to the program ‘‘be 

viewed with skepticism.’’ 

Can the panel help me understand how many jobs were actually 

created? Dr. Pacheco. 

Dr. PACHECO. Congressman, that is a very difficult number to actually calculate and estimate and really requires some intense 

study. What we did in our study was to use the models that we 

have and actually had to tailor those models slightly for this particular application. 

Chairman BROUN. So we don’t know. Anybody else? My time is 

about to run off. I apologize for cutting you off. Anybody else? Dr. 

Sherlock? Anybody? 

Okay. To Mr. Parcell, has Treasury assessed the annual reports 

from 1603 recipients to verify their projects are operating and employing workers? 

Mr. PARCELL. Yes. Treasury requires annual reports from each 

project that has received an award on how much—whether it is 

generating energy and whether it continues to satisfy the conditions for award. 

Chairman BROUN. Have you all audited assessments at all and 

verified anything? Yes or no, please. My time has run out. 

Mr. PARCELL. Yes. 

Chairman BROUN. You have audited? 

Mr. PARCELL. The Inspector General has audited certain—— 

Chairman BROUN. Please provide that for us. 
85 

My time has expired. Now I will recognize Mr. Tonko for five 

minutes. 

Mr. TONKO. Thank you, Mr. Chair. I am glad we are having this 

hearing, because I think it is important that we understand the 

role of subsidies in supporting our energy economy. 

I am a supporter of a broad array of tools to help this country 

transform our energy economy. We need to diversify our energy 

sources, and we need to reduce our dependence on foreign sources 

of energy. So we need to reduce our emission of greenhouse gases, 

also. We also need to change our energy economy to grow industries that will keep American jobs here and provide export opportunities for our products. 

I am pleased to learn about how successful, listening to the panelists, that the Section 1603 Program has been, and I would like 

to see us extend it. For those who think it is foolish to subsidize 

the renewable industry, I would like to point out that there is no 

sector of our energy economy that has ever developed without government subsidies and no sector today that doesn’t receive a wide 

array of government support. 

I want to show just two charts to help illustrate my point. They 

are both from a report by a venture capital firm, DDL Investors, 

entitled, ‘‘What would Jefferson do?’’ The first chart shows the aggregate level of subsidies for our oil, gas, nuclear, biofuel, and renewable industries. The oil and gas industries dwarf, dwarf all others, receiving $447 billion in subsidies between 1918 and 2009. Nuclear ranks second with $185 billion, biofuels ranked third with $32 

billion, and our renewables are a distant fourth with just $5.93 billion between ’94 and 2009. 

Now, we can quibble about what was included in this analyst’s 

count and what was left out, but the scale of the subsidies would 

not change appreciably, even if we put in the Carter era, solar investments, for example. 

So when people say today that the government shouldn’t pick 

winners and losers, I look at this chart and have to respond, it is 

a little late for that. The government has been supporting the 

growth of different energy sectors for 100 years, longer if you look 

at early coal and timber support. 

I want to point the Subcommittee’s attention to a second chart 

that shows the level of support for each of these four sectors on an 

annualized average over the life of their support. Again, oil and gas 

lead the pack with $4.9 billion in annual support, and renewables 

take up the rear with just $370 million in average annual support. 

Now, in the last few years, at long last, subsidies to the renewable industry have passed those provided to fossil fuels, but the 

gravy train to the oil and gas industry continues nonetheless with 

annual tax supports of at least $4 billion a year. These subsidies 

to the oil and gas industry are going to an energy sector that is 

immensely profitable and immensely rich. The top oil companies 

made over $100 billion in profits in 2011, yet the subsidies continue. The subsidies to the industry just keep coming. 

Obviously, a permanent feature of the tax credit has meant a 

great deal to the industry. So if there is a statement from this 

hearing, I would think permanent relief for some of these industries to get them up and running has made a difference. 
86 

Mr. Chair, that makes me question the seriousness of those who 

say we should not subsidize the renewable energy industry when 

oil and gas and nuclear sectors continue to benefit from a panoply 

of subsidies. Where is the outrage that almost a century after government subsidies to the oil and gas industry began, we still are 

cutting them checks? Where is the sense of fairness, Mr. Chair? 

I look forward, Mr. Chair, to the follow-on hearing by this Committee looking at the subsidies and their appropriateness for the oil 

and gas industries and the nuclear industry as well, the sectors 

that have received the lion’s share of taxpayer dollars over the 

years. That would be fair, and that would be proper, and I certainly think that all Members would learn a lot from a series of 

hearings of that kind. Let us truly examine all of the tax subsidies 

over the years towards the various sectors of our energy supplies. 

I hope this is just the first hearing in that series of hearings that 

will serve us and the Committee well. 

With that, Mr. Chair, I yield back. 

Chairman BROUN. Thank you, Mr. Tonko. I am not sure I heard 

a question in all that but anyway—okay. 

Well, now, Dr. Harris, you are recognized for five minutes, my 

fellow Subcommittee chair. 

Mr. HARRIS. Thank you very much, Mr. Chairman, and, you 

know, since this is all about the taxpayer and that is really the 

charge of this Committee is to see whether government monies are 

spent adequately, I would think that our taxpayers would want us 

to invest in companies that actually make a profit and pay taxes, 

and, you know, if we pay $4 billion in subsidies and get tens and 

tens of billions of dollars in taxes from oil and gas companies, I 

think our average taxpayer would say that is a pretty darn good 

investment, especially since the price of their energy is so low. 

Let me ask about some of the claims about jobs, though. Mr. 

Parcell, the—or actually, let me, Mr. Pacheco, let me ask you a 

question. The graph from the NREL study or the table says that 

there are supposed to be 4,500 to 4,900 operational jobs, so permanent jobs at these, but when the Wall Street Journal did—and they 

didn’t use models. They actually called up companies and said, how 

many people do you have employed, which I think is the way we 

should be doing it, just the way we do, we sample unemployment 

and employment. The Labor Department doesn’t make up their 8.2 

percent. They actually call people. They actually survey people. 

They say there are only 300 people employed. Doesn’t that devastate the model you use? Doesn’t it completely invalidate the 

model you used that predicted there should be 5,000, whereas there 

are 300? You are aware of the Wall Street Journal article? 

Dr. PACHECO. I am very aware of the article that you are referring to—— 

Mr. HARRIS. Okay. 

Dr. PACHECO [continuing], Congressman, and my recollection of 

that article is the author talked about four or five companies out 

of the 23,000 that were affected by 1603, and I can answer Congressman Broun’s question now if you would like. 

Mr. HARRIS. Excuse me. Let me just—no. You got to answer my 

questions, my five minutes. 

Dr. PACHECO. Okay. Sorry. 
87 

Mr. HARRIS. No. You are wrong. I mean, the article says 40 percent of the funding, 4.3 billion went to 36 wind farms. These are 

the largest. During the peak of the construction, they employed 

about 72, they produced 7,200 jobs. But once the construction was 

done, they only employed 300 jobs. Forty percent of the funding 

from that program went to 36 wind farms. So I know you can say, 

look, you know, we—look. I wrote scientific papers. I know what 

you can do with statistics. Certainly you can say, yes, you know, 

they only looked at 36 wind farms, you know, we looked at 2,500 

or whatever. They looked at the biggest ones. They looked at the 

ones that are most likely to produce employment, so does that fact 

that they could only find 300 people working there whereas you 

would have proposed, I imagine, there should be thousands of people working there, completely invalidate the model you used? 

Dr. PACHECO. No, not at all, Congressman. So—— 

Mr. HARRIS. How do you explain 300 people as opposed to thousands? 

Dr. PACHECO. I would be happy to do that if you give me a moment. 

Mr. HARRIS. Go for it. You got about 30 seconds, though, if you 

can—otherwise you will have to respond in writing because I have 

other questions. 

Dr. PACHECO. So—and this builds on the earlier question, and I 

have found the proper table, and I can make this available to the 

Committee, but the results of our modeling would have predicted, 

it did predict that as of the datas of November that we would be 

employing 770 people in the operation of all the wind facilities, all 

the large wind facilities that we were built with 1603 dollars. 

Mr. HARRIS. This chart that I am looking at, which is the estimate from the NREL report, says 4,500 to 4,900. Now, are there 

multiple tables? 

Dr. PACHECO. The number that you are looking at, sir, is a total 

of the direct jobs, the indirect jobs, and the induced jobs that would 

be involved in the operation of the facility. If you go to the top of 

the table, what it says is that the direct average jobs—— 

Mr. HARRIS. What was your testimony as to ratio of direct to indirect jobs? 

Dr. PACHECO. I didn’t have that number. I have it now. 

Mr. HARRIS. Your answer to the Chairman. What is the ratio? 

Dr. PACHECO. The total ratio, if you take that number that the 

estimate is 75,000—— 

Mr. HARRIS. Yes. 

Dr. PACHECO [continuing]. Out of that total, and those are construction jobs, not operational jobs—— 

Mr. HARRIS. Doctor, Doctor. I am talking only about the operational jobs. 

Dr. PACHECO. Okay. 

Mr. HARRIS. They say there are 300. You say there are 5,000, 

and then you say, well, we are just going to account for the difference—— 

Dr. PACHECO. No, I didn’t say that. 

Mr. HARRIS [continuing]. In indirect jobs. 
88 

Dr. PACHECO. I said that the 5,000 was the total of all the jobs 

involved in all of the facilities’ operation. It turns out that for the 

operational jobs directly at the site—— 

Mr. HARRIS. Yes. 

Dr. PACHECO [continuing]. Which are the ones that the—— 

Mr. HARRIS. Right. 

Dr. PACHECO [continuing]. Article you are referring to—— 

Mr. HARRIS. Right. 

Dr. PACHECO [continuing]. Our number in the table, I will make 

this available—— 

Mr. HARRIS. Yes. 

Dr. PACHECO [continuing]. Was 770. 

Mr. HARRIS. Okay. So they called up the companies and said, it 

is 300. Okay. That is only off by a factor of over 100 percent. 

Dr. PACHECO. Well—— 

Mr. HARRIS. Let me tell you something. One hundred percent, if 

I did a model, and it was 100 percent off, I would go find a new 

model. 

Now, let me just ask, Dr. Sherlock, did you review the Wall 

Street Journal article or CRS, someone at CRS? Did they review it 

to see if this, in fact, is true, if, in fact, the model that NREL used 

is over, by the Doctor’s testimony today, is over, is wrong by over 

100 percent, it mispredicts by over 100 percent. 

Dr. SHERLOCK. CRS has not done independent analysis of job creation of the 1603 Grant Program. 

Mr. HARRIS. I may ask you to do that at some point. 

Dr. SHERLOCK. Sure. Absolutely. 

Mr. HARRIS. Finally—oh, I am sorry. I am over. 

Thank you very much, Mr. Chairman, for—and I yield back. 

Chairman BROUN. Thank you, Dr. Harris. 

I am going to keep a pretty tight time clock on everybody because we have got a whole other panel, and we are going to have 

some votes probably in about an hour or so. 

Now I recognize Mr. Miller for five minutes. 

Mr. MILLER. Thank you, Mr. Chairman, and I don’t want to quibble too much about our Committee’s jurisdiction. We do disagree 

about the appropriateness of trying to encourage emerging technologies, and that would be, tax credits for that purpose would be 

within this committee’s jurisdiction, but we are not talking about 

R & D tax credits here. We are talking about tax credits that were 

designed to create jobs, which is not within our Committee’s jurisdiction, and I think the questions that this panel has gotten so far 

has made it very clear that this really is about how many jobs were 

created, not whether we have nurtured emerging technologies or 

the commercialization of research through the tax credits that we 

are talking about. 

In the second, on the second panel Ms. Thorning, who is one of 

the Republican witnesses, estimates that this has cost us about 

$80,000 per job, which I think the Republicans think is scandalously high, shows it is absolutely not worth it. But later today, we 

will be voting on a proposal from the majority party, from the Republicans, from Mr. Cantor, the Republican leader, to give a tax 

break for small business, not what you or I might think of as small, 

which would probably be more like a Mom and Pop operation, but 
89 

companies up to 500 employees. Their own estimates are that that 

would be, that that would cost $46 billion in tax revenues. As the 

Republicans have already pointed out that that really does, therefore, come out of the pockets of everyone else, and would create 

40,000 jobs. That is their own estimate, which may be ambitious. 

That works out to more than $1 million a job. 

So the jobs created by this particular program actually appear to 

be a bargain by comparison to other proposals. 

Dr. Sherlock, you, can you tell us how the oil and gas industry 

has already benefited in the past from tax credits and other support from the Federal Government, and how emerging alternative, 

unconventional resources, oil and gas resources, also have tax credits and how they benefited from those, that support over the last 

century? 

Ds. SHERLOCK. Sure. So tax credits have been available to oil and 

gas since the 1910s, 1920s. Up until about 1978, the oil and gas 

sector was the primary beneficiary of targeted tax incentives for 

energy. Beginning in the late 1970s, early 1980s, that is when tax 

credits that would have benefitted renewables were first put in the 

Code. There weren’t really measureable revenue losses associated 

with those provisions until recent years. In recent years, primarily 

due to expansion in the wind industry and the PTC, as well as provisions enacted as part of the Recovery Act, we have seen a shift 

towards the total cost of energy-targeted tax provisions in that renewables now do receive a substantial share of the targeted tax incentives. But historically, oil and gas have received the bulk of tax 

incentives that are targeted to energy. 

Mr. MILLER. Okay. You quoted President Reagan, well, you 

didn’t quote President Reagan, but you said the purpose or the 

cited policy goal of the Reagan Administration to be more neutral 

and less distortionary in the tax policy towards energy. Do you 

think we have a free market, a perfectly free market, or does government policy and tax policy already distort energy policy, the energy market? 

Dr. SHERLOCK. There are distortions that are created through the 

tax code and even from an economic standpoint when you look at 

the market for energy, the market for energy may have certain 

market failures that may be a rationale for government intervention in the energy market. 

Mr. MILLER. And how does that affect the entry into the market 

of alternative energy sources, the fact that there are already distortions based on government policy in the energy market? 

Dr. SHERLOCK. Since there are distortions based on government 

policy, it can put renewables at a disadvantage. 

Mr. MILLER. All right. My time is not quite expired, but it is almost expired. 

Chairman BROUN. Thank you, Mr. Miller. I appreciate and thank 

all of you all—oh, Mr. McNerney. I didn’t see you. Okay. Mr. 

McNerney, you are recognized for five minutes. 

Mr. MCNERNEY. Thank you, Mr. Chairman. Thanks to the panel 

for coming and testifying this morning. Although I don’t believe 

that this hearing is going to lead to any meaningful legislation, it 

is more of a political sounding board for the majority party, but I 

do have some questions. 
90 

Dr. Sherlock, what—I believe from your testimony that you indicated that the most effective way for the tax credits to be effective 

is to have a large number of people take advantage of the incentives. 

Do you have any suggestions for policymakers based on past experience to get the most number of people to participate in these 

programs? 

Dr. SHERLOCK. The incentives will be most efficient not necessarily based on participation, but when you have claims of tax 

credits of people that would not have engaged in the activity otherwise. So, you are actually causing people to invest in solar panels, 

or causing people to build wind farms, rather than rewarding those 

that would have built the wind farm or invested in solar panels 

anyway. 

One challenge with current policy is that with policy uncertainty 

and expiring provisions, many of the projects that take place are 

taking place in the face of that uncertainty and may have gone forward anyways without the tax incentives. 

So when the tax incentives are enacted temporarily, at the last 

minute, they may end up rewarding projects that would have gone 

forward anyways, diminishing the economic efficiency of the incentive. 

Mr. MCNERNEY. So how can we best include the class of people 

of that—or class of businesses wouldn’t participate without the incentives? 

Dr. SHERLOCK. One step would be to have additional certainty 

with the incentives and to either have long-term incentives or some 

sort of credible expiration or to, on the flip side, not have incentives 

and let the markets make decisions there. 

Mr. MCNERNEY. Well, that is aligned with my experience in the 

industry in which even the—a one-year tax extension doesn’t really 

help because it takes years to get projects approved and get investors lined up. So this uncertainty in the programs is most damaging. So I agree fully with that, Dr. Sherlock. 

Dr. Pacheco, just out of curiosity, how do the payments, how are 

payments made for the production tax credits? Are they adders to 

energy generation earnings, or are they something that comes 

along with an investment-type situation, or how are those payments made? 

Dr. PACHECO. If it is okay, Congressman, I would like to defer 

that question to my colleague on the right. 

Mr. MCNERNEY. Okay. 

Mr. PARCELL. Yes. The production tax credit is a credit under 

Section 45 of the Code. It is claimed on the income tax return of 

the person producing the electricity at the rate of 2.2 cents per kilowatt hour. 

Mr. MCNERNEY. Well, actually, I was referring to the 1603 Program. How are the 1603 Program payments made? Are they based 

on energy production or some other means? 

Mr. PARCELL. No. The 1603 payments are based on investment 

in the—it is based on the cost of the facility. 

Mr. MCNERNEY. Okay. 

Mr. PARCELL. It is really a substitute for the investment tax 

credit under the Internal Revenue Code. 
91 

Mr. MCNERNEY. Dr. Pacheco, can you provide an estimate of how 

many jobs in both the solar and the broader renewable energy sector have been impacted by the expiration of the 1603 Program, and 

what impacts we can expect over the next few years if the program 

is not renewed? 

Dr. PACHECO. I can certainly speak to our estimate of how many 

jobs had been supported during the course of the program, and that 

as of the November date when we did our study, the jobs estimate 

at that time was up to the 75,000 total in construction and up to 

the numbers I discussed earlier on the operational phase. 

I can also come back if you are willing to allow me to clarify the 

earlier comment. I have the New York Times article in front of me, 

and I would very much like to respond to the earlier question, if 

that is okay. 

Mr. MCNERNEY. You got about 45 seconds. 

Dr. PACHECO. I can do it in much less than that. 

As I read the article that was referred to earlier, the author cites 

that 40 percent of the funding went to 36 wind farms and that 

those wind farms that were surveyed can account for 300 employed 

people today. So if you were to extrapolate, sir, that 40 percent up 

to our earlier estimate of the 770, I think you would conclude that 

our models that are actually quite accurate. 

Mr. MCNERNEY. Thank you for that comment—— 

Dr. PACHECO. You are welcome. 

Mr. MCNERNEY [continuing]. Dr. Pacheco. I yield back. 

Chairman BROUN. Thank you, Mr. McNerney. 

I would like to state that this is the Oversight Committee, so we 

do have a responsibility to have oversight as to the rules of the 

Committee demand. 

I thank you for your all’s testimony. It has been valuable time 

spent, and I appreciate all you all, in particular, Mr. Parcell. I 

know, again, I want to thank you. 

The Members of the Subcommittee may have additional questions for all of you all, and we will ask for you to respond to those 

in writing, and if you would do that expeditiously, we would greatly 

appreciate it. 

The first panel of witnesses is excused, and we will now turn to 

the second panel. So thank you all very much for coming. 

And if the second panel will take their seats quickly because we 

have got votes in about an hour, and we have got a big panel and 

a lot of questions. So we appreciate it. 

Okay. At this time I would like to introduce our second panel of 

witnesses, and I appreciate you all’s patience through the interruption. 

Mr. Rhone Resch, the President and CEO of Solar Energy Industries Association; Mr. Terry Royer, the CEO, Winergy Drive Systems Corporation; Mr. Steven Erby, the Vice President of Monolith 

Solar Associates; Dr. Benjamin Zycher, a Visiting Scholar of the 

American Enterprise Institute; Dr. Margo Thorning, the Senior 

Vice President and Chief Economist of the American Council for 

Capital Formation; and Ms. Lisa Linowes, Executive Director of Industrial Wind. I thank you all for being here. 
92 

As I noted before, it is the practice of this Subcommittee to receive testimony under oath, and we will use that practice with you 

as well. 

Do any of you have any objection to taking an oath? 

Let the record reflect that all witnesses are willing to take an 

oath. 

And you also may be represented by counsel. Do any of you have 

counsel here today? 

Let the record reflect that none of the witnesses has counsel. 

Now, if you would please stand and raise your right hand. 

[Witnesses sworn.] 

Chairman BROUN. Let the record reflect—you may be seated. Let 

the record reflect that all the witnesses have taken the oath. 

And I recognize our first witness from the second panel, Mr. 

Rhone Resch, Solar Energy Industries Association. Mr. Resch, before you start, we are going to have votes in about an hour, so if 

you all would please try to limit your testimony. I don’t want to cut 

you short. I want to hear what each of you have to say, but we also 

have questions, and we would like to try to get through the line 

of questions before we have our next vote. 

So Mr. Resch, you have five minutes. 

STATEMENT OF MR. RHONE RESCH, 

PRESIDENT AND CEO, 

SOLAR ENERGY INDUSTRIES ASSOCIATION 

Mr. RESCH. Thank you very much, Chairman Broun. Good morning, Chairman Harris, Ranking Member Tonko, Ranking Member 

Miller, and Members of the Subcommittee. I appreciate having the 

opportunity to testify this morning. 

My name is Rhone Resch, and I am President and CEO of the 

Solar Energy Industries Association. There are more than 5,600 

companies, the vast majority of which are small businesses that 

make up America’s solar industry today. SEIA is proud to represent all of these domestic companies in the entire solar value 

chain, from small installers to manufacturers to project developers. 

Access to a diverse, abundant, reliable, and affordable supply of 

energy is in the national interest. Accordingly, federal policy has 

for decades provided a framework that has helped every major 

source of energy utilized in the United States today reach commercial scale. The recognition that smart policy is vital to developing 

our domestic energy resources has contributed significantly to 

America’s long-term economic prosperity. 

History has also shown that well-crafted federal tax incentives 

can effectively leverage private sector investment in new energy resources. This is clearly the case with federal incentives such as the 

Solar Investment Tax Credit and the 1603 Treasury Program that 

are designed to promote and expand deployment and use for solar 

energy. 

Congress first enacted the 30 percent Investment Tax Credit as 

part of the Energy Policy Act of 2005, and subsequently extended 

the incentive through 2016. Here is what has happened as a result. 

There has been a sevenfold increase in solar generating capacity 

and a 17-fold increase in photovoltaic or PV capacity in the United 
93 

States. Last year alone, PV installations increased by 109 percent 

and were one of the fastest-growing industries in the United 

States. 

The solar industry now employs more than 100,000 Americans, 

more than double the amount from just two years ago. The U.S. PV 

panel manufacturing increased from 134 megawatts in 2005 to 865 

megawatts in 2011, and today there are over 600 manufacturing facilities in the domestic value chain in the United States. 

Technological advances and innovative financing options have 

driven down the cost for consumers. In 2011 alone, the price of 

solar panels dropped by 50 percent. Businesses and homeowners 

across the country are choosing solar because it makes economic 

sense. 

For example, Chairman Broun, there are more than 1,700 solar 

jobs in Georgia, six solar companies in your district, and the largest 

ground-mounted solar project in the State is in the Blairsville area, 

and that project came to fruition with the help of the 1603 Program. 

And Chairman Harris, in your district there are 12 solar compa- nies and more than 500 solar PV installations. This represents $25 

million in solar investment in your district alone. In fact, there are 

more than five solar companies in every district of the Members 

represented on these two Subcommittees. 

By any objective measure, the Solar Investment Tax Credit is 

doing exactly what it was meant to do. Since the incentive went 

into effect in 2006, the industry has made significant strides towards grid parity. If current trends continue, and costs continue to 

come down on account of economies of scale, improved technologies, 

and enhanced efficiencies, need for federal policy support for solar 

will be relatively brief when compared to other conventional and 

renewable energy sources. 

Let me also touch on the 1603 Treasury Program. Renewable 

Project developers typically partner with investors who have federal tax liability as a way to monetize energy tax incentives. 

Access to this tax equity provides a portion of the capital needed 

to finance renewable energy projects. The 2008 economic crisis and 

the ensuing recession have severely restricted access to tax equity. 

The 1603 Program addresses this problem by allowing companies 

to receive a grant in lieu of the existing tax credit that they were 

eligible to claim. This creates flexibility in how you finance these 

solar projects. 

And I want to address three common misperceptions about the 

1603 Program. First, under the 1603 Program, the government 

does not pick winners or losers. It is the market that chooses which 

projects go forward. 

Second, the grant is not an upfront payment. Rather, it can only 

be claimed when the project is completed, and it must go through 

a thorough Treasury audit and an NREL audit, as we heard earlier. 

And third, I would urge you not to judge this program by the legislation on which it was introduced but on the merits of the results. 

The program has supported 22,000 solar projects with an average 

size of $150,000. These are not huge projects. These are projects 

developed by small businesses that are going on schools and 
94 

churches and community buildings in communities around the entire country. 

The 1603 Program lapsed at the end of 2011, and although there 

has been a modest recovery in tax equity markets, there remains 

a temporary need for the program. Absent the 1603 Program, financing available for domestic renewable projects will be reduced 

by more than 50 percent. A reduction of this magnitude will disproportionately impact small businesses, like Steve’s company, that 

lack the resources and scale to enter into complicated tax equity 

transactions under these market conditions. 

Today, the solar industry is one of the most entrepreneurial segments of our economy, and ultimately, it is these entrepreneurs 

from the scientists developing more efficient and cost-effective solar 

technologies to the small business leaders making solar more affordable for consumers that are responsible for the rapid growth 

and reduced costs that are the hallmark of America’s solar industry 

today. Stable, reliable, and well-structured tax policy provides the 

framework that allows for this market-driven innovation. 

Chairman BROUN. Mr. Resch, if you can go ahead and finish up 

your testimony. You are over the time already, sir. 

Mr. RESCH. Thank you. If policymakers have the foresight to retain these highly effective tax policies, the short-term investment 

will yield significant long-term results. 

Thank you for having me here today. I am happy to answer any 

questions that you have. 

[The prepared statement of Mr. Resch follows:] 
95 

TESTIMONY OF 

RHONE RESCH, PRESIDENT & CEO 

SOLAR ENERGY INDUSTRIES ASSOCIATION 

SUBMITIED TO THE 

U.S. HOUSE COMMITIEE ON SCIENCE, SPACE AND TECHNOLOGY 

SUBCOMMITIEE ON INVESTIGATION AND OVERSIGHT & 

SUBCOMMITIEE ON ENERGY AND ENVIRONMENT 

JOINT HEARING ON 

IMPACT OF TAX POLICIES ON COMMERCIAL ApPLICATION OF RENEWABLE 

ENERGY TECHNOLOGY 

APRIL 19, 2012 

S&'f'IA Solar Energy . ,;i Industries ",Si" AssociationC!l 

Solar Energy Industries Association 

575 i h Street NW, Suite 400 

Washington, DC 20004 

(202)682-0556 

www.seia.org 
96 

Chairman Broun, Chairman Harris, Ranking Member Tonko, Ranking Member Miller and 

members of the subcommittees: 

The Solar Energy Industries Association (SEIA) is the national trade association for the U.S. solar 

energy industry. On behalf of our 1,100 member companies and the more than 100,000 

American taxpayers employed by the solar industry, I appreciate having the opportunity to 

testify this morning about the important and constructive role that federal tax incentives have 

played in helping expand the deployment and use of renewable energy. 

Introduction 

Access to a diverse, abundant, reliable and affordable supply of energy is in the national 

interest. Accordingly, federal policy has for decades provided a legislative and regulatory 

framework that has helped every major source of energy utilized in the U.S. today reach 

commercial scale. The recognition that smart policy can playa vital role in developing new 

domestic energy resources has contributed significantly to America's long-term economic 

prosperity and growth. 

Similarly, history has shown that well-crafted and efficient federal tax incentives can be 

powerful policy mechanisms to promote the nation's energy objectives and leverage private 

sector investment for the deployment and utilization of new energy resources. This is clearly 

the case with federal tax incentives designed to promote the expanded deployment and use of 

solar energy technologies. 

Since the enactment of the 30 percent commercial and residential solar Investment Tax Credit 

("ITC") in 2005 and the 1603 Treasury Program ("1603") in 2009, domestic deployment of solar 

has increased seven-fold; the cost to consumers has significantly dropped; and we have 

developed a domestic industry value chain that today employs over 100,000 Americans. By any 

objective measure, these important incentives are doing exactly what they were meant to doallow our nation to reap the Significant energy, economic and environmental benefits 

associated with utilizing our abundant solar resources. 

When compared to other sources of energy - both conventional and renewable - the duration 

of federal support for solar has been brief. The solar ITC is the primary federal policy that 

encourages the deployment of solar technology. Since the ITC took effect in 2006, the industry 

has made significant and concrete strides towards grid parity. If current trends continue and 

costs continue to drop on account of economies of scale, improved technology and enhanced 

efficiencies, the solar industry's need for federal policy support will be shorter than virtually any 

other domestic energy source. 

Ultimately, it is the entrepreneurs in America's solar industry - from the scientists that are 

developing more efficient and cost-effective solar technologies to the market innovators that 

are providing new financing options that make solar more affordable for consumers - that are 

2 
97 

responsible for the rapid growth and reduced costs that are the hallmarks of America's solar 

industry. Stable, reliable and well-structured tax policy provides the framework that allows for 

this market-driven innovation. If policymakers have the foresight to retain these highly 

effective tax policies, this short-term investment will yield significant long-term benefits. 

Background on Solar Energy Technologies 

A variety of commercial solar technologies are in use in the domestic marketplace today. Solar 

is being deployed in a variety of market applications to respond to diverse consumer needs. 

Utility-scale power plants are constructed to provide traditional wholesale electricity to utilities, 

but projects can also be developed on a distributed basis to optimize geographic proximity to 

areas of high demand and avoid the costs of building new transmission lines. Moreover, many 

companies focus exclusively on developing solar systems on rooftops of commercial buildings 

and homes to allow end-use customers to reduce their monthly electricity bills. The solar 

industry is experiencing record growth in large part due to the flexibility and diversity of these 

technologies and market innovations. 

Photo voltaic ("PV") Solar Technology 

PV technologies directly convert energy from sunlight into electricity. Sunlight strikes 

semiconductor material in a panel and releases electrons from their atomic bonds, producing 

an electric current. PV panels contain no moving parts and generally last twenty years or more 

with minimal maintenance. PV panels are utilized in residential, commercial and utility-scale 

applications. 

Traditionally, PV cells are made using various forms of silicon ("Si"), but companies are now 

manufacturing cells using a wide variety of semiconductor materials, each of which lend 

themselves to different applications. Two of these qualities are particularly important: the 

absorption coefficient - which refers to how easily light is absorbed by the material, and the 

band-gap - which determines how efficiently light energy from different parts of the solar 

spectrum release the electrons from their atomic bonds. 

Crystalline Silicon ("c-Si") cells were first commercialized by Bell labs in the 1950s, and are 

traditionally manufactured by slicing high-grade (>99.99 percent pure) silicon into thin wafers, 

roughly as thick as several human hairs. Mono-crystalline silicon solar cells offer higher 

efficiencies but are more difficult to manufacture. Poly-crystalline silicon cells have generally 

lower efficiencies but are cheaper and easier to manufacture. 

Thin-film solar cells are manufactured by applying very thin layers of semiconductor material to 

inexpensive materials such as glass, plastic or metal. Thin-film cells require less semiconductor 

material but tend to be less efficient at energy conversion. They also tend to be less costly to 

manufacture. Examples include cadmium telluride ("CdTe"), amorphous silicon (a-Si) and 

copper-indium-gallium-diselenide ("CIGS"). 

3 
98 

Multi-junction cells, which are also referred to as cascade or tandem cells, are the highestefficiency solar cells currently available. These cells work by combining two or more types of 

semiconductor material with staggered band-gaps, allowing each to capture a different range 

of the solar spectrum. The result is a cell with much higher efficiency than any single-material 

PV cell. These types of cells are expensive to manufacture, and are used when weight and 

efficiency are at a premium, such as satellites, high-performance solar-powered vehicles, in 

military applications, and for Concentrating PV ("CPV"). 

CPV technology utilizes a specialized type of solar panel which uses mirrors or lenses to focus 

high concentrations of direct sunlight onto high-efficiency solar cells. Since concentrating 

panels cannot absorb diffuse light, they are typically only used in areas with high levels of direct 

sunlight such as the U.S. Southwest. In order to maintain focus, CPV employs tracking systems 

allowing them to follow the sun's path as it moves across the sky. Tracking systems can also be 

used in projects utilizing standard non-concentrating PV panels to increase energy harvest by 

more than 20 percent. 

Concentrating Solar Power ("CSP") Technologv 

CSP plants use mirrors or lenses to concentrate the thermal energy from the sun, creating 

temperatures high enough to drive traditional steam turbines or engines that create electricity. 

This technology is optimal for utility-scale applications and is ideal for areas of high direct 

normal solar radiation, such as the U.S. Southwest. 

There are a variety of CSP technologies utilized in the marketplace. Parabolic trough systems 

use curved mirrors to focus the sun's energy onto a receiver tube that runs down the center of 

a curved-mirror trough. In the receiver tube, a high-temperature heat transfer fluid (e.g., 

synthetic oil) absorbs the sun's energy, reaching temperatures of around 700" F, and passes 

through a heat exchanger to heat water and produce steam. The steam drives a conventional 

steam turbine power system to generate electricity. A typical solar collector field contains 

hundreds of parallel rows of troughs connected as a series of loops, which are placed on a 

north-south axis so the troughs can track the sun from east to west. Individual collector 

modules are typically 15-20 feet tall and 300-450 feet long. 

Power tower projects utilize a central receiver system. Seeking higher operating temperatures 

for greater efficiencies, computer-controlled flat mirrors (heliostats) track the sun along two 

axes and focus solar energy on a receiver at the top of a high tower. The focused energy is used 

to heat transfer fluid (800" F to 1,000" F) to produce steam and run a central power generator. 

Another CSP technology utilizes compact linear Fresnel reflectors (CLFR). To reduce some of 

the up-front capital costs of plant construction, CLFR developers rely on the principles of 

curved-mirror trough systems, but use long parallel rows of lower-cost flat mirrors. These 

modular reflectors focus the sun's energy onto elevated receivers, which consist of a system of 

tubes through which water flows. The concentrated sunlight boils the water, generating highpressure steam for direct use in power generation and industrial steam applications. 

4 
99 

The technical process of capturing thermal energy for CSP power plants has led some 

companies to develop energy storage capabilities to smooth facility output throughout the day 

and even generate electricity after the sun is no longer shining. 

The method of thermal storage in CSP plants involves capturing the heat of solar radiation in a 

heat transfer medium very similar to a thermos that can keep coffee hot for hours. Some 

plants currently under construction include a storage process utilizing molten salt, a 

combination of sodium nitrate and potassium nitrate that is often found in food preservatives 

and fertilizers. The mixture can be heated to a lava-like consistency and pumped into a holding 

tank. In this state, it will lose only about 1 percent of its heat during the day. The molten salt 

can be removed from the tank at any time, even during evening hours, to be run through a heat 

exchanger to create steam, run a turbine, and generate electricity for the power grid. The used 

salt is returned to a second tank at a lower temperature to be passed through the cycle again in 

a continuous loop. 

Solar Heating and Cooling Technologv 

Solar heating and cooling technologies collect the thermal energy from the sun and use this 

heat to provide hot water, space heating, cooling and pool heating for residential, commercial 

and industrial applications. 

Solar water heating systems can be installed on any home and are composed of three main 

elements: the solar collector, insulated piping, and a hot water storage tank. The solar 

collector gathers the heat from solar radiation and transfers the heat to potable water. This 

heated water flows out of the collector to a hot water tank, and is used as necessary. Auxiliary 

heating can remain connected to the hot water tank for back-up if necessary. 

There are two kinds of solar cooling systems: desiccant systems and absorption chiller systems. 

Absorption chiller systems, the most common solar cooling systems, use solar water heating 

collectors and a thermal-chemical absorption process to produce air-conditioning, without 

using electricity. The process is nearly identical to that of a refrigerator, only no compressor is 

used. Instead, the absorption cycle is driven by a heated fluid from the solar collector. In a 

desiccant system, air passes over a common desiccant or "drying material" such as silica gel to 

draw moisture from the air and make the air more comfortable. The desiccant is regenerated 

by using solar heat to dry it out. 

Solar space heating systems are similar to solar water heating systems, but generally involve 

more solar collectors, larger storage units, and a more sophisticated design. These heating 

systems can use a non-toxic liquid, water, or air as the heat-transfer medium from the solar 

collector. The heated liquid or air is then circulated throughout the building or home to provide 

space heating. Another solar space heating technology uses transpired solar collectors along a 

building's exterior south-facing wall. The perforations in these collectors allow air to pass 

5 
100 

through and be heated. This solar-heated air is then channeled into the building's ventilation 

system. 

Solar energy is also used to heat both commercial and residential swimming pools. The existing 

pool filtration system can frequently be used to transfer heat from the solar collectors to the 

pool water. Solar pool heating systems use different collectors, depending on the climate and 

on whether the pool is located outdoors or indoors. 

Background on the Solar Investment Tax Credit 

The Energy Policy Act of 2005 (P.L. 109-58) created tax incentives for solar energy - a 30 

percent ITC for commercial and residential solar energy systems that applied from January 1, 

2006, through December 31, 2007. These credits were extended for one additional year in 

December 2006 by the Tax Relief and Health Care Act of 2006 (P.L. 109-432). In 2007, global 

investment in clean energy topped $100 billion, with solar energy as the leading clean energy 

technology for venture capital and private equity investment. The solar ITC helped to create 

unprecedented growth in the U.S. solar industry from 2006-2007. The amount of solar electric 

capacity installed in 2007 was double that installed in 2006. 

The Emergency Economic Stabilization Act of 2008 (P.L. 110-343) included an eight-year 

extension of the commercial and residential solar lTC, eliminated the monetary cap for 

residential solar electric installations, and permitted utilities and alternative minimum tax 

(AMT) filers to utilize the credits. Under current law, the solar ITC is set to expire on December 

31,2016. 

Solar Investment Tax Credit a Resounding Policy Success 

An Engine tor U.S. Job Creation 

Due in large part to the availability of 

the multi-year lTC, the solar industry 

grew by 109% in 2011 compared to 

the previous year, making it one of 

the fastest growing industry sectors 

in the U.S. economy. Today, the solar 

industry employs more than 100,000 

Americans, more than double the 

number in 2009. They work at more 

than 5,600 companies, the vast 

majority being small businesses, in all 

50 states. Additional job growth is 

expected as the industry continues to 

grow in the future. 

120,000 

100,000 

80,000 

60,000 

40,000 

20,000 

6 

u.s. Solar Workforce 

2006 2007 2008 2009 2010 2011 

III SEIA Estimate 1\1 The Solar Foundation 
101 

Increasing U.S. Solar Installations 

The market certainty provided by a multiple-year extension ofthe solar ITC has accelerated the 

deployment of solar in the U.S. Since the solar ITC was implemented in 2006, the total amount 

of solar generating capacity deployed has grown more than seven-fold. During this same time 

period, PV capacity has grown by nearly seventeen-fold. Cumulative solar capacity in the U.S. 

now exceeds 4,460 megawatts ("MW"), enough to power more than 700,000 homes. In 2011, 

the U.S. installed 1,8SS MW of PV capacity, up from 887 MW in 2010. 

u.s. PV Installations 2ero 

1800 

1600 

1400 

I mo 

.. lCOC 

i <J Bee 

Jj 600 

i 400 

20e 

c 

2005 2006 2007 2008 2009 2010 2011 

ftIJ AnnLlsl instalied Capacity 1m 01 ';, 02 II'!J Q3 04 

Growing U.S. Solar Manufacturing Capacity 

The sharp growth in project installations after passage of the ITC occurred in tandem with 

expanding U.S. solar manufacturing. As annual installed generating capacity grew each year, 

U.S. PV panel production increased from 134 MW in 200S to 86S MW in 2011. 

Today, there are at least 9S domestic facilities in 26 states currently manufacturing PV primary 

components, including solar-grade polysilicon, ingots, wafers, cells, solar modules, and 

inverters. But only 19 of those facilities were operating in 200S - a five-fold increase in the 

United States in the last six years. 

7 
102 

~ 

" '" 

~ 0 

u 

'0 

II 

li 

z 

Online Dates for Existing u.s. Primary PV Manufacturing Facilities 

JO 

30 

20 

j() 

19 

Solar Irtve!>\ mN'lt T<t)t 

(redit fmpl~mt'f!ted 

.!{lli 

Glass and steel manufacturers are also important members of the solar value chain, providing 

essential components for utility-scale solar power plants, including CSP projects currently under 

construction in the U.S. Southwest. Overall, there are 600 domestic manufacturing facilities in 

the solar value chain. 

t-',.. .f. 

't-

,., ... 

8 
103 

Without question, solar energy is a competitive, global industry. u.s. manufacturers exported 

to Europe and other foreign markets in the past and increasingly serve U.S. developers in 

response to the ITC jump-starting project construction here at home. 

The ITC thus has a positive ripple effect that reaches beyond project development to enable 

growth and maturation of the broader solar supply chain. New solar manufacturing facilities 

opened in 2011 in Arizona, illinois, Kentucky, Michigan, Mississippi, North Carolina, Nevada, 

New York, Ohio, Pennsylvania, Texas, Vermont, Washington and Wisconsin. Solar 

manufacturing expansion will continue in 2012 and 2013, as major new facilities come online in 

Arizona, Colorado, Indiana, Massachusetts, Mississippi, North Carolina, Nevada, New York, 

Ohio, Oregon, Pennsylvania, South Carolina and Tennessee. 

As U.S. manufacturers compete with companies around the globe, the ITC is a critical policy 

mechanism to ensure robust demand for solar energy components in the u.s. market. 

The Falling Cast of Solar for Consumers 

The existence of the ITC through 2016 provides market certainty for companies to develop 

long-term investments in manufacturing capacity that drives competition, technological 

innovation, and ultimately lowers costs for consumers. 

In 2011 alone, the price of solar panels dropped by 50%, and costs continue to fall, making solar 

even more affordable for residential and business consumers. In addition, innovative financing 

options for consumers, such as third-party leases and power purchase agreements ("PPAs"), 

have removed financial barriers and made it easier for consumers to choose solar. This is part 

of an ongoing trend that has shown consistent declines in solar pricing in the marketplace. 

Average Installed Price of PV 

59.00 

$8.00 

$7.00 

! $6.00 

$5.00 

$4.00 

$3.00 

2006 2007 2008 2009 2010 2011 

SEIA.: 

9 
104 

Importance of Tax Equity Financing and Credit Liquidity 

The 2008 economic crisis rendered solar and other renewable energy tax incentives of little 

immediate value. Prior to the financial crisis, many utility-scale renewable energy projects 

relied upon third-party tax equity investors to monetize the value of federal renewable energy 

incentives. The economic downturn drastically reduced the availability oftax equity, severely 

limiting the financing available for renewable energy projects. 

Tax equity is the term used to describe the passive financing of an asset or project by large taxpaying entities that can utilize tax incentives to offset their tax liabilities. Tax equity investors in 

renewable energy projects receive a return on investment based not only on the income from 

the asset or project, but also on federal income tax preferences (through the utilization of tax 

credits). Renewable energy developers themselves typically do not have sufficient taxable 

income to benefit directly from these tax credits and must partner with tax equity investors in 

order to finance projects. For example, they participate in a partnership structure in which 

ownership of the project is transferred from the tax equity investor to the developer-owner 

once the tax benefits are realized. Leasing structures akin to those commonly found in many 

sectors of the economy are also utilized. 

The pool of tax equity investors is 

typically limited to the largest and most 

sophisticated financial firms and utilities, 

and the 2008 economic crisis significantly 

reduced the market demand among these 

entities for tax equity. A report released 

by the Bipartisan Policy Center on March 

22, 2011, noted that the number of tax 

equity investors in renewable energy 

projects declined from approximately 20 

in 2007 to 13 in 2008 and only 11 in 2009. 

The associated decline in overall tax 

equity financing provided to renewable 

energy projects was equally dramatic, 

falling from $6.1 billion in 2007 to $3.4 

billion in 2008 and $1.2 billion in 2009. 

Section 1603 Treasury Program 

7.0 Historical Tax Equity financing 

$6.1 

6.0 

5.0 

f'O $3.2 $3.4 

:3,0 I I 2.0 

$1.2 

1.0 $0.5 

0.0 I 2005 • 2006 2007 2008 2009 

SCll.JfreS u.s.. Dep-Brtnert c-f7h~ '7rell:'il"r,l. US Par:rer5t-ip fer l\ereweJ:.le 

ErerE'f firal'{"e. arc leacHrg 7ax Em.iw ~lart:et PlIrtitipart5 

The Section 1603 Treasury Program ("1603") was enacted in 2009 and extended in 2010 to 

address the lack of tax equity available to finance renewable energy projects. The program 

lapsed at the end of 2011, though solar projects that commenced construction before the end 

of last year and are placed in service before the expiration of the solar ITC in 2016 are eligible 

under the program. 

10 
105 

It is important to note that under the 1603 program, the government does not pick winners and 

losers - it simply allows taxpayers to receive a federal grant in lieu of taking an existing energy 

tax credit they are otherwise entitled to claim. This merely constitutes a change to the timing 

of when an existing energy tax incentive can be utilized. This change in timing, however, 

provides the liquidity needed for the further development of domestic energy projects. 

Section 1603 Treasury Program Has Been a Proven Success 

1603 is structured in a technology neutral manner that encourages the development of a wide 

variety of domestic energy technologies including: biomass; combined heat and power; fuel 

cells; geothermal; hydropower; landfill gas; marine hydrokinetic; microturbine; municipal solid 

waste; wind and solar. 

Since its enactment, the National Renewable Energy Laboratory's (UNRELU) preliminary analysis 

conservatively estimates that 1603 has supported an average of 52,000 to 75,000 jobs over the 

period analyzed. The program has leveraged $25.8 billion in private sector investment to 

support over 24,000 domestic projects utilizing a wide range of energy technologies in all 50 

states. As of March 2012, awards to more than 22,000 domestic solar projects leveraged over 

$4.87 billion in private sector investment for projects in 47 states. 

It is important to note that 1603 is particularly helpful for small businesses that are the nation's 

engine of economic growth and job creation. These businesses typically do not have the 

resources or scale to enter into complicated tax equity financing transactions. By virtue of its 

structure, 1603 allows small solar businesses and project developers to monetize the 

underlying solar ITC to finance the development of worthwhile distributed generation projects. 

The fact that the average 1603 award for a solar project is less than $150,000 demonstrates 

that small businesses are effectively utilizing the program. 

Congress Should Extend the Section 1603 Program 

Though the tax equity market has modestly improved, there remains a need for 1603. Access 

to tax equity financing has still not recovered to the levels available prior to the recession, and 

the rates of return that are being demanded in today's marketplace by investors remain 

prohibitively high. In December 2011, tax equity investors in solar projects required returns 

from 7.5% to as high as 17% compared to pre-recession levels of 6% to the low teens. 

Due to global economic conditions, a large gap persists between the total amount of financing 

that renewable energy developers need to fully realize the benefits of continued expansion of 

domestic solar projects. Expiration of 1603 is projected to reduce the availability of tax equity 

financing from an estimated $7.5 billion in 2011 to approximately $3.6 billion in 2012 - a 

reduction of more than 50%. This will stifle job creation and severely restrict the market's 

11 
106 

ability to leverage private sector capital to finance new domestic energy projects. Therefore, to 

continue this successful, job-creating program, SEIA encourages Congress to extend 1603. 

i.a 

6.0 

5.0 

II 4.0 

~ 

~ 3.0 

2.0 

1.0 

0.0 

Conclusion 

$0.5 

• 2005 

Historical Tax Equity and Treasury Grant Financing 

$7.2 575 \ 

$6.1 

~/1 \ Prospective Tax 

~ \ Equity Financing, '" I \ mrn 

III~ I 

~ I I I ~ 20;)6 2008 2009 2010 "''iD 2811 2011E lOllE 

PT::;,/!TC Dnlv PTCim:/ PTC /ITe 0,,1'1' 

.:-ad:::I".'ito.' v-/ Est "Tax Eql.ity iW 1reasl<J)' Grart 

As the brief duration of federal solar tax incentives demonstrates, effective federal tax policy 

can yield significant energy and economic policy benefits. SEIA and the U.S. solar industry look 

forward to working constructively with policymakers to craft effective tax policy that is 

consistent with the nation's energy and economic policy objectives. 

Again, Chairman Broun, Chairman Harris, Ranking Member Tonko, Ranking Member Miller and 

members of the subcommittees, I sincerely appreciate having the opportunity to testify today, 

and would be happy to answer any questions you might have. 

12 
107 

Chairman BROUN. Thank you, Mr. Resch. 

Mr. Royer, you are recognized for five minutes. 

STATEMENT OF MR. TERRY ROYER, CEO, 

WINERGY DRIVE SYSTEMS CORPORATION 

Mr. ROYER. Yes, thank you. Thank you, Chairman Broun, Chairman Harris, and Ranking Members and Subcommittee Members. I 

appreciate the opportunity to speak to—with you today about the 

impact that tax policies have on the commercialization of renewable energy, in particular, wind energy. I want to focus my testimony today on one particular tax policy—the Production Tax Credit. 

While the wind industry has utilized other tax incentives to gain 

a foothold in the U.S. energy marketplace, the underlying PTC has, 

by far, been the most effective at generating the private capital and 

investment certainty that any industry needs to grow and prosper. 

Let me back up for a moment to give you a little background on 

Winergy and where it fits in this conversation. 

Winergy Drive Systems Corporation, located in Elgin, Illinois, 

was incorporated in 2001. Winergy is the world leader of gearboxes 

for wind turbines. The gearbox is the key component inside the 

wind turbine. We operate two factories in Elgin, Illinois, just outside Chicago, and supply gearboxes to the top wind turbine manufacturers and producers, who are all located here in the United 

States. 

Winergy started here in the United States assembling and testing of these components in 2001 with 11 employees. In the past six 

years, when the PTC has not been allowed to expire, the demand 

it created has contributed to the expansion of our company and has 

helped us weather the recent economic downturn. In 2009, we were 

afforded the opportunity because of this growth to build a new facility in Elgin. Today, we have 380 employees supporting our customers with the building of our products. Revenue from the wind 

industry accounts for 100 percent of my company’s total income. 

As one of the nearly 500 companies that manufacture components for the wind industry in the United States, we are just one 

example of the critical role the PTC has played in the growth of 

this sector. The access to financing, the overall market certainty, 

and the PTC has provided to investors has led to the accelerated 

growth of wind farms projects in the United States. In fact, in just 

the last six years, 38,000 megawatts of wind have been constructed 

under a PTC—under a consistent PTC policy. This is over 80 percent of the total megawatt installed in the United States, which 

started back prior to 1980. 

These projects demand huge pieces of equipment, complicated engineering, and a skilled workforce to construct. Due to the economics of logistics and transportation costs, the wind industry has 

quickly realized that making these parts in the United States actually leads to lower cost and more efficiency. So the growing demand 

for the construction of wind projects, brought on by the investor response to the PTC, has led to a rapid growth of U.S. wind manufacturing. Indeed, in 2005 only 25 percent of the products and components were produced in the United States. Today, nearly—over 60 
108 

percent of the components are now made on domestic soil. This 

trend must continue. Over 75,000 jobs exist in the industry and depend on it, not to mention tens of thousands of potential jobs if we 

can contain this growth. 

In addition to this growing domestic supply chain, technology innovations have also continued to push wind energy further down 

the cost curve. The cost of wind energy has come down 90 percent 

since 1980 and capital costs have dropped 33 percent since 2008. 

Companies like my own contributed to these technological innovations and increased efficiencies and driven down cost. Innovations 

in gearbox technologies that Winergy has led are a key part to the 

cost reductions we have seen in the overall last four years. Wind 

energy technology continues to improve as the industry scales up. 

The PTC has not just the—has not just benefited the manufacturers and developers but the American electricity consumers and 

the U.S. economy as a whole. Wind energy provides nearly three 

percent of America’s electricity today, with that number surpassing 

20 percent in the States of Iowa and South Dakota. Overall, wind 

energy has accounted for 35 percent of all new electric generating 

capacity that has been put online in the last five years. Increasing 

the diversity and energy security of our country, the wind industry 

has generated investment upward of $20 billion annually, which is 

greater than the economic impact on U.S. GDP from Colombia, 

Panama, and South Korea free trade agreements combined. 

It is imperative that the PTC in place for the near future, so that 

private investment continue to grow this market and so that U.S. 

manufacturing jobs continue to be created. The PTC is not a handout. It is a business tax credit with funding based solely on project 

performance, not evaluation by any governmental official. Without 

a mechanism with which to fund wind projects past 2012, manufacturers like Winergy are already losing business. 

Chairman BROUN. Mr. Royer, if you could go ahead and wrap up 

your testimony. You passed the five minutes already. 

Mr. ROYER. I expect Winergy orders for 2013 to fall by at least 

60 percent, which will lead to substantial job losses. Industrywide, 

37,000 jobs will be lost if the PTC is not extended. 

Again, thank you for hearing my testimony. 

[The prepared statement of Mr. Royer follows:] 
109 

Testimony of Terry Royer, Winergy Drive Systems Corporation 

House Committee on Science Space and Technology 

Subcommittee on Energy and Environment 

Subcommittee on Investigations and Oversight 

Hearing on Impact of Tax Policies on the Commercial Application of Renewable 

Energy Technology 

April 19,2012 

Good Morning. Thank you, Chairmen Harris and Broun, Ranking Members Miller and 

Tonko, and Subcommittee Members. My name is Terry Royer, and I am the CEO of 

Winergy Drive Systems Corporation. I appreciate the opportunity to speak with you today 

about the impact that tax policies have had on the commercialization of renewable energy, 

in particular, wind energy. I want to focus my testimony today on one particular tax policy 

- the Production Tax Credit (or PTC). While the wind industry has utilized other tax 

incentives to gain a foothold in the U.S. energy marketplace, the underlying PTC has, by far, 

been the most effective at generating the private capital and investment certainty that any 

industry needs to grow and prosper. 

Let me back up for a moment to give you a little background on Winergy and how we fit 

into this conversation. Winergy Drive Systems Corporation is a division ofWinergy Ag, an 

operating unit of Siemens Ag. Winergy Drive Systems Corporation is the US operating arm, 

which was incorporated in 2001. We are headquartered in Elgin, IL, a western suburb of 

Chicago. Winergy is the world leader in gearboxes for wind turbines. The gearbox is the 

key component inside a wind turbine. We operate two factories in Elgin and supply 

gearboxes to the top wind turbine manufacturers in the United States. 

Winergy started here in the United States assembling and testing gearboxes with 11 

employees in 2001. In the past six years when the PTC has not been allowed to expire, the 

demand it created has contributed to the expansion of our company, and has helped us 

weather the recent economic downturn. In 2009 we opened a new facility. Today we have 

380 employees supporting our customers with the building of our products. Revenue from 

the wind industry accounts for 100% of my company's total income. 

As one ofthe nearly 500 wind manufacturing facilities in the U.S., we are just one example 

of the critical role the PTC has played in the growth of our sector. The access to financing 

and the overall market certainty that the PTC has provided to investors, has led to the 

accelerated growth of wind farms projects in the U.S. In just the last six years, 38,094MW 

of wind have been constructed under a consistent PTC - this is over 80% of the total wind 

megawatts in the U.S. These projects demand huge pieces of equipment, intricate 

engineering, and a skilled construction force. Due to the economics of logistics and 

transportation costs, the wind industry has quickly realized that making these parts in the 

U.S. actually leads to lower costs and more efficiency. So, the growing demand for the 

construction of wind projects, brought on by the investor response to the PTC, has led to a 
110 

rapid growth of U.S. wind manufacturing. Indeed, in 2005 only 25% of the component 

parts of a wind project were built in the U.S. Now, we are making more than 60% of 

component parts in the U.S. This is a trend that must continue. Over 75,000 existing jobs in 

the industry depend on it, notto mention tens of thousands of potential jobs. 

In addition to this growing domestic supply chain, technology innovations have also 

continued to push wind energy further down the cost curve. The cost of wind energy has 

come down 90% since 1980 and capital costs have dropped 33% since 2008 (Bloomberg 

New Energy Finance). Companies like my own contributed to these technological 

innovations that increased efficiency and drove down costs. Innovations in gearbox 

technologies that Winergy has led are a key input to the cost reductions we have seen over 

the last four years. Wind energy technology continues to improve as the industry scales up. 

The PTC has benefited not just the manufacturers and developers, but the American 

electricity consumer and the U.S. economy as a whole. Wind energy now provides nearly 

3% of America's electricity, with that number surpassing 20% in the states of Iowa and 

South Dakota. Overall, wind energy has accounted for 35% of all new electric generating 

capacity in the last five years, increasing the diversity and energy security of our country. 

The wind industry has generated investment upward of $20 billion annually, which is 

greater than the economic impact on U.S. GOP from the Colombia, Panama, and South Korea 

free trade agreements combined (Senate Finance Committee Statement, 10/11/11). 

It is imperative that the PTC remain in place for the near-future so that private investment 

continues to grow this market and so that U.S. manufacturing jobs continue to be created. 

The PTC is not a handout. It is a business tax credit, with funding based solely on project 

performance, not evaluation by government officials. Without a mechanism with which to 

fund wind projects past 2012, manufacturers like Winergy are already losing business. I 

expect Winergy orders for 2012 and 2013 to fall by nearly 60%, which wiIllead to 

subsequent job losses. Industry-wide, 37,000 jobs will be lost if the PTC is not extended. 

(2011 Navigant Study). 

Again, thank you for the opportunity to speak with you today about the importance of 

federal tax incentives particularly the PTC - for driving economic growth, energy 

diversity and U.S. manufacturing. I look forward to answering any questions you might 

have. 
111 

Chairman BROUN. Mr. Erby, you are recognized for five minutes. 

STATEMENT OF MR. STEVEN ERBY, 

VICE PRESIDENT, 

MONOLITH SOLAR ASSOCIATES, LLC 

Mr. ERBY. Thank you, sir. 

My name is Steve Erby, Vice President, Monolith Solar Associates, and I would like to thank Chairman Broun and Mr. Harris 

and Congressman Tonko for having us here today. 

We are a veteran-owned company based out of Rensselaer, New 

York. We install and lease small commercial solar systems ranging 

in size from 25,000 watts to 150,000 watts. We install in schools, 

churches, community centers, fire stations, and small businesses. 

My business partner, Mark Fobare, and I started this adventure in 

my den in 2009. We quickly grew to the kitchen; we gained a secretary and were promptly thrown out of the house by my wife. We 

expanded into the garage. Today, we just recently moved into a 

completely refurbished 9,000-square-foot warehouse with over 21 

employees. We have installed 37 systems since August of 2010 and 

have contracted pipeline of 127 systems, roughly nine megawatts 

of product. We are proof that the 1603 Program works. 

Without the 1603 Program, none of this would have happened 

and would have not been able to continue. Monolith applies for the 

1603 grant for each system. As a startup business, we do not qualify for the ITC. We do not have the passive income to offset the investment of the tax credit. Most of our potential prospective customers do not qualify either. Some of the benefits derived from the 

program: our small business has grown from two employees to 21 

employees in a very short time, 18 months, and we stand to double 

that size with the current number of contracts that are signed. We 

established our business in a designated economic development 

zone in the city of Rensselaer. We have created additional jobs employing contractors, subcontractors, electricians, engineers, accountants, and professionals. And most importantly, I think we are 

driving down the cost of doing business for the small business. 

One of our recent installations was a sale to a small TV appliance store, Towne TV in Schenectady. Despite being a 56-year-old 

business, due to the current economy, they were unable to take advantage of the ITC. The 1603 Program allowed them to install 

solar, lowering their operating cost, generating cash flow for other 

uses, and generally spinning up the economic machine for them 

and the solar industry. 

We have generated quite a buzz attending many community 

functions, educating students, businesses, customers about solar 

and the energy economy. Municipal leaders have embraced solar as 

a way of reducing taxpayer burden and providing leadership to 

their communities. Mechanicville, East Greenbush, Sand Lake, 

Niskayuna, Schenectady, and Rensselaer are just a few of the communities that have put solar on top of every one of their municipal 

structures. 

The industry needs the 1603 Program, and preferably the reintroduction of the 1603 rebate, to create jobs, foster a strong value 

chain, and grow our business. There are too many small businesses 
112 

and organizations who are unavailable to take advantage of the 

ITC as a credit. 

We are not an isolated success. As Mr. Rush has explained, there 

are hundreds of companies across the United States that are benefitting from the 1603 Program. The engine of growth in this economy is small business supporting a strong middle class. 

As we work to create these opportunities in our local community, 

we met John, the father of eight children. He was obligated to 

leave his job to temporarily care for a premature baby. His wife 

kept the better-paying job. The baby improved, but the family income suffered. John looked for work for a year but could not find 

gainful employment in the difficult economy until he joined Monolith. He is now one of our best employees, and we are very fortunate to have him. 

We believe that solar can be the engine for the middle class and 

small community growth and economic security. Growth must be 

nurtured by incentives such as the 1603 Program that allows the 

industry and the market to mature. 

On behalf of all the employees at Monolith Solar, I want to thank 

you for having us here. Thank you. 

[The prepared statement of Mr. Erby follows:] 
113 

Impact ofTax Policies on the Commercial Application of Renewable Energy Technology 

Steven A. Erby 

Vice President 

Monolith Solar Associates, LLC 

Statement before the Subcommittee on Investigations and Oversight 

and Subcommittee on Energy and Environment 

April 19, 2012 

My name is Steve Erby. I am the Vice President of Monolith Solar Associates. 

I would like to thank Representative Harris and Representative Broun for inviting us to speak to 

you on the impact of the US Treasury 1603 Program as it applies to our solar business. 

Based in Rensselaer, NY, Monolith installs and leases small commercial solar systems ranging in 

size from 25,000 to 150,000 watts. We install in schools, churches, community centers, fire stations and 

small businesses. 

Mark Fobare and I started this adventure in my den in 2009, expanding to the kitchen and then 

to the garage before purchasing and refurbishing a previously-abandoned building near the Rensselaer 

Train Station. Because ofthe conservative climate of banking, we were forced to bootstrap, working 

morning, noon and night, maxing out our personal credit cards to start this business. We now have 21 

full time employees and a variety of subcontractors. All in, we have installed 37 systems since August 

2010 and have a contracted pipeline of 127 systems, nearly 9 MWs of product. We are proof that the 

1603 Program works and we are all proud of what we have done. 

Without the 1603 Program, none of this would have happened and we will not be able to 

continue. 

Monolith applies for the 1603 Program for each system. As a start-up business, we do not 

qualify for the ITC; we do not have the passive income to offset the Investment Tax Credit. Most of our 

potential prospective customers do not qualify either. 

The benefits derived from the Program: 

1. Our small business has grown from 2 to 21 employees in eighteen months and will double in 

size at the current pace. 

2. We established our business in a deSignated economic development zone in the City of 

Rensselaer. 

3. We have created additional jobs employing contractors, sub-contractors, engineers, 

accountants and other professionals. 

Monolith Solar Associate .. , LLC. 444 Washington St, R.n ...... la •• NY 12144 

518-444-2044' Infol!!MonolithSola •. com 
114 

4. We are driving down the cost of doing business, for the small business. 

One of our recent installations was a sale to a small, lV/Appliance business: Towne lV in 

Schenectady. Despite being a 56-year old business, due to the current economy they were unable to 

take advantage of an ITe. The 1603 rebate allowed us to install solar for them, lowering their operating 

costs, generating cash flow for other uses and generally spinning up the economic machine for them and 

the solar industry. 

We have generated quite a buzz, attending many community functions, educating students, 

businesses and customers about solar and the energy economy. Municipal leaders have embraced solar 

as a way of reducing taxpayer burden and providing leadership to an improved renewable energy 

infrastructure. Mechanicville, East Greenbush, Sand lake, Niskayuna, Schenectady and Rensselaer have 

contracted for installation on all of their municipal buildings. 

This industry needs the 1603 Program and preferably the reintroduction of the 1603 rebate to 

create jobs, foster a strong value chain and grow our business. There are too many small businesses and 

organizations who are unable to take advantage of the lTC, as a credit. 

We are not an isolated success; there are hundreds of other companies that in various degrees 

have benefited from the 1603 Program. 

The engine of growth in this economy is small business, supporting a strong middle class. 

As we worked to create these opportunities in our local community, we met John, the father of 

eight children, who was obligated to leave his job to temporarily care for a premature baby. His wife 

kept the better paying job. The baby improved, but the family income suffered. John looked for work 

for a year, but could not find gainful employment in a difficult economy, until he joined Monolith. He's 

now one of our best employees and we are fortunate to have him. 

We believe that solar can be the engine for middle class and small community growth and 

economic security. Growth must be nurtured by incentives, such as the 1603 Program, that allows this 

industry and market to mature. 

On behalf of all the employees of Monolith Solar, and small companies like ours across the 

country, I urge you to reinstate, and expand the 1603 Rebate ~~gram. 

Thank you for attention. "'F~.. . I 

(jl/ 

L{~7 

/ 

/' 

Monolith Solar Associates, LLC • 444 Washington St, Rensselaer NY 12144 

518-444-2044 • Info@MonollthSolar.com 
115 

Chairman BROUN. Thank you, Mr. Erby. 

Dr. Zycher, you are recognized for five minutes. 

STATEMENT OF DR. BENJAMIN ZYCHER, 

VISITING SCHOLAR, 

AMERICAN ENTERPRISE INSTITUTE 

Dr. ZYCHER. Thank you very much, Mr. Chairman. I am very 

pleased to have this opportunity to offer my views today on why 

renewable energy subsidies should be abandoned. At the end, I will 

be more than happy to address any questions that may arise. 

Despite very substantial policy support in the form of direct and 

indirect subsidies at the federal and state levels, renewable electricity has only a small share of the market with poor prospects for 

growth. This is due to three inherent problems that public policies 

can overcome only at very substantial cost: first, the 

unconcentrated energy content of wind flows and sunlight; second, 

siting constraints and the higher transmission costs that result; 

and third, the intermittency unreliability problem which yields 

very large additional cost for backup generation. 

Each of these problems is discussed in detail in the testimony 

that I have submitted for the record, but the central effect could 

be stated quite simply. We have achieved the perfect green 

trifecta—higher costs, less reliability, and more pollution. The five 

central rationales that usually are offered in defense of policy support for renewable are deeply problematic. 

First, the ‘‘infant industry’’ rationale is inconsistent with the existence of the international capital market and with the cost evidence published by the Energy Information Administration. 

Second, the ‘‘level playing field’’ rationale simply is incorrect. The 

subsidies enjoyed by renewable power are far greater than those 

received by conventional electricity both on average and on the 

margin. 

Third, the pollution or ‘‘externality’’ rationale ignores the large 

effects of our environmental policies and ignores also the cost of 

backup generation imposed by renewable power upon the electricity 

market, an adverse effect far greater than even the highest estimates of the environmental costs of conventional generation reported in the peer-reviewed literature. 

Fourth, the resource depletion or ‘‘sustainability’’ rationale is incorrect simply as a matter of basic economics and is inconsistent 

with the historical evidence in any event. 

And then, finally, the ‘‘green jobs’’ rationale borders on the preposterous. It confuses benefits for particular interest groups with 

costs imposed upon the economy as a whole. It ignores the adverse 

employment effects in the industries that lose when government attempts to pick winners. It ignores the adverse employment effects 

of increases in electricity costs and the adverse employment effects 

of the taxes needed to finance current and future subsidies. And it 

ignores the starkly adverse experience in Europe, which also is 

mesmerized by the ‘‘green jobs’’ mirage. 

Under the green jobs analytic framework, we could create a lot 

of employment if we outlaw the use of heavy equipment for digging 

ditches and mandated instead the use of shovels. That sounds pret-
116 

ty ridiculous, doesn’t it? Well, there is no analytic difference between inefficient ditch-digging and inefficient power generation as 

tools with which to pursue increased employment—none. 

Ongoing perspective developments in the market for natural gas 

will worsen the already poor competitive position of renewable electricity because of the dramatic increase in natural gas supply is attendant upon the application of hydraulic fracturing technology. 

The EIA projection of gas prices over the next 20 years has declined about 20 percent and the EIA projection of non-hydroelectric 

renewable generating capacity also has declined by about 20 percent specifically because of reduced competitiveness. 

There was a headline in the Wall Street Journal dated August 

22, 1978, that read ‘‘Solar Power Seen Meeting 20 Percent of Needs 

by 2000; Carter May Seek Outlay Boost.’’ That forecast has a lot 

of company. In 1971, the National Academy of Sciences argued that 

it will take only another 50 years to use up the great bulk of the 

world’s supply of recoverable petroleum liquids and natural gas. In 

1977, the Executive Office of the President argued that supplies of 

oil are diminishing, and world oil will become very scarce and very 

expensive in the 1980s. In 1978, the Executive Director of the 

International Energy Agency argued that all available evidence 

points to a serious energy crisis in the middle or late 1980s. In 

1979, the Central Intelligence Agency argued that the world can no 

longer count on increases in oil production to meet its energy 

needs. In 1980, the Secretary of Energy argued that oil supplies 

will be running out in a couple of decades. In 1979, the Chairman 

of Exxon argued that we are going to be facing shortages and higher prices for years. 

There is a dual theme common to all such predictions. First, the 

substitution—the musings of experts, policymakers, and commentators in place of market forces; and second, a batting average of 

zero. As we look back—I am not going to go through the list today; 

there is no time—there is a long list of legislation similar to the 

ones that we are talking about today in pursuit of energy independence and all the rest. None of them have worked. The eternal truth 

is that government subsidies for renewable energy are swimming 

against the strong tide of market forces and are doomed to the 

same failures that we have experienced time and again. Moreover, 

such policies have the more subtle effect of inducing evermore interest groups to seek favors from government, not a salutary outcome. 

Thank you again and I will be pleased to answer any questions. 

[The prepared statement of Dr. Zycher follows:] 
117 

A~ 

i 1 American Enterprise Institute 

for Public Policy Research 

Statement before the Committee on Science, Space, and Technology 

Subcommittee on Energy and Environment 

Subcommittee on Investigations and Oversight 

U.S. House of Representatives 

Hearing on 

Tax Policy Impacts on the Commercial Application of 

Renewable Energy Technology 

Tax and Other Subsidies for Renewable Energy 

Should Be Abandoned 

Dr. Benjamin Zycher 

Visiting Scholar 

American Enterprise Institute 

April 19, 2012 

The views expressed in this testimony are those of the author alone and do not 

necessarily represent those of the American Enterprise Institute. 
118 

2 

Thank you, Mr. Chairman and distinguished members of this committee, for this 

opportunity to offer my perspective on the commercial impact and policy analytics of tax 

and other policies---subsidies---for renewable energy. For the most part my comments 

will be oriented toward the issues raised by subsidies for renewable electricity, wind and 

solar power in particular, but are broadly applicable to the analysis ofbiofuels as well. 

I begin with a summary of my testimony for the record. Section I discusses the 

inherent limitations of renewable electricity that public policies can overcome only at 

very substantial cost to the taxpayers and to the economy as a whole. Section II discusses 

the five central rationales that commonly are offered in support of subsidies for 

renewable power; these rationales uniformly are deeply flawed. Section III discusses 

recent and prospective developments in the market for natural gas---a direct competitor to 

renewable power technologies---and the attendant implications for the future 

competitiveness of renewable electricity. Section IV offers concluding observations on 

the economics and policy analytics of subsidies for renewable energy. 

I will be very pleased to address any questions and observations that the 

Chairman and other members of this committee may have. 

Summary 

This testimony is based upon my recent book Renewable Electricity Generation: 

Economic Analysis and Outlook, published late last year by the AEI Press. I address here 

the outlook for renewable sources of energy in electricity generation as a substitute for 

such conventional fuels as coal and natural gas. The emphasis is on wind power, which 

in terms of projected generation capacity is by far the most important of the nonhydroelectric forms of renewable power. Some analysis of solar energy is presented also, 

and the broad analytic themes are applicable to biofuels as well. The discussion 

examines also the central rationales usually offered in support of policies subsidizing the 

expanded use of renewables, and the implications of prospective supply and price 

developments in the market for natural gas. 

Public policy support for renewable electricity has been substantiaL This support 

has taken the form of direct and indirect subsidies, and requirements in a majority of the 

states that specific percentages of the market for electric power be reserved for electricity 

produced from renewable sources. Nonetheless, renewable power provides only a small 

proportion---about 3.6 percent---of electric power in the U.S., and official projections are 

for slow growth at most. This small market share has persisted despite very substantial 

tax and other policy support, an outcome that can be explained by thc problems intrinsic 

to renewable power---that is, the inherent limitations on its competitiveness---that public 

policies can circumvent or ncutralizc only at very substantial cxpense. Thcse problems 

uniformly yield high costs and low reliability for renewable power, and can be 

summarized as follows. 

• The unconcentrated energy content of renewable energy sources. 
119 

3 

• Location (or siting) limitations. 

• Relatively low availability ("capacity factors") over time combined with the 

intermittent nature of wind flows and sunlight. 

The low energy content of sunlight and wind flows relative to that of fossil or 

nuclear fuels forces renewable technology to compensate by relying upon massive 

substitute investment in land and/or materials. Second, unlike conventional generation 

technologies, renewable generation is sharply constrained by siting problems because 

favorable sunlight and wind conditions are limited geographically, yielding large 

additional costs for transmission. Finally, capacity factors---essentially, the proportion of 

the year during which renewable facilities actually can generate power---are substantially 

lower for wind and solar facilities than is the case for most conventional generation, and 

the intermittent nature of sunlight and wind flows exacerbates this problem. These 

conditions result in a need for conventional backup generation capacity so as to preserve 

the stability of the electric grid and to prevent power shortages; this need increases 

associated costs sharply. Moreover, in particular for wind power, actual power 

generation tends to be concentrated in off-peak periods---winds tend to blow at night and 

in the winter---so that the electricity produced from wind facilities tends to be less 

valuable than that produced from conventional sources. 

The Energy Information Administration estimates wind (onshore) and solar costs 

in 2016 at about $149 and $257-396 per megawatt-hour, respectively; if we add a 

reasonable estimate for backup costs based upon EIA data, the total is about $517 for 

wind and $625-$764 for solar generation. The EIA estimates for gas- or coal-fired 

generation are about $80-$110 per megawatt-hour. Accordingly, the projected cost of 

renewable power in 2016 including the cost of backup capacity is at least five times 

higher than that for conventional electricity. This does not include the additional costs 

for transmission imposed by renewable generation. 

The five central rationales commonly offered in support of subsidies and 

mandatcs for renewables can be summarized as follows. 

• The "infant industry" rationale: Renewables cannot compete with conventional 

electric generation technologies on an equal basis because scale and learning 

efficiencies can be achieved only with an expanded market share. 

• The "level playing field" rationale: Subsidies enjoyed by conventional 

technologies introduce an artificial competitive disadvantage for renewable 

technologies. 

• A second "level playing field" rationale: The adverse environmental effects (e.g., 

air pollution)---"externalities" ---of conventional electricity generation create an 

additional artificial cost advantage for those technologies. 

• The resource depletion (or "sustainability") rationale: Policy support for 

renew abies is justified as a tool with which to slow the depletion of such 

conventional resources as natural gas and to hasten the development of 

technologies providing alternatives for future generations. 
120 

4 

• The "green employment" rationale: Policy support for renewables will yield 

expanded employment (and economic competitiveness). 

These rationales are deeply problematic. The infant industry argument is 

inconsistent with the presence of an international capital market and with the cost 

evidence for renewables. The subsidies per kilowatt-hour enjoyed by renew abies 

outweigh by far those bestowed upon conventional generation technologies---even if we 

ignore the issue of whether the latter can be defined properly as "subsidies"---so that the 

first level playing field argument is unsupported by the evidence. With respect to the 

adverse environmental effects of conventional generation, the eost of conventional 

backup capacity made necessary by the unreliability of wind and solar generation is 

substantially greater than any artificial cost advantage enjoyed by conventional 

technologies as a result of negative external effects assumed not to have been corrected 

("internalized") by current policies. The depletion or sustainability criticism of 

conventional technologies is incorrect simply as a matter of basic economics, and is 

inconsistent with the historical evidence in any event. Finally, the premise that expansion 

of renewable power will yield an increase in "green employment" confuses benefits for a 

particular group with costs imposed upon the economy as a whole, and fails to 

distinguish between employment growth in the aggregate and employment shifts among 

economic sectors. Moreover, the actual employment effect of expanded renewables 

subsidies is likely to be negative because of the inverse aggregate relationship between 

electricity costs and employment, because of the adverse employment effects of the taxes 

needed to finance the subsidies, and because of the adverse employment effects of an 

economy smaller than otherwise would be the case. In short: The purported economic 

and social benefits of policy support for renew abies are illusory. 

The market difficulties faced by renewables are likely to be exacerbated by 

ongoing supply and price developments in the market for natural gas, which will weaken 

further the competitive position of renewable power generation. At the same time. 

subsidies and mandates for renewables impose nontrivial costs upon the taxpayers and 

upon consumers in electricity markets. The upshot is the imposition of substantial net 

burdens upon the U.S. economy as a whole even as the policies bestow important benefits 

upon particular groups and industries, thus yielding enhanced incentives for innumerable 

interests to seek favors from government. As is the case in most contexts, the resource 

uses emerging from market competition, even as constrained and distorted by tax and 

regulatory policies, are the best guides for the achievement of resource allocation that is 

most productive. As federal policymakers address the ongoing issues and problems 

aftlicting renewable electricity generation, the realities of this recent history provide a 

useful guide for policy reform. One such reform should be the abandonment of tax 

subsidies and other policy support for renewable energy. 

1. Inherent Limitations of Renewable Electricity 

This testimony is based upon my recent book Renewable Electricity Generation: 

Economic Analysis and Outlook, published late last year by the AEI Press. Renewable 
121 

5 

electricity---wind and solar power in particular---receives very large subsidies and policy 

support, both direct and indirect, from the federal and state governments. As discussed in 

section II, this policy support is far larger per kilowatt-hour, both on average and on the 

margin, than that enjoyed by such conventional electric generation technologies as coal. 

natural gas, nuclear fuels, or hydroelectric facilities, putting aside the issue of whether the 

"subsidies" given conventional fuels properly should be defined as subsidies at all. 

Moreover, a majority of states has mandated some form of guaranteed market shares for 

renewable electricity. This political support for renewable power is substantial, broadbased, bipartisan, and longstanding. 

Nonetheless: Renewable electricity generally, and wind and solar power in 

particular, is very costly in terms of real resource consumption and is likely to remain so 

for the foreseeable future because of three central factors discussed below. As a result, 

they have achieved only small market shares. Renewable electricity generation from all 

non-hydroelectric sources was only 3.6 percent of total U.S. generation in 2010. The 

Energy Information Administration estimated in 2007 that the proportion in 2030 would 

be that very same 3.6 percent. The ETA more recently has increased that projection to II 

percent. 

But it is not clear what changes in important parameters have yielded over the 

course of only a few years that increase in the projected market share for 2030. No sound 

rationale, whether economic or technological, can explain this change in the official 

wisdom. Quite to the contrary: Both economic and technological factors suggest strongly 

that wind and solar power will remain uncompetitive, heavily dependent upon subsidies 

both direct and indirect, and small relative to the electricity market as a whole. 

The implementation of energy policies in the U.S. for decades has pursued energy 

sources defined in various ways as alternative, unconventional, independent, renewable, 

and clean, in an effort to replace such conventional fuels as oil, coal, and natural gas. 

These longstanding efforts without exception have yielded poor outcomes, in a nutshell 

because they must swim against the tide of market forces. That is why the only reliable 

outcome has been one disappointment after another, and there are powerful reasons to 

predict that the same will continue to prove true with respect to the current enthusiasm 

for renewable electricity. 

Policy preferences for renewable electricity at both the federal and state levels are 

substantial, in the form of both direct and indirect financial subsidies, and other forms of 

support as well. 1 The relative magnitudes of the federal subsidies given various forms of 

electricity, as estimated by the ETA, are instructive. 2 For 2010, nonhydroelectric 

renewable power generation, again, was 3.6 percent of all generation; but it received 53.5 

percent of all federal financial support for the electric power sector. Wind power, 

providing 2.3 percent of generation, received 42 percent of such support. This 

I For a detailed list of such policies, see the database at http://www.dsirellsa.org/. 

1 U.S. Energy Information Administration, Direct Federal Financial Inten1eTllions and Subsidies III Energy 

III Fiscal Year 20]0, July 2011, at htlp:llwww.eia.gov/analysis/requcstslsubsidv/pdffsubsidy.pdf. Tables 

ES4 and ES5. 
122 

6 

combination of substantial policy support and meager market competitiveness suggests 

the presence of important impediments to the growth of renewable power. The technical 

literature reveals three central problems that have not received widespread attention in the 

popular discussion; they can be denoted as: 

• The unconcentrated energy content of renewable energy sources. 

• Location (or siting)---that is, geographic---limitations and resulting transmission 

costs. 

• Relatively low availability ("capacity factors") over time combined with the 

intermittent nature of wind flows and sunlight. 3 

Un concentrated Energy Content: The energy content of wind flows and 

sunlight, which varies depending upon air speed and sunlight intensity, is far less 

concentrated than that of the energy contained in fossil or nuclear fuels. In order to 

compensate for this physical characteristic, large capital investments in land and/or 

materials must be made to make renewable generation even technically practical in terms 

of generating nontrivial amounts of electricity. A wind farm would require 500 wind 

turbines of 2 MW each to provide a theoretical generation capacity of 1000 MW. Since 

the wind turbines must be spaced apart to avoid wake effects (wind interference among 

the turbines), a 1000 MW wind farm even in principle would require on the order of 

48,000-64,000 acres (or 75-100 square miles) of land. With an assumed capacity factor 

for a typical wind farm of, say, 35 percent', reliable wind capacity of 1000 MW would 

require an amount of land (perhaps at different locations) on the order of two to three 

times that rough estimate. In contrast, a 1000 MW gas-fired plant requires about 10-15 

acres; conventional coal, natural gas, and nuclear plants have capacity factors of 85-90 

percent. 

The same general problem afflicts solar power. The energy content of sunlight, 

crudely, is about 150-400 watts per square meter, depending on location, of which about 

20-30 percent is convertible to electricity, depending on the particular technology. 

Accordingly, even in theory a square meter of solar energy receiving capacity is enough 

to power roughly one 100-watt light bulb, putting aside such issues of sunlight intensity 

and the like. This problem of land requirements for solar thermal facilities is of sufficient 

importance that most analyses assume a maximum plant capacity of 50-100 MW, which, 

conservatively, would require approximately 1250 acres, or 2 square miles. 

, The capacity factor for a generation facility (or technology) is its actual production over a given time 

period divided by its theoretical maximum production over that time period. controlling for planned 

maintenance and the like. 

4 The energy content of different fuels varies greatly. Per unit of fuel---tons of coal, millions of cubic feet 

of natural gas, wind speeds in miles per hour, an hour ofsunlight---this variation can be thought of usefully 

as the degree of concentration of the energy content of a particular energy source . 

.\ For standard assumptions on capacity factors for the various generation technologies, see Energy 

Information Administration, "2016 Levelized Cost of New Generation Resources from the AlVlUal Energy 

OU/look 2010", at hnp:!/www.cia.doe.gov/oiaf/aeo/pdf/20161evelized costs aeo201O.pdf. The assumed 

capacity factor for onshore wind generation in that analysis is 34.4 percent. 
123 

7 

In short: Transformation of the unconcentrated energy content of wind and 

sunlight into a form useable for modern applications requires massive capital investment 

in the form of both land and wind turbines and solar receiving equipment. This means 

that the energy that can be extracted from renewable sources, relative to that from 

conventional forms, by its very nature is limited and expensive. 

Siting Limitations and Transmission Costs. Conventional power generation plants 

can be sited, in principle, almost anywhere, and such fuels as coal and natural gas can be 

transported to the generation facilities. This means that investment planning decisions 

can optimize transmission investment costs along with the other numerous factors that 

constrain and shape generation investment choices, among them land costs, 

environmental factors, reliability issues, transmission line losses, and the like. Wind and 

solar sites, on the other hand, must be placed where the wind blows and the sun shines 

with sufficient intensity and duration. (Photo voltaic installations, suitable for small 

applications, face the transmission problem either not at all or to a far smaller degree than 

solar thermal plants, but still are constrained by the intensity of sunlight.) Because 

appropriate sites are limited, with the most useful (Le., lowest cost) ones exploited first, 

the successive (or marginal) cost of exploiting such sites must rise, so that even if wind 

and solar technologies exhibit important scale economies in terms of capacity and/or 

generation costs, scale economies may not characterize a broader cost calculation 

including the cost of finding and using particular sites. 

In other words, scale economies are unlikely to be available at the industry level 

even if they are present at the project (or the turbine or parabolic dish) level. This reality 

is consistent with a time series of capacity factors for 1998-2009 published recently by 

the EIA. The capacity factors for non-hydroelectric renew abIes declined almost 

monotonically from 57.0 percent to 33.8 percent over that period, suggesting that as 

renewables capacity has expanded it has been forced onto increasingly unfavorable sites. 

Because conventional generation investments can optimize transmission costs and 

other reliability factors more easily than is the case for wind and solar capacity, it would 

be surprising if such costs were not higher for the latter. This general condition is 

exacerbated by the physical realities that wind conditions are strongest in open plains 

regions, while solar generation in general requires regions with strong sunlight and, for 

thermal solar plants, sizeable open areas. For the U.S., the best wind capacity sites are in 

a region stretching from the northern plains down through Texas, and the best thermal 

solar sites are in the southwest. The U.S. simply lacks significant east-west high-voltage 

interconnection transmission capacity to transport such power to the coasts. One national 

study of this problem notes that "wind development will require substantial additions to 

the nation's transmission infrastructurc ... due to the locational dependcnce of wind 

resources [and] the relatively low capacity factor of wind plants ... ,,6 

6 Andrew Mills, Ryan Wiser, and Kevin Porter, ''The Cost of Transmission for Wind Energy: A Review of 

Transmission Planning Studies," Lawrence Berkeley National Laboratory, LBNL-1471E. February 2009, p. 

vii, at http://eetd.lhl.gov/EAIEMP/reportsllbnl-1471e.pdf. 
124 

8 

Some analyses of these transmIssIon costs are available. One survey of 40 

transmission studies for wind projects conducted during 2001-2008 finds a median 

transmission cost of $15 per megawatt-hour. The survey was limited to studies of 

transmission requirements for multiple new wind plants with a combined capacity greater 

than 300 MW. An analysis by the California Public Utilities Commission concludes that 

implementation of a 20 percent renewable electricity standard (or requirement) for the 

state by 2020 would impose a need for four new major transmission lines at a cost of 

about $4 billion, while a 33 percent standard would require Seven new lines at a cost of 

$12 billion. For that 33 percent requirement, the assumptions in the CPUC study suggest 

transmission costs of about $6.39 per megawatt-hour, a figure that is implausibly low. A 

study done for the National Renewable Energy Laboratory examined the transmission 

requirements and attendant costs for four alternative wind capacity scenarios for the 

Eastern Interconnection (the continental U.S. east of the Rocky mountains, minus Texas, 

plus parts of southeastern Canada). This study reports a cost of wind "integration" of 

about $5 per megawatt-hour; but other data in the study suggest transmission costs of 

about $17 per megawatt-hour, a figure roughly comparable to the $15 median reported in 

the survey noted above. 

A comprehensive comparison of various cost categories across generation types 

has been published by the EIA. The data show that conventional generation---coal and 

natural gas combined cycle---has transmission costs of about $3.60 per megawatt-hour, 

less than half those of wind generation ($8.40) and about a third those of thermal solar 

generation ($10.40). These projections for transmission costs are consistent with the 

hypothesis that wind and solar power are highly constrained in terms of capacity factors 

and sites, and so impose higher transmission costs than is the case for conventional 

generation. 

Low Availabilitv and Intermittency. Electric energy in large amounts cannot be 

stored at low cost in batteries due to technological limitations; only indirect storage in the 

form of water in dams is economic. This reality means that the production and 

consumption of electricity in a given power network must be balanced constantly in order 

to prevent blackouts, and more generally to preserve system reliability. Because 

unexpected surges in demand and/or outages of generating equipment can occur, backup 

generation capacity must be maintained; such backup capacity is termed the "operating 

reserve" for the given network. This operating reserve is of two types; the first is the 

"spinning reserve," that is, generators already connected to the network, the output of 

which can be increased by raising the torque applied to the generating turbines. The 

typical system requirement is that spinning reserves be 50 percent or more of total 

operating reserves. The second component of operating reserves is the supplemental 

rescrve, which compriscs generation capacity that can be brought on line within five to 

ten minutes and/or electric power that can be obtained quickly from other networks or by 

withholding powcr bcing distributed to other networks. Additional rescrvc capacity often 

is provided by generators that require up to an hour to come on line; this backup capacity 

is not included in measures of the operating reserve for a system because of thc length of 

time required for availability. 
125 

9 

Electric supply systems respond to growing demands ("load") over the course of a 

day (or year) by increasing output from the lowest-cost generating units first, and then 

calling upon successively more-expensive units as electric loads grow toward the daily 

(or seasonal) peak. Because of the uncertainties caused by the unreliability of wind and 

sunlight, most electric generation capacity fueled by renewable energy sources cannot be 

assumed to be available upon demand; that is, system planning and optimization cannot 

assume that such power will be available when it is expected to be most economic. 

Accordingly, it cannot be scheduled (or "dispatched"). Instead, it requires backup 

generation capacity to preserve system reliability. 

And so the cost of that needed backup capacity becomes a crucial parameter 

usually not mentioned in public discussions of wind and solar power. One study, using 

figures from the California Independent System Operator, projects that an increase in 

California renewable generation capacity between 2009 and 2020 would be about 17.7 

gigawatts (GW) for a 20 percent renewable requirement, and about 22.4 GW for the 33 

percent requirement.7 The projected needs for backup capacity (of varying types) are, 

respectively, 0.8 GW (or 4.5 percent) and 4.8 GW (or 21 percent). 

What would that backup power cost? U.S. wind and solar generation capacity in 

2009 was about 34,000 MW. If we assume, conservatively, that this renewable capacity 

has required investment in backup capacity of about 3 percent (rather than 4.5 percent), 

that requirement would be about 1000 MW. Cost estimates published by the ElA suggest 

that this backup capacity has imposed fixed capital and operations and maintenance costs 

of about $1.7 billion, variable operating costs of approximately $2.00-$4.50 per 

megawatt-hour, and total costs per megawatt-hour of about $368.8 

That rough estimate is likely to be biased downward. Because state renew abies 

requirements require system operators to take renewable power when it is available, 

conventional backup generation must be cycled up and down in coordination with the 

availability of the renewable generation. In particular for coal-fired generation, but also 

for gas combined-cycle backup generation, this means that the conventional assets cannot 

be operated as etlicientIy as would be the case were they not cycled up and down in 

response to wind or solar generation conditions. A recent study of the attendant 

emissions effects for Colorado and Texas found that requirements for the use of wind 

power impose significant operating and capital costs because of cycling needs for backup 

generation---particularly coal plants---and actually exacerbate air pollution problems.9 

7 See KEMA, Inc., "Research Evaluation of Wind Generation, Solar Generation. and Storage Impact on the 

California Grid;' June 2010, p. 1, at 

http://www .0 vcr. uc1 a. edu/up! oads/ti!e/CA % lOEnergv'i'c lOCo ill ill issi on PIER % lOPina! 't, 20Project % 20Rep 

ort June%20201O.pdf. 

8 ErA, Electricity Market Module. release date April 2010. p. 91 (Tahle 8.2). at 

http://www.eia.gov/oiaf/aeo/assllillption/pdflelectricity.pdf#page=3. 

9 See Bentek Energy. How Less Became More: Wiml Power and Ul1intended Consequences In the 

Colorado Energy Market. April 16.2010. pp. 25-33, at http://www.wind-watch.orgldocuments/wpfontcntluploadsIBENTEK-How-I.ess-Became-More.pdf· 
126 

10 

The EIA estimates wind (onshore) and solar costs in 2016 at about $149 and 

$257-396 per megawatt-hour, respectively; if we add a reasonable estimate for backup 

costs based upon EIA data, the total is about $517 for wind and $625-$764 for solar 

generation. The EIA estimates for gas- or coal-fired generation are about $80-$110 per 

megawatt-hour. 1O Accordingly, the projected cost of renewable power in 2016 including 

the cost of backup capacity is at least five times higher than that for conventional 

electricity. This does not include the additional costs for transmission imposed hy 

renewable generation. 

At the same time, outages of wind capacity due to weak wind conditions are much 

more likely to be correlated geographically than outages of conventional plants, for the 

obvious reason that weak winds in part of a given region are likely to be observed in 

tandem with weak winds in other parts of that region. Because appropriate regions for 

thermal solar sites and photo voltaic systems are concentrated geographically, the same 

correlation problem is likely to affect solar electric generation as well. 

The higher cost of electricity generated with renewable energy sources is only one 

side of the competitiveness question; the other is the value of that generation, as not all 

electricity is created equal. In particular, power produced at periods of peak demand is 

more valuable than off-peak generation, whether during a given daily cycle or across 

annual seasons. In this context, wind generation in particular is problematic because in 

general there is an inverse relationship between the daily hours of peak demand and wind 

velocities, and between peak summertime demands and peak wintertime wind velocities: 

Winds tend to blow at night and in the winter. 

II. The Central Rationales for Renewables Subsidies: A Critique 

The central rationales in support of subsidies and other policy support for 

renewable power are numerous and varied, but generally fall into the following 

categories: 

• The "infant industry" rationale: Renewables cannot compete with conventional 

electric generation technologies on an equal basis because scale and learning 

efficiencies can be achieved only with an expanded market share. 

• The "level playing field" rationale: Subsidies enjoyed by conventional 

technologies introduce an artificial competitive disadvantage for renewable 

technologies. 

• A second "level playing field" rationale: The adverse environmental effects (e.g., 

air pollution)---"externalities"---of conventional electricity generation create an 

additional artificial cost advantage for those technologies. 

• The resource depletion (or "sustainability") rationale: Po !icy support for 

renewables is justified as a tool with which to slow the depletion of such 

In See EIA. "p. cit .• til. 5. 
127 

II 

conventional resources as natural gas and to hasten the development of 

technologies providing alternatives for future generations. 

The Infant Industry Rationale. This argument begins with the assumption that 

new technologies often cannot compete with established ones because the available 

market at the beginning is too small for important scale economies to be exploited, and 

because the downward shifts in costs that might result from a learning process cannot be 

achieved without a substantial expansion in market share. Accordingly, policy support 

for expansion of the newcomers' share of the market is justified as a tool with which to 

allow the achievement of both scale and learning efficiencies. 

One obvious problem with this rationale is that the market for electric power 

already has several competing technologies, each of which began with a small market 

share virtually by definition. More generally, many industries employing competing 

technologies are characterized by the presence of scale economies and/or learning 

efficiencies; but market forces operating through domestic and international capital 

markets provide investment capital in anticipation of future cost savings and higher 

economic returns. Accordingly, the infant industry argument is a non sequitur: The 

market can foresee the potential for scale and learning efficiencies, and invest 

accordingly. There is no efficiency rationale tor subsidies or other policy support. 

In any event, the narrower issue is whether important cost reductions attendant 

upon learning and/or scale efficiencies remain available to be exploited for wind or solar 

generation. The pattern of average costs over time, controlling for the size of projects, 

should yield inferences about the remaining importance of learning efficiencies; if the 

infant industry argument is correct, we should observe in the data over the last decade or 

two declining costs for renewable electricity. For wind generation, the Department of 

Energy reports data on average project cost per MW over time, beginning in the early 

19805. 11 

These data show a rough pattern of declining average costs from the 1980s 

through about 2001, and then rising average costs through 2009: from about $4800 per 

MW in 1984 to about $1300 per MW in 2001, and rising to about $2100 in 2009, all in 

constant year 2009 dollars. Since these data are weighted by capacity, the rising average 

costs per wind MW after 2000-2001 suggest that further learning efficiencies no lon!}er 

are available to be exploited, unless, perhaps, future technological advances are made. L 

Other DoE data are available on average costs by project size for wind projects 

installed in the 2007-2009 period. I3 The short time period reduces the likely impact of 

learning efficiencies, yielding important information about the availability of scale 

11 See Department of Energy, "2009 Wind Technologies Market Report," August 2010. at Figure 27, at 

http://wwwl.ccrc.encrgy.gov/windandhvdroipdfsI2009 wind technologies market report.pdf. 

12 Note that an assumption of future technological advances does not imply enhanced future 

competitiveness, in that technological advances are likely affect conventional and renewable technologies 

alike. 

13 Ibid. 
128 

12 

economies. The data show that scale economies are important only for small wind 

projects (about $2700 per MW for projects smaller than 5 MW), and that average costs 

either constant or slightly increasing (about $1800-$2000 per MW) characterize projects 

larger than about 20 MW or thereabouts. 

Reliable time-series data on costs for photovoltaic and thermal solar systems are 

more difficult to find in the literature; perhaps the only consistent series is provided by 

the EIA for 2000-2009. 14 These data show a decline in costs per MW for both 

photo voltaic and thermal systems early in the decade, suggesting the exploitation of 

learning efficiencies, and, perhaps, the use of more suitable sites. The data show also an 

increase in costs per MW after 2002; this suggests that no further learning efficiencies are 

available to be exploited and/or that the problem of rising site costs is significanLI5 On 

the other hand, a different data analysis for photovoltaics only, published by the DoE, 

shows a decline in the capacity-weighted average installed cost between 1998 and 2008, 

from $10.80 per watt (2008 dollars) to $7.50 per watt. 16 In short: The data are mixed in 

the case of solar generation systems. The "infant industry" assumption of significant 

learning and/or scale economies as a balTier to adoption of renewable technologies at best 

is far from obviously correct; the bulk of' the available data suggest that it is incorrect. 

Leveling the Playing Field. The second central rationale offered in favor of 

policy support for renew abies is essentially a level-playing-field premise: Because 

conventional generation benefits from important tax preferences and other policy support, 

renewables cannot compete without similar treatment. A recent EIA analysis presents 

data from which federal subsidies and support per kilowatt-hour produced by different 

technologies can be compared. 17 These data are presented in Table 1. 18 

14 Energy Information Administration, Electricity Market Module discussions within the "Assumptions" 

chapters, various years, at http://www.cia.gov/oialiarchive.hlml. 

15 For photovoltaic systems, capacity costs fell from $5386 per MW in 2000 to $4744 in 2002, and then 

increased steadily to $6239 in 2009. For thermal systems the figures were $3679 in 2000, $3194 in 2002, 

and $5237 in 2009. 

16 Department of Energy, "Solar Technologies Markel Report:' January 2010, at Figure 3.9, at 

http://wwwl.eere.energy.gov/solar/pdfs/4602iQQ[. 

17 See the EIA data at http://docs.wind-wateh.org/US-subsidy-201O.pdf. 

I' Other things held constant, subsidies that affect the marginal (or in~Temental) cost of generation or the 

per-unit prices received by particular technologies are likely to affect market prices, even under standard 

rate-of-return regulation, and so might create a competitive disadvantage for other technologies not 

receiving equivalent treatment. An example is the per-unit production tax credit for renewable power. 

Other credits might improve profitability without affecting marginal costs or prices directly; investment tax 

credits for renewables are a good example. The latter would attract additional investment into the industry 

over time, thus perhaps affecting market prices, but that price eflect would be felt by all producers 

regardless of which actually received the subsidy. At the same time, even such subsidies as the latter 

would serve to reduce or eliminate whatever competitive disadvantages confront renewables as a result of 

policies in support of conventional generation. 
129 

13 

Table 1 

FY2010 Electricity Production Subsidies and Support per Megawatt-Hour 

(year 2010 dollars) 

Fuelff echnoJogy 

Natural Gas, Petroleum Liquids 

Coal (pulverized) 

Hydroelectric 

Biomass 

Nuclear 

Geothermal 

Wind 

Solar 

Source: ErA, op. cit., 1'n. 17. 

Dollars per megawatt-hour 

0.63 

0.64 

0.84 

2.00 

3.10 

12.50 

52.48 

968.00 

These data show that federal solar and wind subsidies in fiscal year 2010 were far 

higher---by two or three orders of magnitude---than those enjoyed by fossil fuels, nuclear, 

or hydroelectric generation. Accordingly, it is clear that solar and wind technologies are 

not at a competitive disadvantage because of average subsidies enjoyed by conventional 

generation; quite the reverse is true. 

A more direct calculation of marginal subsidies and support has been reported by 

Metcalf, yielding estimates of effective marginal tax rates on investments in alternative 

electric generation technologies. 19 Computation of such effective marginal tax rates 

incorporates the many subsidies and preferences that atfect choices among those 

alternatives, and so offers a direct test of the degree to which federal policies favor given 

technologies over others. Table 2 summarizes his findings, which are for 2007. 

Table 2 

Metcalf Findings on Effective Marginal Tax Rates for Electric Generation Investment 

(percent) 

Technology Current Law No Tax Credits Economic Depreciation 

Coal (pulverized) 38.9 38.9 39.3 

Gas 34.4 34.4 39.3 

Nuclear -99.5 32.4 -49.4 

Solar Thermal -244.7 12.8 -26.5 

Wind -163.8 12.8 -13.7 

19 See Gilbert E. Metcalf, "Investment in Energy Infrastructure and the Tax Code," in Jeffrey R. Brown, 

cd., Tax Policy and the Economy, Volume 24, Chicago: University of Chicago Press Journals, 2010, pp. 1-

33. See also Gilbert E. Metcalf, "Federal Tax Policy Toward~ Energy," NBER Working Paper No. 12568, 

October 2006, at http://www.nber.org/papers/w12568.pdf: and Gilbert E. Metcalf, "Taxing Energy In the 

United States: Which Fuels Does the Tax Code Favor'?". Manhattan Institute Center for Energy Policy and 

the Environment, Report No.4, January 2009, at http://www.manhattan-institutc.org/html/eper04.htm. 
130 

Source: Metcalf (2010), op. cit., fn. [9. 

Note: Current law is as of 2007. 

14 

The three columns present the Metcalf calculations of effective marginal tax rates 

under current law (as of 2007), under a regime without production and investment tax 

credits, and with economic depreciation assumed in place of accelerated depreciation, 

respectively.20 Under current law, solar thermal and wind generation investments receive 

large net percentage marginal subsidies (negative effective marginal tax rates) far larger 

than those enjoyed by nuclear investments; and coal and gas investments face effective 

tax rates greater than zero. If the tax credits are assumed away, solar thermal and wind 

investments face effective tax rates roughly one-third those of the other technologies. If 

economic depreciation replaces accelerated depreciation, nuclear investment enjoys a 

negative effective marginal tax rate (tax subsidy) larger (in absolute value) than those for 

solar and wind investments; but coal and gas investments face effective marginal tax 

rates of over 39 percent. 

The Metcalf calculations of effective marginal tax rates under current law suggest 

strongly that the "offsetting subsidy" rationale for public support for solar and wind 

investments is weak: Coal and gas investments face positive effective marginal tax rates, 

and new nuclear investment no longer is a serious competitive threat.2

! Moreover, the 

effective subsidies enjoyed by solar and wind generation are far greater than those needed 

to level the playing field with respect to nuclear generation.22 

Adverse External Effects of Conventional Generation. A negative "externality" is 

an adverse effect of economic activity the full costs of which are not borne by the parties 

engaging directly in the activity yielding the adverse effect. A simple example is the 

20 Metcalf uses an exponential depreciation rate rather than straight-line depreciation as an approximation 

of economic depreciation over the lives of given investments. 

21 The last nuclear generation reactor to begin operation is the Watts Bar-l plant in Tennessee, which began 

commercial operation on May 27, 1996. Sec EIA at 

http://www.cia.gov/cncalinuc1car/pagc/opcration/statoperat ion.html. However, the Tennessee Valley 

Authority has announced plans to complete Watts Bar-2. 

22 The playing field is biased in favor of renewables for two additional reasons, thc first of which is the 

implicit subsidy for backup generation capacity and transmission costs: Such costs are a direct effect of 

investment in renewable capacity, but arc spread across electricity consumption from all sources. The 

Federal Energy Regulatory Commission, in a recent case involving the Midwest Independent Transmission 

Operator, ruled that the transmission costs attributable to wind generation may be allocated to consumers 

regardless of the amount of wind power actually consumed by any given ratepayer. This ruling esscntially 

spreads such costs across the entire grid; accordingly, the transmission costs associatcd with wind 

generation are not reduced but instead are hidden somewhat from calculations of the marginal cost of wind 

power. See the PERC Conditional Order, Docket No. ERlO-1791-000, December 16, 2010, at 

http://www.ferc.gov/whats-ncw/comm-mcetI20101121 G IO!E-l.pclf. Second, public subsidies for rcnewable 

power, whether in the form of direct outlays or indirect tax preferences, impose costs upon the privatc 

sector larger than the subsidies themselves, because of the excess burden (or "deadweight losses") imposed 

by the tax system. Essentially, the private sector becomes smaller by more than a dollar when it is forced 

to send a dollar to the fcderal governmcnt. For a nontechnical discussion, scc Martin A. Feldstein, "Thc 

Etfect of Taxes on Efficiency and Growth," Tax Notes, May 8, 2006, pp. 679-684. 
131 

15 

emission of effluents into the air as a byproduct of such industrial processes as power 

generation. There is no dispute that power generation with fossil fuels imposes adverse 

environmental effects in the form of sulfur dioxide, nitrogen oxides, mercury, 

particulates, and other effluents. Accordingly, the EPA and the states have established 

detailed programs for defining emission standards and for implementing attendant 

investment and enforcement programs. 

If the negative externalities yielded by conventional generation are not 

internalized fully by current environmental policies---that is, if buyers and producers are 

not confronted with the full costs of the environmental effects that they impose on others-

--then the costs of conventional generation as perceived by the market would be 

(artificially) lower than the true social costs. At the same time, the unreliable nature of 

wind and solar generation imposes a requirement for costly backup capacity, as discussed 

above. 23 And so the question to be addressed is as follows: Given the magnitude of those 

externalities as estimated in the technical literature, are the additional (or marginal) costs 

of backup capacity imposed by renewable generation sufficient to offset any artificial 

cost advantage enjoyed by conventional generation? 

A number of analyses of the externality costs of U.S. electricity generation were 

conducted during the 1980s and I 990s. These studies differ somewhat in terms of 

methodology and focus, but offer a range of estimates useful in terms of the question 

addressed here. In summary: The estimated externality costs for coal range fro m 0.1 

cents per kilowatt-hour to 26.5 cents per kilowatt-hour. For gas generation, the range is 

0.1-10.2 cents per kilowatt-hour. For oil, nuclear, and hydro generation, the respective 

ranges are 0.4-16.5 cents per kilowatt-hour, 0-4.9 cents per kilowatt-hour, and 0-2.1 cents 

per kilowatt-hour. 

The highest estimated figure is for coal generation, at 26.5 cents per kilowatthour, or $265 per megawatt-hour. From the discussion above, a conservative estimate of 

the cost of backup capacity for existing wind and solar generation is about $368 per 

megawatt-hour, or roughly 37 cents per kilowatt-hour. Accordingly, if all conventional 

generation were coal-fired, existing wind and solar capacity imposes a backup cost 

"externality" about 39 percent higher than the environmental externality costs of 

conventional generation under the implausible assumption that none of the conventional 

externalities have been internalized under current environmental policy. In addition, 

these figures do not include the higher transmission costs imposed upon the system by 

renewable power. 

But in fact coal generation is a bit less than 45 percent of total U.S. generation; 

gas generation is about 23 percent, nuclear generation is about 20 percent, hydroelectric 

generation is about 7 percent, and renewables and other miscellaneous technologies make 

up the rest. If we use those figures and the highest estimates by fuel type noted above to 

compute a weighted-average externality cost for nonrenewable generation, the externality 

cost per conventional kilowatt-hour is about 15.5 cents, or $155 per megawatt-hour. If 

we use instead the midpoints of the externality ranges listed above, the weighted average 

23 See the discussion supra., pp. 8-10. 
132 

16 

externality cost is 7.8 cents per kilowatt-hour, or $78 per megawatt-hour. Relative to the 

backup cost "externality" ($368 per megawatt-hour) imposed by wind and solar 

investments alone, those figures are sufficiently low to cast substantial doubt upon the 

externality argument for renewables subsidies: Current environmental regulation must 

internalize some substantial part of conventional externalities, and federal and state 

subsidies, both explicit and implicit, and requirements for minimum market shares for 

renewables also have the effect of offsetting any artificial cost advantage enjoyed by 

conventional generation as a result of uninternalized externalities. 

Note that in terms of economic efficiency, subsidies for renewables intended to 

offset the (assumed) uninternalized external costs of conventional generation are a 

"second-best" policy at best. Such subsidies would reduce the (inefficient) competitive 

advantage of conventional generation yielded by the presence of some social costs 

unreflected in prices; but they would not improve the efficiency of costs or prices for 

conventional generation. And by biasing the perceived costs and prices of renewable 

generation downward, the subsidies would result in a total electricity market that would 

be too large. Moreover, renewable power generation imposes its own set of adverse 

environmental effects, among them flicker problems, noise, wildlife destruction, toxic 

minerals pollution, unsightly land use, and others; this is a topic outside the scope of this 

testimony. In short: The externality argument in favor of policy support for renewable 

electricity generation is exceedingly weak, far more so than commonly assumed. 

The Resource Depletion or "Sustainabilitv" Rationale. "Renewable" energy has 

no uniform definition; but the (assumed) finite physical quantity of conventional energy 

sources is the essential characteristic differentiating the two in most discussions. In a 

word, conventional energy sources are depletable. In contrast, sunlight and wind flows 

replenish themselves, a central component of "sustainability," perhaps a broader concept, 

which has been defined by the Environmental Protection Agency as "the satisfaction of 

basic economic, social, and security needs now and in the future without undermining the 

natural resource base and environmental quality on which life depends.,,24 

As an aside, the energy content of sunlight and wind is finite, regardless of self 

replenishment. They contain only so much convertible energy, and they are not always 

available. Moreover, the same is true for the other resources---rnaterials, land, etc.---

upon which the conversion of such renewable energy into electricity depends. 

Accordingly, the depletable nature of conventional energy resources is far less relevant 

analytically than commonly assumed; in economic terms, all energy resources are 

"scarce." In any event, the basic "sustainability" concept seems to be that without policy 

intervention, the operation of market forces will result in the depletion (or exhaustion) of 

a finite resource. Accordingly, subsidies and other support for renewable power 

generation are justified as tools with which to slow such depletion and to hasten the 

development of technologies that would provide alternatives tor future generations. 

That argument is deeply problematic. Putting aside the issue of whether 

government as an institution has incentives to adopt a time horizon longer than that 

24 See the EPA discussion (February 201 1) at http://cpa.r.ov/sustainuhili!v/hasicinfo.htm. 
133 

17 

relevant for the private sector, the profit motive provides incentives for the market to 

consider the long-run effects of current decisions. The market rate of interest is a price 

that links the interests of generations present and future. If a resource is being depleted, 

then its expected future price will rise, other things held constant. If that rate of price 

increase is greater than the market interest rate, then owners of the resource have 

incentives to reduce production today---by doing so they can sell the resource in the 

future and in effect earn a rate of return higher than the market rate of interest---thus 

raising prices today and reducing expected future prices. In equilibrium---again, other 

factors held constant---expected prices should rise at the market rate of interest.25 Under 

market institutions, it is the market rate of interest that ties the interests ofthe current and 

future generations, by making it profitable currently to conserve some substantial volume 

of depletable resources for future consumption?6 Because of the market rate of interest, 

market forces will never allow the depletion of a given resource. 

Accordingly, the market has powerful incentives to conserve, that is, to shift the 

consumption of some considerable volume of resources into future periods. That is why, 

for example, not all crude oil was used up decades ago even though the market price of 

crude oil always was greater than zero, which is to say that using it would have yielded 

value. In short, the "sustainability" argument for policy support for renewable electricity 

depends crucially upon an assumption that the market conserves too little and that 

government has incentives to improve the allocation of exhaustible resources over time. 

That is a dual premise for which the underlying rationale is weak and with respect to 

which little persuasive evidence has been presented. 

"Green lobs": Renewable Power As A Source of Expanded Employment. A 

common rationale offered in support of expanded renewable power posits that policies in 

support of that goal will yield important benefits in the form of complementary 

employment growth in renew abies sectors, and stronger demand in the labor market in 

the aggregate. Both of those premises are almost certainly incorrect. 

The employment in renewables sectors created by renewables policies actually 

would be an economic cost rather than a benetlt for the economy as a whole. Suppose 

that policy support for renewables (or for any other sector) had the effect of increasing 

the demand for high-quality steel. That clearly would be a benefit tor steel producers, or 

more broadly, for owners of inputs in steel production, including steel workers. But for 

the economy as a whole, the need for additional high-quality steel in an expanding 

renewable power sector would be an economic cost, as that steel (or the resources used to 

produce it) would not be available for use in other sectors. Similarly, the creation of 

"green jobs" as a side effect of renewables policies is a benefit for the workers hired (or 

tor those whose wages rise with increased market competition for thcir services). But tor 

25 In reality the long run prices of most exhaustible natural resources have declined (after adjusting for 

int1ation), in large part because of technological advances in discovery, production, and usc. 

26 Strictly, speaking, it is not the price of the resource that should rise at the market rate of interest; instead 

the total economic return to holding the resource for future use should equal the market rate of interest. 

That economic return includes expected price changes and capital gains, expected cost savings, and the 

like. 
134 

18 

the economy as whole, that use of scarce labor is a cost because those workers no longer 

would be available for productive activity elsewhere.27 

There is the further matter that an expansion of the renewable electricity sector 

must mean a decline in some other sector(s), with an attendant reduction in resource use 

there; after all resources in the aggregate are finite. If there exists substantial 

unemployment, and if labor demand in renewables is not highly specialized, a short-run 

increase in total employment might result. abstracting from the effects of the fiscal or 

monetary tools with which government finances such efforts. But in the long run---not 

necessarily a long period of time---such industrial policies cannot "create" employment; 

they can only shift it among economic sectors. In short, an expanding renewables sector 

must be accompanied by a decline in other sectors, whether relative or absolute, and 

creation of "green jobs" must be accompanied by a destruction of jobs elsewhere. Even 

if an expanding renewables sector is more labor-intensive (per unit of output) than the 

sectors that would decline as a result, it remains the case that the employment expansion 

would be a cost for the economy as a whole, and the aggregate result would be an 

economy smaller than otherwise would be the case. 28 There is no particular reason to 

believe that the employment gained as a result of the (hypothetically) greater labor 

intensiveness of renew abIes systematically would be greater than the employment lost 

because of the decline of other sectors combined with the adverse employment etfect of 

the smaller economy in the aggregate and the adverse employment effect of increases in 

electricity costs. There is in addition the adverse employment effect of the explicit or 

implicit taxes that must be imposed to finance the expansion of renewable power. 

Because renewable electricity generation is more costly than conventional 

generation, policies driving a shift toward heavier reliance upon the former would 

increase aggregate electricity costs, and thus reduce electricity use below levels that 

would prevail otherwise. The 2007 EIA projection of total U.S. electricity consumption 

in 2030 was about 5.17 million gWh. 29 The latest EIA projection for 2030 is about 4.31 

million gWh, a decline of about 16.6 percent.30 The change presumably reflects some 

combination of assumptions about structural economic shifts, increased conservation, 

substitution of renew abIes for some conventional generation, and a price increase from 

about 8.8 cents per kilowatt-hour to 9.0 cents (in 2009 dollars). 

27 Considerable employment would be created if policies encouraged ditch-digging with shovels (or, in 

Milton Friedman's famous example. spoons) rather than heavy equipment. Such employment obviously 

would be laughable, that is, an obvious economic burden. There is no analytic ditference between this 

example and the "green jobs" rationale for renewables subsidies. 

28 Many advocates of renewables subsidies assert that solar and wind power is more labor intensive than 

conventional generation. The assumption of greater labor intensity for renewable power production is 

dubious: The operation of solar or wind facilities does not employ large amounts of labor, and it is far from 

clear that construction of solar Or wind facilities is more labor intensive than construction of conventional 

generation facilities. 

29 See EIA at hll2J/www.cia.doe.gov/oiaf/archivc/aeo07/acorcf tab.hlm!. at Table 2. 

30 Sec EIA at http://www.eia.gov/forecasts/aeo/tables refefm, at Table 8. 
135 

19 

It would be surprising if that reduction in total U.S. electricity consumption failed 

to have some employment effect. Figure 1 displays data on percent changes in real GDP, 

electricity consumption, and employment for the period 1970 through 2009.31 

Figure 1 

GOP, Electricity Consumption, Employment 

fll~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 

Year 

1 ___ GOP --Electricity ~ Employment 1 

It is obvious from the aggregate trends that electricity use and labor employment 

are complements rather than substitutes; the simple correlation between the percent 

changes for the two is 0.61, meaning, crudely, that a percent change in one tends to be 

observed with a 0.61 percent change in the other, in the same direction. The simple 

GDP/electricity and GDP/employment correlations are 0.67 and 0.85, respectively. 

The correlations by themselves are not evidence of causation, the determination 

(or refutation) of which requires application (and statistical testing) of a conceptual 

model. But the data displayed in Figure 1 make it reasonable to hypothesize that the 

higher costs and reduced electricity consumption attendant upon expansion of renewable 

generation would reduce employment in the aggregate; and they certainly provide 

grounds to question the common assertion that policies in support of expanded renewable 

electricity generation would yield increases in aggregate employment as a side effect, 

putting aside whether such increases would be a net economic benefit for the economy as 

a whole. 

It certainly is possible that the historical relationship between employment and 

electricity consumption will change. Technological advances are certain to occur; but the 

31 Sources: For real GOP, see Bureau of Economic Analysis at 

http://,,·ww.bca.gov/national/nipawcb/SelecITablc.asp?Popuku-Y, and author computations; for civilian 

employment, see Bureau of Labor Statistics at http://www.bls.gov/cps/cpsaatl.pdf; and for electricity 

consumption, see EIA at http://www.eia.doe.gov/emeu/acrlpdflpagcs/sec8 5.pdt 
136 

20 

prospective nature and effects of those shifts are difficult to predict.32 The U.S. economy 

may evolve over time in ways yielding important changes in the relative sizes of 

industries and sectors; but, again, the direction of the attendant shifts in employment and 

electricity use is ambiguous. 

But there exists no evidence with which to predict that a reduction in electricity 

consumption would yield an increase in employment. Like all geographic entities, the 

U.S. has certain long-term characteristics---climate, available resources, geographic 

location, trading partners, ad infinitum---that determine in substantial part the long-run 

comparative advantages of the economy in terms of economic activities and 

specialization. Figure 2 presents the historical paths of the electricity intensity of U.S. 

GDP (kilowatt-hour per dollar of output) and of the labor intensity of U.S. electricity 

consumption (employment per kilowatt-hour).33 

Figure 2 

Electricity Consumption Relationships 

......- Elec Intensity of GDP -II-- Labor Intensity of Elec Consumption 

During 1970-2009, the electricity intensity of GDP has increased and declined 

over various years, but for the whole period has declined slightly at a compound annual 

rate of about 0.3 percent. The labor intensity of U.S. electricity consumption---in a sense, 

the employment "supported" by each increment of electricity consumption---has declined 

more-or-less monotonically over the entire period, at an annual compound rate of about 

32 Note that greater energy "efficiency" in any given activity can yield an increase in actual energy 

consumption. if the elasticity of energy demand with respect to the marginal cost of energy use is greater 

than one. If. for example. air conditioning were to become sutliciently "efficient" in terms of energy 

consumption per degree of cooling, it is possible that air conditioners would be run so much that total 

energy consumption in space cooling would increase. A tax, on the other hand, whether explicit or 

implicit, increases the price of energy use. and so unambiguously reduces energy consumption. 

33 Sources: Sec fn. 31. 
137 

21 

1.05 percent.34 This may be the result largely of changes in the composition of GDP 

(toward services), and perhaps the substantial increase in U.S. labor productivity in 

manufacturing. But these data do not suggest that a reduction in electricity consumption 

would yield an increase in aggregate employment; instead, they suggest the reverse. In 

short, while the employment/electricity relationship may have declined over time, there is 

no evidence that it is unimportant in an absolute sense, and it is far from inverse. 

III. Implications of Recent Developments in the Market for Natural Gas 

Recent technological advances in the production of natural gas from shale 

formations and from coal beds have increased estimated natural gas reserves sharply.35 

Figure 3 illustrates the resulting sharp increase over the last two years in projected gas 

reserves. Between the 20 I 0 and 2011 EIA estimates, projected natural gas reserves 

through 2025 have increased about 15 percent. The 2011 projection is about 17 percent 

higher for 2030 and for 2035.30 

Figure 3 

EIA Projections: Natural Gas Reserves 

~ 350. 00 ,~«<"~""" <"_."<""."~<"<"""""""<""< ... <"<"<'~<"~'"~<'~""<"<"" <"~<""""~"~""""<~."~<","_."<""«".«"".""."":" •• <"< •. ~"~"l 

a~~ - - - ~ .-

~ 150.00 +----.,-----.,.----,-----.,-------i 

2015 2020 2025 2030 2035 

Year 

--AE02009 __ AE02010 __ AE02011 I 

As a result, the EIA has reduced its projections of future prices for natural gas 

delivered for electric generation. Between the two sets of projections (2010 and 2011), 

prices fall by about 15-23 percent ovcr the period 2015-2035.37 

34 These data in Figure 2 were scaled upward by a factor of 10 for ease in presentation. 

J5 For a brief discussion. see EIA. "What Is Shale Gas and Why Is It Important?," at 

http://www.cia,gov/cnergy in hricflabout shale gas.cr m. 

36 See EIA at http://www.eia.gov/oiatiarchive/aeolaeoref tab.html, at Tables 13 and 14; and EIA at 

http://www/eia.govlforecasts/aeo/tables rerdm, at Tables 13 and 14. 

J7 Ihid. 
138 

22 

Drawing the obvious conclusion, the 2011 EIA projection of combined cycle gas 

capacity for 2035 is about 6 percent higher than that made a year earlier. But the 

projections of non-hydroelectric renewahle capacity in 2030-2035 fall hy ahout 16-21 

percent over the course (~f' only one year. 38 These EIA projections of capacity investment 

in substantial part reflect the fact that gas and renewable generation technologies are 

substitutes, and the projected decline in delivered gas prices exacerbates the inherent 

competitive disadvantages borne by renewable technologies. 

IV. Concluding Observations 

As a crude generalization, the experience in Europe in the context of renewable 

electricity can be summarized as high costs combined with low reliability.39 That is the 

U.S. experience as well, an outcome unavoidable given the basic economic realities 

afflicting wind and solar power electric generating technologies. Accordingly, renewable 

power generation has achieved only a small market share in the U.S., and official 

projections are for slow growth at best, notwithstanding large subsidies and other policy 

support. 

This market resistance to investment in renewable generation capacity can be 

explained by the problems intrinsic to renewable power---that is, the inherent limitations 

on its competitiveness---that public policies can circumvent or neutralize only at very 

substantial cost. Those problems can be summarized as: 

• unconcentrated energy content; 

• siting constraints and resulting high costs for transmission; and 

• the costs created by low capacity factors, the intermittent nature of wind flows 

and sunlight, and the resulting need for backup capacity. 

Moreover, the five central analytic rationales that dominate the political/policy 

support for renewables are highly problematic: The "infant industry argument is a non 

sequitur and is inconsistent with the cost evidence on renew abIes. The subsidies enjoyed 

by renewables outweigh by far those bestowed upon conventional generation 

technologies. The costs of backup capacity made necessary by renewable power---an 

"externality" that renewable power imposes upon the electric system writ large---are 

greater than any negative externalities created by conventional generation and assumed 

38 For the capacity projections in the 2010 Annual Energy Outlook, sec 

http://www.eia.gov/oiafiarchivc/acoIO/acoref tab.hlml. at Table 9. For the capacity projections in the 2011 

Annual Energy Outlook (early edition). see http://www.eia.gov/forecasls/aeo/tahles [C[dlll, at Table 9. 

39 See Kenneth P. Green, "The Myth of Green Energy Jobs: The European Experience," American 

Enterprise Institute. Energy and Environment Outlook No. I. February 2011. at 

http://www.aei.org/docLibIEEO-2QLL:02-NQ:1~. Sec also Kenneth P. Green, "On Green Energy: A 

Dutch (Re)Treat," The American. April 10,2011, at http://www.american.com/archiveJ20II/aprillongreen-energy-a-dutch-rc-treat. For an analysis of capacity factors for UK wind generation even lower than 

expected. see Analysis oj UK Wind Power Generation: Novemher 2008 to Decemher 2010, John Muir 

Trust. March 2011, at http://wwwjmlQ!:g/asscts/pdtJwind-fcport.pdf. 
139 

23 

not to have been corrected by current policies. And the "sustainability" and "green 

employment" rationales are exceedingly weak. 

These realities suggest that the purported social benefits of policy support for 

renewables are illusory. Moreover, ongoing supply and price developments in the market 

for natural gas are likely to weaken further the competitive position of renewable power 

generation. At the same time, the subsidies and mandates that have been implemented in 

support of renewable electricity impose nontrivial costs upon the taxpayers and upon 

consumers in electricity markets. The upshot is the imposition of substantial net costs 

upon the U.S. economy as a whole even as the policies bestow important benefits upon 

particular groups and industries, thus yielding enhanced incentives for innumerable 

interests to seek favors from government. As has proven to be the case in most contexts, 

the outcomes of market competition, even as constrained and distorted by tax and 

regulatory policies, are the best guides for the achievement of resource allocation that is 

most productive. As federal policymakers address the ongoing issues and problems 

afflicting renewable electricity generation, the realities of this recent history provide a 

useful guide for policy reform. 
140 

Chairman BROUN. Thanks, Doctor. Thank you. 

Dr. Thorning, you are recognized for five minutes. 

STATEMENT OF DR. MARGO THORNING, 

SENIOR VICE PRESIDENT AND CHIEF ECONOMIST, 

AMERICAN COUNCIL FOR CAPITAL FORMATION 

Dr. THORNING. Thank you, Chairman Broun, Chairman Harris, 

Ranking Member Tonko. I appreciate the chance to appear before 

you. The American Council for Capital Formation represents a 

cross-section of U.S. industry, and we are happy to say that our 

Board of Advisors contains prior Democrat and Republican administration officials. I would like to just make a few points to summarize my testimony. 

First, renewable energy industry simply don’t meet the test for 

subsidy, as Dr. Zycher mentioned. Just to add a little flavor to that, 

we have had windmills for—since about 7 A.D. The Persians used 

them to grind grain. We have had solar power since the Romans 

used it 2,000 years ago to heat rooms. So the renewable sector just 

doesn’t meet the criteria of an infant industry. And there is—according to the Commerce Department, it is not expected to be a 

major factor in job creation in the future and there is virtually no 

impact on the growth of global greenhouse gas emissions from a 

slight increase in the use of renewable energy or even a large increase in renewable energy here in the United States. 

Second, renewable energy costs are quite high. Each one percent 

of GDP in the United States is accompanied by a .2 percent increase in energy use. So to the extent we substitute more expensive 

renewable energy for a less expensive conventional energy, we will 

retard economic growth. 

Second, data from EIA show that the cost of renewable energy 

generation equipment is substantially more expensive than that of 

conventional energy and the Treasury Department data on the 

American Recovery and Reinvestment Act show that the cost of 

new generation created by the 1603 Program is 14 times higher 

than an advanced natural gas generation per megawatt hour. 

Additionally, if you look at States that have renewable portfolio 

standards, the average—on average, households by 28 percent—excuse me, allergy—on average, households pay 28 percent more for 

electricity and industry pays 23 percent more than States that 

don’t have RPS. 

Third, green jobs are few and costly, as has been discussed already. Anecdotal estimates suggest that the creation of—the government’s projections are likely to be significantly overstated, and 

furthermore, the cost per job is quite high. The NERL report shows 

that the jobs—the temporary jobs cost between 63,000 to 91,000 

and the 5,000 permanent jobs expected to be created cost $81,000 

to $88,000 as opposed to the average wage in the United States, 

which last year was $43,000. 

Another point is that the federal tax code should be neutral. Accelerated depreciation, Section 199, Farm Tax Credit, and LIFO 

are provisions in the code available to every industry. Taking a 

look at the incentives, loans and tax credits available to the renewable sector, CRS reports shows—sorry, Metcalf report shows that 
141 

the tax rate is a negative 244 percent for solar thermal, for example. 

Fifth, fossil fuel expansion is likely to be a much greater source 

of job growth and economic and energy security according to a host 

of recent reports. Furthermore, they don’t have to be provided— 

they don’t have to be generated with taxpayer dollars. 

Finally, just to quickly—to wrap it up, yesterday, the Ford Chief 

Executive noted that the cost of each battery for the Ford Focus is 

$12,000 to $15,000. Now, of course, the cars sell for $35,000 to 

$40,000, so the fact that we have had years and years of work and 

a lot of government money going into increase the likelihood that 

electric vehicles would be commercially viable, you know, we have 

had plug-in electric vehicles since 1832. That is 180 years. How 

much longer is it going to take before batteries have the range and 

the quick-charging facilities to make them commercially viable? So 

that is just an example of where government has tried, through the 

American Recovery and Reinvestment Act, to deploy new technologies which simply are not ready for primetime. 

So, in conclusion, high levels of support for renewable energy are 

probably not a good use of taxpayer dollars. Instead, those taxpayer 

dollars might be directed toward R&D for new technologies and for 

energy efficiency. Thank you. 

[The prepared statement of Dr. Thorning follows:] 
142 

Impact of Tax Policies on the Commercial Application of Renewable Energy Technology and on 

U.S. Economic Recovery 

Margo Thorning, Ph.D. 

Senior Vice President and Chief Economist 

American Council for Capital Formation 

Before the 

Subcommittees on Energy and Environment and Investigations and Oversight, 

Committee on Science, Space and Technology 

U.S. House of Representatives 

April 19, 2012 

Executive Summary 

Government Subsidies and Tax Incentives for Clean Energy: The wind, solar power, biofuc1 and ethanol 

industries do not meet the standard criteria used to justify taxpayer-funded subsidies for their deployment across 

the U.S. economy. They are not "infant industries," are not essential for U.S. economic and job growth and they 

are unlikely to provide benefits commensurate with their costs. All taxpayer funded programs have opportunity 

costs since their existence means less money is available for other programs or for the taxpayers themselves to 

spend. Addressing the huge U.S. federal budget deficit requires cutbacks in programs whose costs exceed their 

benefits. 

Renewable Energy Costs are High: Energy usc is a key component in U.S. economic recovery, in recent years 

each 1% increase in GOP in the U.S. has been accompanied by a 0.2% increase in energy use. Data from DOE's 

EIA show that new electric generating capacity using wind and solar power tends to be considerably more 

expensive than conventional, available and secure natural gas and coal resources. Data on the American Recovery 

and Reinvestment Act of 2009' s 1603 grant program shows that the programs' cost electric generation cost per 

mega watt hour is almost three times more expensive than is solar thelmal (the most costly source of electric 

generations shown in EIA's tabulation). 

Green Jobs are Few and Costly: Anecdotal estimates of job creation in renewable energy suggest that the 

government's projections of expected new jobs may be significantly overstated and that the cost of each green job 

is high. The cost to taxpayers to create each short term job under the Recovery Act's 1603 program ranges from 

about $63,000 to over $91,000. The cost of permanent renewable energy jobs (a total of about 5,000 per year for 

the next 20 or so years) ranges from over $81,000 to over $88,000. In contrast to the cost of creating jobs under 

the 1603 program, the average U.S. median wage of all occupations was $45,230 in 2011. 

Renewable Energy Receives Largest Share of Tax Code Subsidies: In 2010, an estimated 76% of the $19.1 

billion in federal tax incentives went to renewables, for energy efficiency, conservation and for alternative 

technology vehicles while only 13% went to fossil fuels according to the Congressional Research Service (CRS). 

Some renewable electricity enjoys negative tax rates: solar thermal's effective tax rate is -245 % and wind 

power's is -164%. Countries like Germany, the UK, Spain, Italy and Australia are cutting subsidies for renewable 

energy. 

Tax Code Should be Neutral: Accelerated depreciation, Section 199, the foreign tax credit deduction and LIFO 

are examples of tax code provisions that are available to any industry and are not considered "subsidies." 

Fossil Fuels Expansion: Several recent economic analyses suggest that increased access to domestic onshore 

and offshore oil and gas reserves, including shale gas, could strongly boost U.S. economic recovery, 

manufacturing and job growth as well as increasing energy security. 

Conclusions: Continued high levels of federal support for the deployment of clean energy and alternative fuel 

vehicles in the U.S. is unlikely to have a significant impact on reducing GHG concentrations in the atmosphere 

since the real growth in emissions is coming from developing countries. Instead, government funded basic R&D 

for renewables and conservation may be a better usc of taxpayer dollars than the current suite of tax incentives 

and direct spending programs whose renewal by policymakers is highly uncertain, especially given the critical 

situation of the U.S. federal budget. 
143 

Impact of Tax Policies on the Commercial Application of Renewable Energy 

Technology and on U.S. Economic Recovery 

Margo Thorning, Ph.D. 

Senior Vice President and Chief Economist 

American Council for Capital Formation 

Before the 

Subcommittees on Energy and Environment and Investigations and Oversight, 

Committee on Science, Space and Technology 

U.S. House of Representatives 

April 19, 2012 

Introduction 

Chainnan Harris, Chainnan Broun, Ranking Mcmbers Miller and Tonko, and members of the 

Subcommittees, my name is Margo Thoming, senior vice president and chief economist, 

American Council for Capital Formation (ACCF),* Washington, D.C. I am pleased to present 

this testimony on the impact of incentives for renewable energy on U.S. economic and job 

growth and on the federal budget. 

The American Council for Capital Fonnation rcpresents a broad cross-section of the American 

business community, including the manufacturing and financial sectors, Fortune 500 companies 

and smaller finns, investors, and associations from all sectors of the economy. Our distinguished 

board of directors includes cabinet members of prior Democratic and Republican 

administrations, fonner members of Congress, prominent business leaders, and public finance 

and environmental policy experts. The ACCF is celebrating over 30 years of leadership in 

advocating tax, regulatory, energy, environmental, and trade policies to increase U.S. economic 

growth and environmental quality. 

The Subcommittee Chainnen and Committee members are to be commended for their focus on 

how the tax incentives, b'Tants and subsidies provided to clean, renewable energy technologies 

have impacted their deployment as well as the U.S. economic and job growth. 

Background 

The U.S. federal government has provided funding, tax incentives and subsidies for the 

development and commercialization of renewable energy for many decades. In 2009, as White 

House Advisor Joseph Aldy noted, the American Recovery and Reinvestment Act's $90 billion 

* The mission of the American Council for Capital Formation is to promote economic growth through sound 

(eLt, regulatory, energy, environmental, and trade policies. For more b!/ormation about the Councilor for 

copies oJthis testimony. please contact the ACCF. 1750 K Street. N.W. Suite 400. Washington. D.C. 20006-

2302; telephone: 202.293.5811;fax: 202.785.8165; e-mail: ill!o@qS:F(org: website: www.acc{org 
144 

in support "represented an unprecedented investment in clean energy".! Key areas include 

support for renewable power generation, transportation including high-speed rail and mass 

transit, advanced vehicles and battery technology, grid modernization, carbon capture and 

storage and clean energy manufacturing. 

The Recovery Act extended the Production Tax Credit (which has been in existence since 1992) 

for wind, geothermal and other renewable energy for an additional 3 years and created two new 

programs to promote renewable power investment: the 1603 grant program and the 1705 loan 

guarantee program. The 1603 program is a subsidy for investment in new renewable generation 

capacity, a developer can choose between a PTC, a 30 % investment tax credit (ITC) or a 1603 

cash grant equal to 30% of the investment's cost (solar developers can only choose between the 

ITC and a cash grant). 

As notcd in Joseph Aldy's 2012 report, the Recovery Act's 1705 loan guarantee program 

represented a modification of the existing section 1703 energy loan guarantee program created in 

2005. "The new program supported conventional rcnewable power, transmission, and biofuel 

projects, as well as innovative technologies eligible for loan guarantees under the 1703 program. 

The Recovery Act appropriated $6 billion to the 1705 program so that the Federal government 

would pay for the credit subsidy associated with loan guarantees. By providing loan guarantees, 

this program could make debt capital available and lower the costs of debt for commercial 

renewable project developers."2 

The U.S. economic recovery remains weak, unemployment remains stubbornly high, investment 

remains below the pre-recession level and the federal budget deficit is projected to be 7.2% of 

GDP in 2012. These economic factors suggest that a careful examination of whether the 

incentives in the tax code, direct federal expenditures and subsidies (including those added in the 

Recovery Act) for renewable energy are the best and highest use of U.S. taxpayer's dollars is 

warranted. 

Rationale for Subsidies for Industry 

Subsidies are government financial transfers to an industry, through payments to workers or to 

firms. Probably nobody would deny that the government is subsidizing the industry if it is paying 

part of the wages of workers in the industry or it is granting firms in the industry funds to make 

capital purchases. This is the narrowest definition of a subsidy. However there is little difference 

from the standpoint of the industry bctwecn a government transferring funds to it, on one hand, 

and waiving transfer payments, i.e. taxes, that the firm would normally make to the government. 

The tax code provisions and direct federal grants made available to clean energy industries meet 

the conventional definition of subsidies. The key question is: are the benefits of the taxpayer 

funded incentives worth the cost? Spending money on renewable energy projects creates an 

opportunity cost by diverting the funds from alternative uses; thus the issue is whether alternative 

uses of taxpayer dollars would yield a higher rehlrn is worth pursuing. Similarly, worth asking is 

I http://www.rIYorg/Publications/PagcsfPub licationDetai Is.aspx·'Pub licationID=21 725 

1 Ibid. p. 13. 

2 
145 

whether society would be better off if the public (and private) funds spent on renewable energy 

were left in taxpayer's pockets. 

When economists justify subsidies, they usually do so in one of three ways. First, there is the 

"infant industry" argument. An industry, for instance, may be dominated by foreign (nondomestic) companies (e.g. textile manufacture by England during the early days of the United 

States) and for reasons of social policy, the government may want to develop an indigenous 

industry. Insufficient private capital may be available to permit the private sector, on its own, to 

accumulate sufficient capital to make the indigenous industry commercially competitive. The 

government then could subsidize the industry through grants, loans, equity infusions, tariff 

protection or tax incentives. When the industry has been built up to the point where it is selfsufficient, the subsidies would be removed. 

The second argument in favor of subsidization is that a large, critical industry may run into 

serious temporary difficulties and be in danger of ceasing operations. The government, in such a 

situation, would have at least three options: it can play no role and let the full market effects be 

felt; or it can directly subsidize the endangered firms with cash or equity infusions, loans or loan 

guarantees; or it can let the firms go bankrupt but intervene through the monetary system to 

prevent the bankruptcy of the firms from affecting other, healthy, part of the economy. A third 

argument in favor of subsidization is tied to current interests in environmental protection. 

Subsidies can be used to encourage firms and industries to behave in environmentally friendly 

ways3 

Are Continued Subsidies for Clean Energy Deployment Justified? 

Infant industries rationale 

Are clean, renewable energies truly "infant industries" and deserving of continued taxpayer 

support through provisions in the tax code or direct federal expenditures? A look back at history 

will help put the question in perspective. Regarding solar power, an EIA report notes that solar 

technology is not new, it dates from the 7'h century BC when magnifying glass was used to 

concentrate the sun's ray to make fire and passive solar to heat rooms was used in Roman 

bathhouses in the 1 st century AD. Almost 3000 years after the use of solar power began; it has 

many applications but is still not cost-competitive with conventional energy sources in many 

cases4 Similarly, wind power has a long history; the Persians constructed the earliest known 

windmills in the 6th century AD to grind grain.s By 1300 AD windmills were in wide use in 

Europe for a variety of industrial lIses. Though some 1400 years have passed since windmill 

began to be used for industrial purposes, they are still only an intermittent source of power 

generation. Finally, batteries have been in usc since the early 1800's and the first electric car was 

invented in Scotland in 1832 by Robert Anderson. 6 Though the plug-in electric vehicle was 

fairly popular in New York City in the early 1900's, it was quickly supplanted by gasoline 

J See ACCF testimony at http://accf.org/wp-content/tlploads/2011112/ ACC!,-Tcs1!ill9tly-Final-12-14-11-FINAhlKI.C 

for more details on subsidies for renewable energy. 

4 http://\vw\v 1.eere,energy.gov/solar/pdf')/solar timelinc,QQJ 

5 http://www.utexas.edu/gtc/assets/pdfslwindmills world.pdf 

6 http://www.npr.org/20J III J/2 JlJ42365346/timeline-the-1 OO-year-history-o[-thc-electric-car 
146 

powered vehicles with their greater driving range, quick refueling and lower cost. Thus, looking 

back at the length of time that renewable energy and alternative fuel vehicles have been in use, it 

seems questionable that these industries (which receive most federal support) meet the criteria of 

being "infant industries." 

In recent decades, legislation has been enacted at the federal, state and local level to promote the 

development and deployment of renewable energy, greater fuel economy for transportation 

vehicles, alternative vehicles and high speed rail.7 For example, the Energy Policy Act of 1992 

initiated the renewable energy production tax credit (PTC), an inflation-adjusted tax credit for 

electricity produced from qualifying renewable energy sources or technologies. As mentioned 

above, the Recovery Act extended and amended the PTC and provided additional options 

including energy investment tax credits and grants. Most states and some localities have also 

have also enacted renewable portfolio standards or goals and havc provided subsidies including 

grants, rebates and tax credits for the installation of renewable energy. In the mid 1975's, in 

response to the Arab oil embargo, Congress enacted Corporate Average Fuel Economy 

Standards to improve the average fuel economy of light cars and trucks. In 2011, new CAFE 

standards for cars and trucks were set to further improve fuel economy. R There has also been 

substantial government support for alternative fuel vehicles, including hydrogen and electric 

powered vehicles as well as for biofuel in recent years.9 

During the recession in the 2008-2009 period, the effort by the federal government to promote 

the use of renewable energy and alternative vehicles and biofuels accelerated. As provisions of 

the Recovery Act were being debated, some analysts argued that more grants and loans for 

renewable energy should be part of the legislation because private sector interest in the sector 

had declined sharply. For example, Aldy states that during "the financial crisis, the number of 

tax equity suppliers and the amount of tax equity{for renewable energy}fell by more than 

half."lo Tn fact, it is quite possible that the sudden, dramatic expansion of U.S. natural gas 

production during that period and the sharp decline in natural gas prices were responsible for a 

decrease in the private sector's interest in renewable energy investments. As U.S. natural gas 

production increased, the well-head price dropped from $10.70 tcf in July, 2008 to $3 .45tcf in 

July, 2009. As a result of the decline in natural gas prices, gas became the "fuel of choice" for 

new electric generation plants. 

• Employment impact of Subsidies for Renewable Energy 

Another key question is whether the phase out of tax incentives for clean energy deployment 

(including those in the Recovery Act) will have an adverse impact on U.S. economic recovery 

and job growth. As noted in a 2010 report by Department of Commerce, "Measuring the Green 

Economy," green products and services comprised only I to 2 percent of the total private 

business economy in 2007. The number of green jobs ranged from 1.8 to as many as 2.4 million 

when products and services that some might argue were not "green' were included in the total. 

7 http://www.eia.govlenergyexplainediindex.cfm?,M.@"''''renev{able home#tab3. 

8 http://en.wikipedia.org!wiki/COIporale Average FlIeJ EconomvllllistQIY 

9 http://www.eia.gov/eneaf/altemate/issues trendslaltfllelmarkets.html 

10 http://www.rff.orgiPublications/PagcsiPliblicationDetails.aspx?Publicati()111D~21725 ,p. 12. 

4 
147 

These jobs constituted between 1.5 and 2.0 percent of total employment in 2007. 11 The 

Commerce Department report concludes that the relatively small size of the green economy 

suggests that the majority of jobs created during the economic recovery are likely to come from 

the production of products and services outside the green economy. Thus, phasing out of 

incentives in the tax code for clean energy is not likely to have a material impact on U.S. 

economic growth and such savings could help reduce the federal budget deficit, especially if 

declining government subsidies leads to increased efficiency in the subsidized firms rather than 

their demise. 

An examination ofreports on U.S. job growth due to renewable energy outlays in the Recovery 

Act should be viewed cautiously. For example, Joseph Aldy's recent paper quotes a 2010 

estimate by the President's Council of Economic Advisors that the Recovery Act "would support 

about 720,000 job years through the end of 2012"12 (a job year is one fulltime job for one year, 

thus about 180,000 jobs would be created per year according to the CEA estimate). As the CEA 

noted in its Third Quarterly report on the Recovery Act "Of course, these figures are only 

estimates. The margin of error for estimates for specific programs from the CEA model is 

relatively large, and the number of clean energy jobs either in 20 I O:Q I or over the life of the 

Act could be somewhat smaller or larger than is indicated here."13 

The methodology apparently used by the CEAI4 to estimate clean energy job growth appears to 

be the same as was used by Christine Roemerls (former Chairman of the President's Council of 

Economic Advisors) when she predicted in 2009 that the U.S. unemployment rate would not rise 

about 8.2% if the Recovery Act were enacted. Unfortunately, the actual U.S. unemployment rate 

rose to 10% in October of2009. 

Anecdotal estimates of job creation in renewable energy suggest that the government's 

projections of expected new jobs may be significantly overstated. For example, a recent Wall 

Street Journal report on the 1603 program concludes "on federal applications, companies said 

they created more than 100,000 direct jobs at 1603-funded projects. But a Wall Street journal 

investigation found evidence of far fewer. Some plants laid off workers. Others closed."16 

Another recent report on "green jobs" highlights the opportunity cost of government funding for 

renewable energy jobs: a Reuters report found that "the green-jobs push has crowded out less 

fashionable efforts that would have put people back to work quickly. 'From my perspective it 

makes more sense for us to ann our clients with the basic skills, rather than saying, 'By golly, 

you will do something in the green economy or you won't work," said Janet Blumen, the head of 

the Foundation for an Independent Tomorrow, a Las Vegas job-training organization that has 

11 http://www.esa.doc.gov/sitcs/defaultlfiles/reports/documc!ill!Lgr!;"~.£9JlQ.!I!yr~port O.pdf 

12 http://www.rff.org/PublicationsiPages/PublicationDctaiIs.aspx?PublicationlD=21725., p. 10. 

13 http://www . whitehouse. goy/administration! cop! cca!fi:lctshcctS-:D~12QrJ~.h;conomic-i mmwt-utTu-3TIl:mJarterlyreporUsupplement greenjobs 

14 "The methodology used to estimate the job impact of the ARRA was described in detail in Romer and Bernstein 

(Obama Transition Document, January 11,2009). In this section we briefly summarize the methodology and 

discuss the results." (p. 2) http://www.whitehollsc.gov/sitcsldefalllt/fiics/microsi(cs/Estimatc-of-Job-Crcatiol1.pclf 

15 htlp:llwww.ampo.org/assets/librnryIlR4 obam'Ullif 

16 http://online.wsj.com/arlic1c/SBI0001424052970203710704577050412494713i78.htmi 
148 

seen positions in trucking and accounting go unfilled because training money had been 

earmarked for green efforts."17 

Also, an article on Califomia's green jobs initiative notes that "Job training programs intended 

for the clean economy have also failed to generate big numbers. The Economic Development 

Department in Califomia reports that $59 million in state, federal and private money dedicated to 

green jobs training and apprenticeship has led to only 719 job placements the equivalent of an 

$82,000 subsidy for each one."18 

• Environmental Impact of U.S. support for Renewable Energy 

Continued high levels of federal support for the deployment of clean energy and altemative fuel 

vehicles in the U.S. is unlikely to have a significant impact on reducing GHG concentrations in 

the atmosphere since the real growth in emissions is coming from developing countries (see 

Figure I). In addition, renewable encrgy is not without its own negative environmental and 

social impacts. 

Cost of Job Creation Under the 1603 Program 

The cost of job creation in the renewable energy sector through govemment funded programs 

such as 1603 is another factor in evaluating the program's effectiveness. For example, a recent 

report by the National Renewal Energy Laboratory states that between 52,000 and 75,000 

temporary jobs were created in 2011 by 1603 grants to solar PV and wind energy projects. 

Anecdotal estimates of job creation in renewable energy suggest that the government's 

projections of expected new jobs may be significantly overstated. As shown in Table I, the cost 

to taxpayers to create each short term job (expected to last over the 2009-20 II period) ranges 

from about $63,000 to over $91,000. The cost of permanent renewable energy jobs (a total of 

about 5,000 per year for the next 20 or so years) ranges from over $81,000 to over $88,000. In 

contrast to the cost of creating jobs under the 1603 program, the average U.S. median wage of all 

occupations was $45,230 in 2011. 

In addition, renewable energy industries are now globally deployed. As a result, it will be very 

difficult if not impossible to ensure that the benefits of U.S taxpayer funded subsidies will result 

in the creation of new investment, jobs, new patents, etc. here in the U.S. On the other hand, it is 

also true that the U.S. has benefited indirectly from the vast spending on renewables in Europe 

and lately in China, which have brought down costs for everyone. In this respect it might be 

argued that the fact that others arc subsidizing such technologies is an argument for the U.S. 

doing less, not more. 

17 http://wwlV.rclItcrs.com/articlc/2012/04/ I J/lIs-usa-campillg,n-grccn-i,illSB RE83C08D20 120413 

18 http://wlVw.nytimcs.com/2011/0RI19!us/19.h£g[cc.n.html? p3 
149 

Cost of Renewable Energy 

Energy use is a key component in U.S. economic recovery, in recent years each 1 % increase in 

GDP in the U.S. has been accompanied by a 0.2% increase in energy use. Higher energy prices 

tend to slow economic growth and reduce the competitiveness of the U.S. manufacturing sector. 

As policymakers confront the slow U.S. economic recovery and slow job growth, they need to 

consider the impact of tax, budget and regulatory decisions that promote the use of renewable 

energy compared to the expansion of conventional fossil fuels or nuclear power electricity 

generation and for transportation. 

Federal policies such as the Recovcry Act's subsidics for rcnewables and alternativc vchicles and 

biofuels promote the use of more expensive renewable energy to replace cheaper and already 

environmentally sound and compliant conventional energy sources. These programs have thc 

effect of increasing federal spending, reducing tax receipts and raising the price of energy. 

According to recent EtA data, new electric generating capacity using wind and solar power tends 

to be considerably more expensive than eonventional natural gas and coal. As shown in Table 2 

the total cost of offshore wind, at $244 dollars per mega watt hour (MWH) is almost 300% 

higher than for advanced combined cycle natural gas-fired plants which cost only $62 per 

MWH. The cost of solar thermal, at $312 MWH, is over 400% higher than natural gas-fired 

electricity production. Similarly, advanced nuclear costs an estimated $114 per MWH and 

advanced coal costs only $110 MWH.19 

The cost of the electricity generation resources in facilities supported by 1603 grants seems to be 

much larger than the conventional and renewable new generation cost data provided by ErA 

(Table 2). As shown in Table 3, the cost of new renewable generation under 1603 is $880.95 

MWH, or almost 3 times greater than the most expensive renewable generation (solar thermal) 

cited in the EtA data. 

As shown in the data in Tables 2 and 3, new renewable electricity generation facilities are often 

substantially more costly (per megawatt hour) that conventional generation from fossil fuel or 

nuclear plants and can impose higher cost on electricity producers and consumers. Another 

perspective is provided by examining current data on electricity prices in states with renewable 

portfolio standards (RPS). States with an RPS mandate tend to experience higher costs for 

electricity those without an RPS mandate. In 2011, the 29 states with an RPS mandate faced 

residential electricity prices that were 27% higher than those without a mandate and industrial 

electricity prices were 23% higher (see Figure 2). 

The Federal Tax Code and Incentives for Renewable Energy 

Renewable energy has received federal support through direct subsidies and tax crcdits for many 

years. Another way of measuring the degree of federal subsidies for alternative energy sourees to 

measure the effective tax rate. A negative tax rate indicates that the tax code is subsidizing the 

investment since the investor is willing to accept a before-tax rate of return that is less than the 

after- tax rate of return. According to a study by Gilbert Metcalf, the tax code in 2007 created 

19 http://ww\v.cia.goy/forcc[lsts/aco/cIcctricitv generation.cfm 
150 

strong incentives for renewable energy investments.2o For example, a 30% investment tax credit 

combined with 5 year accelerated depreciation gave solar thermal investments an effective tax 

rate of -244.7% (see Table 4).Wind power had a -168.8 % rate. Since the rates Metcalf computed 

were created before the new renewable energy incentives provided by the Recovery Act, the size 

of the negative tax rates has doubtless increased. It is worth noting that as of 2007, the overall 

effective tax rates for renewables and nuclear are substantially lower than the effective rates on 

gas, integrated oil drilling, refining and coal. 

What Lessons Can We Learn From Federal Programs Supporting Renewahle Energy? 

As the new Aldy paper notcs, renewablcs have reccived very strong support from governmcnt 

policies and he suggests that "government policies per ton of C02 abated can infonn 

assessments of the economic efficiency of thc sum of rencwable policics. The share of a project 

financed by taxpayers or ratepayers (through higher electricity rates under a statc renewable 

electricity standard) would likely exceed 60 percent for renewable projects receiving tax 

benefits, !,,'fants, loan guarantees, and above-market rates due to state renewable mandates. This 

raises questions about the efficiency and the bang-for-the-buck of renewable-related promotion 

policies that further research should explore."21 

Aldy further notes that the government estimates that the cost per ton of avoided C02 emissions 

is about four times the social cost of carbon used by the U.S. government in its Mcmorandum to 

the President 2010, Interagency working Group on the Social Cost of Carbon (2010).22 Finally, 

he states that the "1705 loan guarantec program has not had a meaningful impact on the U.S. 

power sector. "23 

In addition, a recent CRS report on the 1603 grant program in the Recovery Act states that the 

Section 1603 grant program has been popular with the renewable energy sector. Proponents of 

the program suggest that the added incentive is necessary to continue to promote renewable 

energy. The Section 1603 grant program, howevcr, results in revcnue losses that are greater than 

the revenue losses associated with the previously available tax incentives. Given the country's 

largc budget deficits, thcre may bc questions of whethcr further extcnsions of this program arc 

worth the budgetary cost. 24 

U.S. Trading Partners are Reducing Support for Renewable Energy 

Several European countries, including Gcrmany, the UK, Spain and Italy as well as Australia, 

have recently announced reductions or elimination of subsidies for wind, solar and biomass 

energy programs.25 Government budget constraints are driving the decisions in many cases as 

20 See http://www.nationalaglawccntcLorg/asscts/crs/R41953.pdf 

21 htlp:llwww.rff.org/PubIications/Pagcs/PublicationDctaiIs.aspx?PubIicationlD~2I725, p.15. 

22 http://wwwI.ecre.cncrgy.gov/huildings/appiiancc standards/commerciallpd[s/sem tinalrulc appendix I5a.pdf 

23 http://www.rffog/Publicatiol1s/Pagcs/Publ icationDetai Is.oW? PuhlkationlD=2J.n_~, p. 15. 

24 CRS "ARRA Section 1603 Grants in Lieu of Tax Credits for Renewable Energy: Overview, Analysis and Policy 

Options," Phillip Brown and Molly E. Sherlock, November 9,2011. , R41635. 

25 http://\\Jww.curactiv.com/cnergy/gcrmany-announces-30-cuts-solar-subsiQics-ncws-5 LllQ1., 

http://www . guardian.co. ukl environmcntl20 II / oct/20/renewab le-cncrgy-sll bsiili§=-sLa.~l<;'\! 
151 

well as the growing realization that many programs are imposing higher energy costs on already 

hard-pressed households and industry.26 

What Role Can Energy Play in U.S. Economic Recovery and Job Growth? 

While the renewable energy industry has a role to playas the U.S. tries to reduce emissions of all 

types and become less dependent on imported oil, policymakers should evaluate the costeffectiveness of federal tax and budget outlays subsidizing these industries. 

In contrast to the disappointing results from many expensive green energy initiatives funded by 

the U.S. taxpayer, several recent economic analyses suggest that increased access to domestic 

onshore and offshore oil and gas reserves (including shale gas) could strongly boost U.S. 

economic recovery, manufacturing and job growth. Fossil fuels, which provide 78% of U.S. 

primary energy production, can have a positive impact in restoring strong economic growth. A 

new Global Insight/CERA analysis. "Restarting the Engine-Securing American Jobs. Investment 

and Energy Security" finds that allowing exploration and development in the Gulf of Mexico in 

2012 could create more 230,000 jobs, a $44 billion increase in GDP and $12 billion in additional 

tax receipts to federal and state treasuries.27 

Another new report by Wood Mackenzie, "U.S. Supply Forecast and Potential Jobs and 

Economic Impacts (2012-2030)" finds that policies that encourage the development of new and 

existing resources eould by 2015 increase production by over I million barrels of oil equivalent 

per day (mboed), ereate almost 670,000 jobs and provide an additional $10 billion in federal and 

state tax receipts compared to the base case.28 By 2030, production would rise by over 10 

mboed, employment would be over 1.4 million higher and tax receipts would be $99 billion 

higher. 

In fact, domestic access to shale gas and development of that abundant resource has the abili ty to 

reduce operating and feedstock costs for manufacturing and chemicals industries, respectively, in 

ways that can be transfonnative for those industries and job growth. In another recent analysis, 

"The Economic and Employment Contributions of Shale Gas in the United States" the consulting 

finn Global Insight documents the significant contributions that shale gas is making to the U.S. 

eeonomy.29 The report finds that in 2010, the industry supported 600,000 jobs and contributed 

more than $76 billion to GDP. Capital expenditures were $33 billion in 2010 and will grow to 

$48 billion in20I5. The current low and stable gas prices will contribute to a 10% reduction in 

electricity prices in the near tenn and to a l.l % increase in the level of GDP by 2013. All 

sectors of manufacturing benefit, especially those that use natural gas as a feedstock or energy 

source. In the long run, there will be improvements in the competitiveness of domestic 

26 http://www.upi.comillllsincss Ncws/Encrgy-Rcsources/2012I04102IItaly-to-cut-rcncwahlc-cn~rgy-sllbsidics/UPI: 

523811333626001 ;http://www.bloombcrg.comincws/20 12-() 1-27 Ispain-sllspcnds-sllbsidics-for-new-renewablecnergy-plants.html;hUp:iiwww.theaustralian.eom.aulnational-afTairs/climate/subsidies-under-fire-as-solar-rcbatcaxcdlstorv-c6frg6xf-I226285622435 

27 http://vlww.gulfeconomicsurvival.org/phx-contentlassctsIfilcslGoM Restarting the Engine.pQf 

28 ilttp:liwv{w.api.org/policyiamericatgworkillP19Jld! API-US Supply Economic Forecast.pllf 

29 http://www.ihs.com/images/Shalc-Gas-Economic-lmpact-Dcc-2Q.lLruIf 

9 
152 

manufacturers due to lower natural gas and electricity costs. As a result, industrial production 

will be 4.7% higher in 2035, the Global Insight report concludes. 

How Should the Tax Code Treat Energy and other Investments? 

Many public finance experts suggest that the tax code should provide the same provisions for all 

types of industries and activities so as to avoid advantaging one industry over another. For 

example, accelerated depreciation, in which the write-off period may be shorter than the actual 

economic life of an asset, is generally provided to all taxpayers regardless of their industry or 

type of investment in plant or equipment. Section 199 was established to help support U.S. 

manufacturing of all types. The foreign tax credit deduction is designed to prcvent the double 

taxation of income earned abroad by U.S. multinationals. Similarly, LIFO is an accounting 

method in use for more than 70 years to protect companies from inflation or rising prices over 

the course of their operations. All of the above mentioned tax code provisions are available to 

any industry and are not considered "subsidies." 

As Gary Hufbauer, a member of the ACCF's Center for Policy Research Board of Scholars, 

noted in a recent article, it is important not to confuse "subsidies" with legitimate tax deductions 

available to all industries.3o Dr. Hufbauer states, "The semantically accurate way to describe 

legislation that would eliminate the manufacturing deduction or curtail the foreign tax credit for 

oil and gas companies is straightforward: the imposition of tax discrimination, not the removal of 

federal subsidies. Because most Americans agree that tax discrimination is bad policy - Uncle 

Sam shouldn't be picking winners and losers through the tax code - accurate language would 

diminish enthusiasm for these proposals."3! 

By the same token, the current policy of providing subsidies and negative tax rates for renewable 

energy, energy efficiency and alternative fuel vehicles should be reexamined with an eye toward 

balancing costs and benefits. 

Conclusions 

By encouraging the deployment of energy technologies that are more expensive than 

conventional energy, consumers and industry are forced to spend more on energy and have less 

for other purchases or for productive investment. As a result, GDP and job growth will be lower 

than otherwise as resources are diverted from their highest and best use. 

Another issue worth raising is the question of the effectiveness of renewable energy tax 

incentives and spending programs which are dependent on a financially strapped federal 

government and are therefore uncertain and possibly non-sustainable. The almost constant 

uncertainty about whether a tax code provision or direct spending program will still exist by the 

time the investment is deployed raises the hurdle rate and increases the cost of capital for 

investment. In the face of the federal government's huge budget deficits and the perceived need 

to close the budget gap, many potential investors in renewable energy projects may think the 

30 http://www.wushingtontimcs.com/ncws!201Ildcc!7!dcbunking-the-big-oil-subsidv-myth! 

31 Ibid 

10 
153 

risks are too great. Given this uncertainty, current federal programs to significantly increase the 

use of renewable energy and promote energy efficiency may simply be ineffective. 

If markets are allowed to select the energy technologies that are deployed rather than government 

officials using tax incentives, subsidies or a CES mandate, costs to consumers and the federal 

government's budget will be reduced. Policies that encourage the responsible development and 

transportation of U.S. oil and gas resources should be accelerated so as to promote a cleaner 

environment and stronger economic and job growth. 

II 
154 

Figure 1. World Carbon Dioxide Emissions by Region 

L~~.OOO 

':0.000 

~ 35).)00 

'g 

'6 

c 30.000 

.e 

~ 

0 

c 25,000 

0 

,~ 

~ 20,000 

c 

g 

~ lS,aOO 

10.000 

:;,000 

Ccntr<1!<lnd SOllth!\MC'rlc<l 

lodb 

Non~ 

DECO Chin<l 

OECD 

Non OECDAsiil b.duding 

China&lndiJ 

Non 

OI:CD!.:uropl'and !.:ur,)sla 

mel) l:urop(' 

Ii mCDAr1Cric)stxccptU,'ii, 

8 Unitcd':;.t<ltcs 

Source: International Energy Outlook 2011, Energy Information Administration, U.S. 

Department of Energy, 

12 
155 

Figure 2. Electricity Prices: States with Renewable Portfolio Standards versus States 

without RPS 

16.00 

14.00 

12.00 

" 0 10.00 

'" '" ~ 

l 

0 

:i 8.00 

:;; 

a. 

.l!! 

" 6.00 .. 

" 

4.00 

2.00 

0.00 

13.44 

Residential Electricity Prices 

Price in RPSstates: 

28% higher for Residential 

23% higher for Industrial 

8.53 

Industrial Electricity Prices 

Source: Data for August 2011. Energy Infonllation Administration. Table S.6.A, 

http://www.eia.gov/clectricityldata.cfm#salcs 

13 
156 

Table 1. Jobs in Solar PV and Wind Projects Funded by 1603 Grant Program 

1603 Program: Payments for Specified Jobs Created Cost Per Job U.S. Median 

Energy Property in Ueu of Tax Credits Cost low High low High Wage 

Short-Term Jobs in 2011 $4.7 Billion 52,000 75,000 $91,275 $63,284 $45,230 

Permenant jobs Created by 1603 for next 20 

years per year $9 Billion 5,100 5,500 $88,235 $81,818 $45,230 

~:. 1603 cost numbers are from U,S. Treasury Website, http://www.treasury.gov/initiatives/recovery/Pages/l603.aspx 

List of Awards file . 

• Job numbers are from "Preliminary Analysis of the Jobs and Economic Impacts of Renewable Energy Projects 

Supported by the §1603 Treasury Grant Program" http://www.nrel.gov/docs/fy12osti/S2739.pdf 

• U.S, Median Wage, May 2011 National Occupational Employment and Wage Estimates 

http://www, bls.gov loes/~urrent!oes nat.htm#OO-OOOO 

Table 2. Estimated Levelized Cost of New Generation Resources, 2016. 

" '" ,\( p~W\.t.~~ ~,td tlj~* ilhU1h'.J 

-car:tC!t\ 

.... ~ lUI ",'t,' \fjAfl~\H \lIn:;" I Ow;\,,;,J,., 1, ,\pnt 

1)';)1 I iJ 

14 
157 

Table 3. Cost of Electric Generation under 1603 Program (As of March 29, 2012) 

Total 1603 funding (federal) $11.2 billion 

Total private and federal investment in 1603 projects $37 billion 

Total Estimated Electricity Generation from funded projects 42TWh 

Cost per mwh $880.95 

50 u rce: http://www.treasury.gov/initiatives/recovery /Docu ments/5tatus%20overview .pdf 

Table 4. Effective Tax Rates for Energy-Related Capital Investments, 2007 

2007 Law No Tax Credits Economic Depreciation 

Electric Utilities: Generation 

Nuclear -99.5 32.4 -49.4 

Coal (Pulverized Coal) 38.9 38.9 39.3 

Coal (IRCC) -11.6 38.9 -10.3 

Gas 34.4 34.4 39.3 

Wind -163.8 12.8 -13.7 

Solar Thermal -244.7 12.8 -26.5 

Petroleum 

Oil Drilling. Non-Integrated -13.5 -13.5 39.3 

Oil Drilling. Integrated 15.2 15.2 39.3 

Refining, 19.1 19.1 39.3 

Natural Gas 

Gathering Pipelines 15.4 15.4 39.3 

other Pipelines 27.0 27.0 39.3 

Source: See http://\l;'\vw.nationalaglawccntcr.orgiassets/crs/R41953.pdf. Data from Gilbert E. 

Metcalf, "Investment in Energy Infrastructure and the Tax Code," in Tax Policy and the 

Economy, ed. Jeffery R. Brown, 24 ed. (The University of Chicago Press, 2010), pp. 1-33. 

Notes: 

a. The effective tax rate on refining capital reflects the 50% expensing allowance available in 

2007 for investments in additional refinery capacity. 

15 
158 

Chairman BROUN. Thank you, Dr. Thorning. 

Now, Ms. Linowes, you are recognized for five minutes. 

STATEMENT OF MS. LISA LINOWES, 

EXECUTIVE DIRECTOR, 

INDUSTRIAL WIND ACTION GROUP 

Ms. LINOWES. Thank you, Mr. Chairman, and Chairman Broun, 

Chairman Harris, Members of the Committee, I appreciate the opportunity to be here and to speak with you. And Congressman 

McNerney, I am sorry that you think this is a sounding board for 

the leadership. I hope that you will listen to the comments that are 

made today. 

I would like to start with a quick comment that places wind energy in its proper context. In 2008 the DOE published ‘‘20 Percent 

Wind Energy by 2030,’’ a report which examined the feasibility of 

using wind to produce 20 percent of the Nation’s electricity. A 20 

percent scenario means transforming the midsection of the country, 

as well as our coastal waters into a massive wind generating facility connected together by thousands of miles of new 765 kV lines. 

Those green lines you see on the map, those are all new transmission lines that stand 200 feet tall. 

But what do we get in return? According to the DOE, we get generation that cannot replace our capacity resources, those generators 

we rely on day to day and hour by hour to meet our energy needs. 

Most people do not understand this point, and when I have spoken 

to people in the past, including energy executives in a room, they 

are not aware that this statement; these comments are in the 20 

percent by 2030 report. 

For the authors of this study, which included AWEA, the American Wind Energy Association, and NREL, satisfying the 20 percent wind goal is entirely independent of our need for reliable 

power. Claims by industry proponents that wind can power over 12 

million American homes or is the reason for coal plants retiring 

grossly overstates wind energy’s purpose and its limited contribution to our energy portfolio. 

So why build wind at all? Two words: low emissions. This fact 

is validated by the ISO New England’s Wind Integration Study, 

which concluded that New England could achieve 20 percent wind, 

but doing so requires existing fleet of power plants to remain online and any new capacity resources proposed to be built also 

brought online. Bottom line: wind can displace fossil fuel; it cannot 

replace it. 

Switching to my next slide, this shows wind growth from 1992 

through until, I believe, 2009. The wind industry has complained 

over 10 years that each time the Production Tax Credit was allowed to expire, new wind installations stalled. And here we are 

again. But attributing wind activity to the—wind market activity 

to the PTC is overly simplistic and fails to consider other more significant factors that impact growth like energy prices and the 

availability of State mandates. In fact, these factors are likely the 

primary impetus for wind growth or decline. 

The PTC is an overly generous, highly inefficient policy, and at 

2.2 cents a kilowatt hour, this open-ended subsidy has a pretax 
159 

value of about 3.7 cents a kilowatt hour, more than the price of 

wholesale electricity in most parts of the country today. 

Quick point about 6 and 1603: there is a claim that 1603 and 

PTC are somehow monetarily equivalent, that the cash paid up 

front is equivalent to the PTC Tax Credit spanned over 10 years. 

In fact, that is not the case. Aside from the intrinsic value of cash 

in hand being more valuable than a tax credit spanned over a period of time, I looked at 12 projects, 10 wind projects in particular, 

that received 1603 or will receive 1603 in lieu of PTC, and what 

I found was that the Section 1603 more than not, in all of my 

cases, exceeded the amount of money the project would receive 

under PTC. 

The last point I want to make is about the hidden subsidies that 

wind energy receives. I want to mention one case where the Federal Government is paying money to the Production Tax Credit 

1603 and is also paying money to fund the development of our— 

the highest quality RADAR systems in our country. The bottom 

line is wind energy and wind turbines interfere with our national 

radar systems, and the Federal Government is paying millions of 

dollars today to try to mitigate for that problem and it hasn’t been 

mitigated. I cite two examples in my testimony. I hope you will 

look at that. There is a problem with radar and turbines, and we 

are paying the cost of it. 

Thank you. 

[The prepared statement of Ms. Linowes follows:] 
160 

U.S. House of Representatives 

Committee on Science, Space, and Technology 

Subcommittee on Investigations and Oversight 

Subcommittee on Energy and Environment 

Impact of Tax Policies on the Commercial Application of Renewable Energy Technology 

Testimony of Lisa C. Linowes 

April 19, 2012 

I. Introduction 

My name is Lisa Linowes. Since 2006, I've served as executive director and spokesperson for the 

Industrial Wind Action (IWA) Group, a national advocacy group focused on the impactlbenefits 

anal ysis and policy issues associated with industrial-scale wind energy development. As 

publisher and editor of IWA's website (windaction.org), I track news and research pertaining to 

industrial wind, provide commentary, and facilitate information sharing on the issue. I hold a BS 

in Software Science from the Rochester Institute of Technology in Rochester, New York and a 

Masters in Business Administration from Southern New Hampshire University. A more 

complete biography is included with this testimony. The findings and opinions I am presenting 

here are entirely my own but ret1ect the official position of IW A. 

II Background and Purpose 

Energy policy in the United States calls for the aggressive deployment of renewable generation 

which has led to an explosion of expensive renewable resources that are variable, operating 

largely off-peak, off-season and are located in rural areas with limited transmission. 

By the end of2011, nearly 47,000 megawatts (MW) of on-shore wind was installed in the United 

States representing less than 3% of total electricity generation in the country. Based on the 

interconnection queues of each grid region in the US, industrial wind is the dominant renewable 

resource representing more than 90% of the proposed generating capacity of all renewable 

energy projects in the United States. 
161 

My testimony looks at recent trends in the US wind industry including the impacts of advancing 

significant wind resources. I also examine the effect of the production tax credit and Section 

1603 in driving growth. 

III Testimony 

1. The Wind Mandate: 20% Wind Power By 2030 

In 2008, the US Department of Energy (DOE) published 20% Wind Energy by 2030l

, a report 

that examined the technical feasibility of using wind energy to generate 20% of the nation's 

electricity demand by 2030. The report, which called for the deployment of 305,000 MW of 

wind by the year 2030, including 54,000 MW offshore, has served as the foundation for ongoing 

advocacy of wind development in the US. 

The American Wind Energy Association insists the industry is on track to meet the Department 

of Energy's goal of20% wind but getting to a 20% scenario is neither realistic nor wise. The 

report's authors failed to accurately characterize the purpose and scale of such development, the 

technology challenges and staggering financial costs, and the fundamental changes to electricity 

infrastructure necessary to achieve the hoped-for 2030 levels. 

This below excerpt from the report has gone largely unnoticed by most people but is essential in 

understanding the premise behind DOE's 20% wind scenario: 

Wind power cannot replace the need for many 'capacity resources, ' which are generators 

and dispatchable load that are available to be used when needed to meet peak load. If 

wind has some capacity value for reliability planning purposes, that should be viewed as 

a bonus, but not a necessity. 

DOE is well aware of the fact that wind energy is an unpredictable, variable resource that cannot 

be relied on to deliver electricity when needed. Claims by industry proponents that installed wind 

today powers, on average, over 12 million American homes misrepresents wind energy's purpose 

and limited contribution to our energy portfolio. For the authors of the report, satisfying the 20% 

wind energy goal is entirely independent of our need for reliable power plants meant to meet 

' 20% Wind Power by 2030 - http://wwwl.eere.energy.gov/windandhydro/pdfs/4IR69.pdf 
162 

demand. In fact, no amount of wind installed in the US will result in an existing power plant 

being decommissioned nor will it negate the need to build new reliable generation. 

So why build wind at all? Wind is being installed to generate low-emissions energy. Any 

opportunity beyond that is, as DOE correctly states, is "a bonus, but not a necessity." 

Nonetheless, thc cost and impacts of achieving 20% wind in the United States are staggering. 

Assuming a start point of 47,000 MW of wind now operating in the US (with none offshore), 

over 13,000 MW of new wind would need to be installed year after year through to 2030 to 

reach 305,000 MW. In addition, average capacity factors would need to dramatically increase 

from a current nationwide average of 30%2 to over 40%. 

Even if the industry were able to overcome all manufacturing and construction barriers to meet 

this goal, other barriers still remain including a) the public's resistance to wind turbines sited near 

their homes or on publicly-owned lands, national forests and wilderness areas; b) sustained and 

substantial taxpayer-funded subsidies to ensure project economic viability; c) above-market 

energy prices for wind and increased capacity payments for reliable resources, and d) the 

requirement for expansive and expcnsive power lines to access remote areas of the country. 

Moving Wind Offshore 

In September 2010, the National Renewable Energy Laboratory (NREL) expanded on DOE's 

study with the release of its Large-Scale Offshore Wind Power in the United States,3 a report that 

described the benefits and feasibility of building 54,000 MW of wind offshore along our eastern 

seaboard, the Gulf of Mexico, and the Great Lakes. Water depths on the Pacific Coast, according 

to NREL, posed a 'technology challenge'. 

No operating offshore wind plants are sited anywhere in the US. The controversial Cape Wind 

(130 turbines, 468 MW) project proposed ten years ago is still under challenge. Property owners 

within the viewshed of the project were joined by Wal-Mart, the Associated Industries of 

2 Wiser R. and M. Bolinger. LBNL-4820E. June 2011, 2010 Wind Technologies Market Report, 

http://eetd.lbl.gov/eaiemp/reports/lbnl-4820e.pdf 

3 Large-Scale Offthore Wind Power in the United States, September 2010 

http://www.nrel.gov/docs/fylOosti/49229.pdf 
163 

Massachusetts, and wind developer TransCanada4 among others in protesting the no-compete, 

high-priced power purchase agreement approved by the Commonwealth of Massachusetts. In 

Rhode Island, approval of Deepwater Wind's pilot project is under fire. In Delaware, NRG 

Bluewater Wind terminated its power purchase agreement with Dclmarva5 due to poor 

economics and growing public opposition to expensive renewable energy. A fight sparked in 

Michigan over a proposed 1000 MW wind facility in Lake Michigan packed hearing rooms6 with 

angry protests. A similar response came from communities along northern New York after 

NYP A sought bids to build turbincs in Lake Ontario and Lake Erie. Both the Michigan and 

NYPA plans were shelved'. 

None of these projects, in total, match the scale and cost of what NREL claims can be built 

offshore. Fifty-four thousand megawatts would mean 115 projects equivalent in size to Cape 

Wind, or 15,000 turbines located within 10-20 miles of our coastlines and spanning 3,000 square 

miles of open water. The eastern seaboard from Florida to Maine is 1,342 miles. 

Obvious environmental and visual impacts are only a part of the issue. Problems with the 

technology are also very real". 

And then there's the cost. 

4 Providence Business News, Cape Wind energy prices high, not competitive with other green projects 

http://www.pbn.com/Cape-Wind-cnergy-priccs-too-high-not-competitive-with-other-green-projects,52S62 

5 North American Windpower, NRG Bluewater officialZv ends contractfhr Delaware offShore wind project, 

hllp:!!www.nawindpowcr.com!el 07 -plugins!contenticontent.phpOcontent. 9130 

6 Muskegon Chronicle, Oceana County Board rejects Scandia Wind's Offshore proposal, 

hllp:! !www.mlive.com!news!muskegoniindex.ssf!2010!OS/oceana_county_board-.ejects_sc.html 

7 North America Windpower, NYPA cancels 150MW Great Lakes ojJ:'hore project, 

http://www.windpowemlonthly.com/news/ 1 095655INYP A -canccls-ISOMW -Great -Lakes-offshore-proj ect! 

8 Turbine failures offshore arc harder to repair and are often addressed on an aggregated basis. It's not unusual to 

wait as long as three months before turbines are fixed, leading to lower equipment availability. While wind 

conditions offshore might be better for energy generation, harsh environmental conditions could mean turbines are 

available for fewer hours in the year. In 2005, all eighty Vestas V90 turbines at Denmark's offshore Horns Rev 

facility had to be removed and repaired owing to the effect of salty water and air. A similar repair was reported on 

30 Vestas turbines off the UK coast. In 2010 hundreds of European offshore wind turbines were found to have a 

design fault that caused the towers to slide on their bases. The problem was universal and not specific to anyone 

project or turbine manufacturer. 
164 

The Cape Wind project will cost $2.5 billion for 468 megawatts ($5500/kw), an enormous 

expense for any individual power plant, especially one expected to deliver only 39% of the time 

with no guarantee the generation will arrive when most needed. With high up front costs and 

fcwer hours to spread the cost over, offshore wind is not economically viable without significant 

public support, above-market, long-term purchase agreements and constraints imposed on more 

reliable sources of generation. 

NREL addresses some of the obstacles to building offshore wind in a very superficial manner. 

On visual effects, the authors acknowledge that coastal dwellers might object to the turbines and 

recommend added study to understand coastal communities and their ability to accept changes to 

the seascape. Regarding property values, NREL relies on the poorly defined Hoen/Wiser9 study 

to claim no impact but admit more work is needed for offshore properties. On tourism, NREL 

concedes the evidence is ambiguous but still claims, "actual effects appear to be minimal". And 

finally, on marine safety they admit collisions may pose a potentially significant risk to the 

marine environment or to human safety but offer cold comfort that no incidents have occurred to 

date. 

The true impact of a national renewable vision based on wind is in the public cost, both in dollars 

and in the impacts wrought by transforming our open spaces, on- and offshore into massive 

industrial power plants with associated transmission and other infrastructure. Wind proponents 

advocate for a national energy policy that mandates renewable energy, but public policy requires 

credible analysis with an objective eye on reality. To my knowledge, no such analysis has been 

undertaken by DOE. 

2. Federal Subsidies Programs: PTC and Section 1603 

a. The Production Tax Credit 

The A WEA insists the industry is at risk of a slow-down if Congress does not act quickly to 

extend the production tax credit (PTC), the federal incentive most often credited for market 

growth in the wind sector. The PTC expires at the end of 2012. 

tj Wilson, Albert R., Windfarms, residential property values, and rubher rulers, 

http://www.arwilson.comlpdf/newpdfs/WindFarmsResidentialPropertyValucsandRubberRulers.pdf 
165 

But if the PTC were to expire, the damage would be less than what A WEA claims. 

Attributing wind market activity to the PTC is ovcrly simplistic and fails to consider other 

crucial factors driving development in the US. 

The PTC was established by the Encrgy Policy Act of 1992 to stimulate use of rencwable 

technologies for power generation by providing a production-based credit for the first 10 years of 

project operations. Initially set at 1.5¢/kWh, the credit is adjusted annually for inflation and 

today stands at 2.2¢/kWh. 

When adopted, the House Ways and Means Committee insisted on an expiration date (June 30, 

1999) to give Congress an opportunity to assess the effectiveness of the credit in meeting its 

goal. In each of the five years following the PTC's enactment wind capacity deelinedlO. It wasn't 

until 1998 and 1999 before the trend drifted upward. (see Exhibit 2) 

While it's possible the market needed time to rcspond to the new subsidy, other more significant 

factors likely stalled growth. 

The US was awash in generation and oil prices were low and stable. Deregulation shifted plant 

ownership to independent power producers which led to improved plant management and 

increased efficiencies. This was particularly true for nuclear power where average capacity 

factors grew from 66% in 1990 to over 90% currently!!. 

The demand for renewable energy largely didn't exist except in States with programs that 

encouraged renewable generation. It's no accident that the bulk of new wind built in 1998-99 

occurred in four states!2 with renewable programs -- California, Iowa, Minnesota and Texas. 

10 http://www.eia.gov/totalenergy/data/annual/xls/stb0811 a.xls 

II 

http://www.nei.orgiresourcesandst.ts/documentlibrary/reliableandafford.bleenergy/graphicsandcharts/usnuclearindu 

strycapacityfactors 

12 http://www.windpoweringamerica.gov/wind_ insta lied_capacity .asp 
166 

When the Asian financial crisis hit in 1997, oil prices collapsed13 taking with them any financial 

incentive to build new renewable generation. The PTC expired in 1999, the same year oil prices 

bottomed out, and new wind installations went bust the following year. 

A WEA has complained for over ten years that expiration of the PTC in 1999 caused 

development to slow calling it the boom-bust cycle. Yet given available data, it's impossible to 

isolate the factors that contributed to the dccline. Clearly othcr macroeconomic issues played a 

crucial role. Some energy experts maintain the PTC was largely irrelevant in those years. 

After 2004, the PTC may have contributed to growth in the wind market, but so did State 

policies mandating renewables. Wind benefited from rising natural gas prices as well (over $5 

per million BTU) making wind powcr contracts an attractive way to displace higher-cost natural 

gas generation. 

By the middle of 2008 the US economy stumbled and energy prices dropped off quickly. With 

incomes falling, tax-based policy incentives lost much of their effectiveness as tax equity 

investors disappeared. Scction 1603 cash grants created under the 2009 stimulus were designed 

to fill the void. 

In a prcss reports this month, A WEA CEO Denise Bode credited the industry's recent growth to 

the fact that the PTC has not expired for the past five years. This is not accurate. The vast 

majority, of the wind built since 2008 through to the end of2012 is directly tied to Section 1603 

grant funding. 

But with 1603 now expired the wind industry has again turned its attention to extending the 

production tax credit (PTC). Ditlev Engel, chief executive officer of Vest as Wind Systems A/S 

complained that US turbine sales may "fall off a c1ifftl4 unless lawmakers extend tax credits 

beyond 2012. 

Turbine sales may decline but not because of the PTC. 

11 http://www.slideshare.netlFNianiasian-financial-crisis-presentation (Slide 26) 

14 Bloomberg News, US wind market set 10 'Fall Off a Cliff,' Vestas CEO says, 

http://www.bloomberg.comlnewsI20 1 1-II-09/u-s-wind-market -may-fall-off-a-cliff-in-20 13-vestas-ceo-says.html 
167 

The 2008 recession slowed economic growth causing demand for electricity to drop. Many 

States, including Califomial5, are now signaling their renewable mandates are being met which 

will weaken demand for wind. Recent discoveries of abundant shale gas reserves are expected to 

keep gas prices low and stable through to 2020 and likely longer. Since natural gas is among the 

important elements in determining the competitiveness of wind, low gas prices will generally 

reduce wind's attractiveness as a 'fuel saver'. In fact, the Energy Information Administration is 

forecasting flat growth 16 in the wind sector for the next ten years regardless of what happens with 

the PTC. 

The production tax credit largely benefits corporate investors and wind project owners. For 

investors like General Electric, the credit is an open-ended subsidy17 offered for each kilowatthour of electricity produced. Because the PTC directly reduces the amount offederal income 

taxes paid, it should be thought of as providing 2.2¢IkWh of alter-tax income (in 2011 dollars). 

This represents a pre-tax value of approximately 3.7¢IkWh (assumes a 40% marginal tax rate). 

When measured relative to the price of wholesale power, the PTC is exceptionally generous. 

Claims by A WEA of wind being at cost parity with non-renewable resources should not be taken 

on face value. 

For consumers, the production tax credit disproportionately benefits ratepayers in States with 

renewable energy mandates by distributing the high cost of wind to taxpayers at large. And since 

the subsidy is uniform across the country it's highly inefficient, supporting poorly sited projects 

as well as projects that would have been built regardless of the credit. This is certainly true in 

Texas and the Pacific Northwest where wind exceeds transmission capacity, in New York where 

average annual capacity factors are under 25% and in New England where utilities routinely sign 

long-teml power contracts at prices significantly above market. 

IS Letter by Michael Picker, Senior Advisor to the Governor of California for renewable energy facilities, to the 

Western Electricity Coordinating Council, http://www.windaction.orgldocuments/33056 

10 EIA Table 16. Renewahle Energy Generating Capacity and Generation, 

http://www.eia.gov/forecasts/aeo/er/tables_refefm 

17 Congressional Joint Committee on Taxation. May 2005. Present Law And Background Relating To Tax Credits 

For Electricity Production From Renelmhle Sources. 

http://www.jct.gov/publications.html?func=startdown&id=1579 
168 

b. Section 1603 vs. PTe 

The Section 1603 cash grant program enabled developers to secure direct monetary outlays from 

the Federal government to cover 30 percent of a project's qualifying cost. The criteria for 

receiving the grant were not onerous and the Treasury Department was prohibited by law from 

ranking the projects before distributing the funds. 

Spanish energy giant Iberdrola Renewables, Inc. received over a billion dollars in cash grants 

alone. A preliminary evaluation 18 of the grant outlays published by Lawrence Berkeley National 

Laboratory (LBNL) in 2010 found that 61 % ofthe grants distributed through to March 2010 

"likely would have deployed under the PTe [production tax credit] if the grant did not exist." In 

many cases, money went to projects that were already tmder construction, and in some cases 

already producing electricity. Wind developers whose projects received Section 1603 money 

complained 19 that it was unfair to criticize them for taking the funds becausc their projects 

otherwise would have received the production tax credit. They insisted the cost to the taxpayers 

was not materially different. 

Aside from the obvious intrinsic value of cash in hand versus tax credits earned over a period of 

ten years, I was prompted to look further into the numbers themselves to test the claim of 

equivalence. 

I looked at two operating geothermal facilities, five operating onshore wind energy facilities and 

five approved, but not built wind projects including two offshore applications. 

Exhibit 3 shows my findings. In all cases, cash grants that were (or will be) distributed exceeded 

anticipated production tax credit amounts in total by over one-half billion dollars. In general, 

projects with greater development costs (more than $21501kw for wind) and/or lower average 

capacity factors (under 30% for wind) received substantially higher benefits from the cash grant 

" Lawrence Berkeley National Laboratory Bolinger, M., Wiser, R., Darghouth, N., Preliminary Evaluation althe 

Impact of the Section 1603 Treasury Grant Program on Renewable Energy Deployment in 2009. 

http://eetd.lbl.gov/ea/emp/reports/lbnl-3IR8e.pdf 

19 The New York Times, Stimulus Cash Flowed to Completed. Under-Way Renewable Enel:<;Y Projects, 

http://www.nytimes.com/gwirc/20 I 0/ I 0/14/ 14greenwire-stimulus-cash-flowed-to-completcd-undcr -way-re95989.html?pagewanted=all 
169 

than the current PTC. To keep the table simple, I did not apply a 7.5% discount rate to the 

production tax credit. If I had, the monetary differences of the two programs would have been 

more stark since the cash grant is received at the start of the operational life of a renewable 

energy project. 

With up front cash grants developers have minimal incentive to negotiate lower prices with 

suppliers. In fact, the more expensive a project is to construct the better for vendors, contractors 

and developers. 

There are other qualitative benefits under the cash program which shift the rewards to developers 

while laying project debt and risk at the feet of American taxpayers. Unlike the PTC, the cash 

grant is not dependent on project performance. If a project's capacity factor is marginal the 

public still grants the cash. Projects that would normally not meet financial threshold 

requirements are apt to get built anyway. The Section 1603 program substitutes government 

payments for private investments after which the government just walks away. 

c. The high cost of subsidizing wind 

Since the PTC was adopted in 1992, its annual cost has ballooned from $5 million a year in 1998 

to over $ I billion annually today. Even if the PTC were to sunset, taxpayers are still obligated to 

cover nearly $8 billion in tax credits for wind projects built in the last decade. (Exhibit 4) This is 

in addition to the over $15 billion paid out or accruing for projects built under Section 1603. 

Exhibit 4 compares yearly installations of wind under the PTC and 1603 and looks at the cost of 

each subsidy. If the goal of a subsidy is getting wind turbines erected in the US, Section 1603 is 

the more aggressive program for driving development. But the grants under 1603 are excessive. 

The New York Times examined the government largess secured by Canadian investment giant 

Brookfield Asset Management for its Granite Reliable Wind park, a 99 MW facility now under 

construction in northern New Hampshire. According to the Times, the project "will receive so 

many subsidies for a New Hampshire wind farm that they are worth 46 percent to 80 percent of 
170 

the $229 million price ofthe project, when measured in today's dollars,,2o. Brookfield received 

subsidies under Section 1603, Section 1705 (partial loan guarantee), and the Modified 

Accelerated Cost-Recovery System (MACRS) 

3. Wind energy and jobs claims 

In 2007, the AWEA touted that the industry represented 50,000 direct and indirect jobs in the 

US, a figure that jumped to 85,000 in 2008 but by 2010 dropped to 75,000 with roughly 20,000 

in the manufacturing sector. 

A WEA's 2010 annual report lists pages of facilities it claims are US Wind Industry 

Manufacturing Facilities. Of the 450+ facilities listed, a less than 75 represent plants dedicated to 

building turbine parts (blades, towers, nacelles) including Vestas and Gamesa plants in Colorado 

and Pennsylvania respectively. The rest build components for industrial uses. Many have been in 

business for decades and their sole business is not wind-specific. A WEA omits any details 

showing the percentage of each company's gross revenues tied to the wind industry so verifying 

job counts is not possible. 

Wind construction jobs are not permanent so the industry would need to reach peak levels of 

development year after year just to maintain current job levels. When installations dropped in 

20 I 0, it was no surprise that jobs dropped as well. And since growing the manufacturing base is 

predicated on installing more wind turbines it's difficult to envision a scenario where job growth 

is sustainable. 

This month, NREL released a report entitled Preliminary Analysis of the Jobs and Economic 

Impacts of Renewable Energy Projects Supported by the §1603 TreasUlY Grant Program2

} 

20 New York Times, Lipton, E. and Krauss, c., A Gold Rush o/Subsidies in Clean Energy Search, 

http://www.nytimes.comI20 1 1/11/12Ibusiness/energy-environmentia-comucopia-ot~help-for -renewablcenergy.html? J= I &pagewanted=all 

The wide range reneets a disagreement between the experts on the future price of electricity in New Hampshire. 

Brookfield received subsidies under Section 1603, Section 1705 (partial loan guarantee), and Modified Accelerated 

Cost-Recovery System (MACRS) as well as state and local benefits. 

2I NREL April 20 I O. PreliminQlY Ana(vsis 0/ the Jobs and Economic impacts o/Rennvable Energy Projects 

Supported by the §1603 Treasu/)' Grant Program http://www.mel.gov/does/fyI20sti/52739.pdf 
171 

which examined the impact Section 1603 had on job growth and development for the wind and 

PV solar industries. 

Using a modified version of its JED! model to enable modeling on a national level, NREL 

estimated that 1603 grants for both wind and PV solar projects supported between 52,000 and 

75,000 direct and indirect jobs annually. For wind alone, average jobs per year were between 

44,000 and 66,000. It's difficult to map NREL's rcsults to A WEA's job numbers but it would 

appear that job growth in the wind industry since Section 1603 has declined. 

But that's only part of the jobs tale. 

In 20 I 0, the State of Vennont published the results of its studl2 to evaluate the consequences of 

adding just 50 megawatts of renewable energy at prices that were higher than market-based 

alternatives. 

The analysis found the Feed in Tariflprogram would increase Vennont capital investment and 

create jobs during its 26 year life cyclc, however, the net gain in employment was found to be far 

less than conventionally thought. Following an initial increase in temporary construction-related 

jobs, long tenn employment would average thirteen full time jobs per year, including both direct 

and indirect cmployment in the energy sector as well as the job and income related effects of 

increased electricity costs. But other sectors, predominately service sectors, would suffer long 

tenn net job losses. In essence jobs would be created in one sector of the Vennont economy at 

the expense others. 

But job transfer was not the only finding reported from the study. The model also showed that 

above-market energy costs due to higher electricity prices would have the deleterious effects of 

"reshuffling consumer spending and increasing the cost of production for Vennont businesses" 

and that "increased costs for households and employers would reduce the positive employment 

impacts of renewable energy capital investment and the annual repair and maintenance 

activities". 

22 The Economic Impacts ofVennont Feed in Tariffs 

http://publicservice.vermont.gov/planningIDPS%20White%20Paper%20Feed%20in%20Tariff.pdf 
172 

NREL's report makes clear (footnote 2) that its analysis omits any evaluation of job displacement 

or loses due to wind and PV solar development under Section 1603. In essence, NREL modeled 

benefit of 1693 without acknowledging any cost. 

4. The hidden subsidies for wind power 

Independent of the PTe and Section 1603, millions of public dollars have been spent supporting 

wind power development in the US. One example is the work undertaken by DOE, FAA and the 

DOD to evaluate and try to mitigate for the impacts oflarge-scale wind turbines on military and 

navigational radar in the US. By 200R, nearly 40% of our long-range radar systems were already 

compromised by wind turbines 23 • We've doubled our wind capacity since then but the problem of 

radar interference persists. 

Our military services and federal agencies have conducted numerous studies on the radar 

question, as have multiple international military and private interests24• Not all studies agree on 

levels of severity and potential mitigations, but all agree that large scale industrial wind turbines 

have the potential to negatively affect military installations, radar, and navigation aids. 

According to Raytheon lead radar engineer, Peter Drake25, radar mitigation technology does not 

yet exist:' ... These things [wind turbines] inside of20 miles, look like a 747 on final approach, 

the trick for us is to somehow make them disappear, while still being able to see a real 747 ... we 

have not figured that out yet.' 

While most of the information pertaining to turbine interference is not readily available to the 

public, the below situations are known: 

23 umg Range Radar Joint Program Office Wind Fann Brief 

http://www.windaction.org/?module=uploads&func=download&fileJd=217R (Slide 3) 

24 Report to the Congressional Defense Committees, The Effect o{Windmili Farms On Military Readiness 211116, 

http://www.defense.gov/pubs/pdfs/windfannreport.pdf 

25 NAS Kingsville Wind Farm Effects on Air Traffic Control and Compatible Siting Collaboration 

http://growinggreencommunities.comismmcdia.comlISM3/stdcontent/rcposlToplText%20Blocks/Spcakers/Presentations!AP/AP%20McLaughlin.pdf 
173 

a. Travis AFB. The Travis Midair Collision Avoidance (MACA) pamphlet26 warns that wind 

fanus southeast of the base interfere with primary radar. Pilots are urged to fly with their 

transponders on to be seen by the secondary radar system (SSR) installed at air traffic control 

facilities. Transponder-only airspace but relies on pilots complying with the warning. 

Recreational pilots may not remember to comply or their aircraft might not be adequately 

equipped. SSR also assumes pilots want to be seen. 

b. Naval Air Station Kingsville, Texas (NASK). Despite proposed technical mitigations, 

documentations released by the Texas Comptroller's office recommended27 that at least one 

school district near NASK deny special tax treatment for a wind project due to impacts at NASK 

radars. NASK trains 50% of our US naval aviators. 

It is critical that Congress investigate this issue more closely and fully ascertain the costs in 

dollars and reduced radar surveillance occurring due to wind development. We can easily define 

and quantify the cost of subsidies like the PTC and 1603, subsidies meant to support renewable 

energy. Such hidden subsidies, however, are easily kept from pub lie view but the risk to our 

national security and military readiness is far more impacting. 

5. Summary 

a. The Department of Energy's goal of 20% wind by 2030 is entirely independent of our need for 

reliable power plants. No amount of wind installed in the US will result in an existing power 

plant being decommissioned nor will it negate the need to build reliable generation. Wind is 

being installed to generate low-emissions energy. 

b. The eost and impacts of achieving 20% wind in the United States, including 54,000 MW 

offshore are staggering and not realistic. 

c. The production tax eredit disproportionately benefits ratepayers in States with renewable 

energy mandates by distributing the high cost of wind to taxpayers at large. And sinee the 

26 Travis Midair Collision Avoidance (MACA) pamphlet, 

http://www.windaction.org/?module=uploads&func=download&fileId=2180 (Page 8) 

27 Economic impact evaluation of wind turbines in the vicinity of the Naval Air Station Kingsville 

http://www.windaetion.org!doewncnts!34352 
174 

subsidy is unifonn across the country it's highly inefficient, supporting poorly sited projects as 

well as projects that would have been built regardless of the credit. 

d. Section 1603 cash grants shift the rewards to developers while laying project debt and risk at 

the feet of American taxpayers. The cash grant is not dependent on project perfonnance. Even 

project with marginal capacity factor still rcceivc thc cash. Projects that would nonnally not meet 

financial threshold requirements are apt to get built anyway. 

e. Since the PTe was adopted in 1992, its annual cost has ballooned from $5 million a year in 

1998 to over $1 billion annually today. Even if the PTe were to sunset, taxpayers are obligated 

to cover nearly $8 billion in tax credits for wind projects built in the last dccade. This is in 

addition to the over $15 billion paid out or accruing for projects built under Section 1603. 

f. In 2007, the A WEA claimed 50,000 direct and indirect jobs in the US, a figure that jumped to 

85,000 in 2008. By 2010, jobs dropped to 75,000 with roughly 20,000 in the manufacturing 

sector. 

g. Independent ofthe PTe and Section 1603, millions of public dollars have been spent 

evaluating and trying to mitigate for the impacts oflarge-scale wind turbines on military and 

navigational radar in the US. Developers have been asked to provide some funding but there are 

no clear rules for establishing funds and how costs can be shared between developers. 
175 

Chairman BROUN. Thank you, Ms. Linowes. I appreciate it very 

much. I appreciate your testimony. 

I want to remind Members that Committee rules limit questioning to five minutes per Member. And the Chair at this point 

will open the first round of questions. And I will recognize myself 

for five minutes. 

Dr. Thorning, how have U.S. household electricity bills changed 

in the recent years? 

Dr. THORNING. They have gone up substantially. In fact, the av- erage household bill has gone up by almost $1,420 a year in 2010 

compared to earlier years. The last eight or so years they have 

gone up—the last five years they have gone up about 30 percent. 

And last year, they increased even more in spite of the fact that 

there is increased natural gas electric generation going on. So 

household electricity prices have risen sharply, especially in States 

that have implemented a renewable portfolio mandate. 

Chairman BROUN. Thank you, ma’am. 

To me, this is not fair. It is not fair to the poorest people in this 

country and senior citizens on limited incomes that we are forcing 

their electric bills to go up because of us forcing the renewable energy when we have lots of natural gas. 

Also to Dr. Thorning, how does the cost of electricity generated 

by wind and solar in 1603 grants compare to conventional electricity costs? 

Dr. THORNING. According to the Treasury’s data, it is 14 times 

more expensive than the generation cost for, say, advanced coal— 

advanced natural gas powered plants. In fact, the EIA data show 

that advanced natural gas plant is $62 per megawatt hour for the 

generating capacity; it is $880 for the wind and solar generating 

capacity financed through the 1603(b) programs. 

Chairman BROUN. Dr. Zycher, the nonpartisan Congressional 

Budget Office recently issued a report which stated tax incentives 

are ‘‘generally an effective way to reduce environmental and other 

external costs of energy.’’ And ‘‘they often reward businesses for investments and actions they intended to take anyway.’’ How can the 

government guarantee that taxpayer money is actually 

incentivizing the private sector rather than just lining the coffers 

of preferred companies? 

Dr. ZYCHER. Well, you can always structure an incentive to induce a firm to do something you want it to do. Just to pick one obvious example that we have already discussed here, the PTC provides an incentive to produce electricity. The Section 1603 grant 

provides an incentive to build facilities, independent of whether 

any electricity is produced at all. 

On the environmental front, I really would make a different 

point, if I may. The argument that wind and solar power reduce 

pollution is simply wrong because they are so unreliable that they 

require the installation of backup capacity power, either by coal or 

natural gas, and so there was a BENTEK engineering study of Colorado and Texas which found that pollution problems—or effluence 

actually went up because of the inefficient operation of the backup 

capacity, which had to be fired up and down depending whether 

the wind was blowing that day or not. And so I think that the argument that there is some sort of environmental advantage to re-
176 

newable sources of electricity is sort of based on people ignoring the 

environmental problems caused by renewable electricity. 

Chairman BROUN. Very good. Mr. Resch, last month, the U.S. 

Department of Commerce made a preliminary determination in response to a case brought by SolarWorld Industries America Inc. 

that China’s subsidization of solar exports in the U.S. market is illegal and warrants trade remedies. How might the imposition of 

tariffs aid domestic manufacturers? 

Mr. RESCH. Thank you, Chairman. What we see in the solar industry today is a global industry and that we are exporting products from the United States to China, we are importing products 

from China to the United States, Europe, around the world, and so 

ultimately the tariff will not have an impact. There is a global 

oversupply of PV products on the market today, about twice as 

much PV is manufactured as consumed that has led to the lower 

costs. But the tariffs will not have a substantial impact on the 

price of solar, but it will encourage companies to invest in new 

manufacturing in the United States. 

Chairman BROUN. Mr. Erby, how would impositions of tariffs impact your cost in your business outlook? 

Mr. ERBY. Not terribly, sir. Most of the companies since the 

ARRA program are built here in the United States, a lot of the 

panels are. They may be an Italian manufacturer, but they are 

built here in New Jersey so—— 

Chairman BROUN. Okay. My time is expired. 

I now recognize Mr. Tonko for five minutes. 

Mr. TONKO. Thank you, Mr. Chair. While you chided me for not 

asking any questions of the first panel, I promise you I will ask 

questions of this panel. And I promise also to even let the witnesses answer the question. 

So, Mr. Erby—— 

Mr. ERBY. Yes? 

Mr. TONKO. You have succeeded in growing a business with the 

support of Section 1603 funds. Something we hear a lot is that the 

government doesn’t need to support solar companies because venture capital firms will step in to do that. You are in the market. 

What is your reaction to that? 

Mr. ERBY. Unfortunately, the size systems that we build, Congressman, are 50 to 150,000 watts. It is not desirable for a venture 

capitalist to come in on a project this small. Everything we have 

done has been self-financed through credit cards, bank home equity 

loans, things of that nature. Even today, with the sales volume 

that we have, getting a venture capitalist to step in without wanting to take over a 50 percent share is almost impossible. Even 

being a veteran with the Patriot loans, banks are not extending 

credit for these products. So without the 1603, we would not exist. 

Mr. TONKO. Thank you. And Mr. Resch, we are told that government subsidies to renewables are a waste of money, that we should 

let the market pick winners and losers. But as I said earlier, every 

source of energy receives subsidies. Some sources have received 

them for almost a century. Is it fair to expect renewable sources 

of energy to succeed in the market without the kind of support existing sources received and still receive? 
177 

Mr. RESCH. You know, we built this industry in solar really since 

2006, and so just in a six-year time frame, we have seen the industry go from about 50 megawatts this last year, nearly 2,000 

megawatts installed. It proves that this type of program works. 

Now, when you look across the board at all of the various energy 

technologies, we as a country have made strategic investments in 

these industries in order to grow our economy—oil since 1916, coal 

since the ’30s, nukes since the ’50s. They have received permanent 

tax credits in all of those cases. Now, when we got our tax credit, 

we got a tax credit in the 2005 energy bill for two years and it was 

capped at $2,000. You can’t build an industry like that. So without 

some kind of long-term policy that gives us enough of a vision to 

be able to attract investment and lower our costs, it is going to be 

difficult. It is absolutely critical we keep these programs in place. 

Mr. TONKO. And to you also, Mr. Resch, what are the international consequences of not supporting our wind and solar industries? If we don’t have a domestic market for these products, are 

we likely to hold on to a manufacturing base for them? 

Mr. RESCH. No, absolutely not. The manufacturing jobs will go 

overseas in a heartbeat. I mean these are industries that were invented in the United States but are rapidly being commercialized 

by the Germans, the Japanese, and the Chinese. And you tend to 

build your factories where your markets are. That is exactly what 

we have seen in the United States. That is why we have 600 manufacturing facilities that support the solar industry, because we have 

a rapidly growing solar market. You kill the market for solar or 

wind in this country, those factories will go out of business and 

they will go to China, they will go to other countries. And they will 

own not only the manufacturing jobs but also the intellectual property and all the growth of these industries in the future. 

Mr. TONKO. Um-hum. And Mr. Erby, you are out in schools and 

businesses and municipal offices all the time. You indicated the 

growing number of customers that your company has secured. Describe the receptivity, if you will, of the community to solar energy. 

Mr. ERBY. They have been overwhelmingly positive. In fact, this 

month, we have a sales quota internally of 300,000 watts per 

month. We achieved that on the third day of the month—we hit our 

sales quota for the month. So the communities are embracing it. 

We had a system we turned down at a school the other day, and 

the Superintendent, Bob Peron, was supposed to throw the switches and turn it on. He actually, just before we were going to do it, 

he goes hold it, hold it. Wait. And he ran in the school and he come 

back out a few minutes later with a young girl he wanted to turn 

the system on because she wants to study the renewable energy 

and she is applying to colleges. That excitement was—just made 

me smile ear to ear. I mean he went running into that school and 

pulled her right out of class and that is what we see. We just cannot answer the phone quick enough. The community wants this 

and that is prevalent, or relevant, in the number of sales that we 

have achieved. 

Mr. TONKO. And thank you. 

And Mr. Royer, in terms of the support for our wind and solar 

industries, and the whole question about the manufacturing of 
178 

those systems here, if we don’t have a domestic market, your response to that? 

Mr. ROYER. Yeah, exactly as what we have already heard. In 

fact, you know, we have scaled this industry up to 400 companies 

like my company, nearly 500 companies now in the last four years. 

I went from 11 employees to 380 employees. So without continuation of this industry, these jobs are going to be lost. The numbers 

I said are very reflective of my company starting in the fall of this 

year without the PTC. 

Mr. TONKO. Thank you so much, sir. 

Thank you, gentlemen. 

Chairman BROUN. Thank you, Mr. Tonko. 

And I recognize Dr. Harris for five minutes. 

Mr. HARRIS. Thank you very much, Mr. Chairman. And I want 

to thank you again for holding the hearing. 

And I am going to apologize to Mr. Royer and Mr. Erby right up 

front for the false promise that the American government has made 

to your companies. It basically has created a program that means 

that you got to come and beg to the government for the continuation of your livelihoods. And so I am going to apologize up front 

for that. That is terrible public policy, but that is what we live 

with. 

Now, Mr. Resch—and I am going to apologize to Dr. Thorning because my numbers I am going to use are a little lower, because I 

am going to use the EIA numbers. Do you argue against the—this 

is the levelized cost of electricity generating technologies—in 

2016—that is their estimate—that solar PV will be over 20 cents 

a kilowatt hour. Is that the levelized cost? 

Mr. RESCH. No, it is not. 

Mr. HARRIS. And so have you written—— 

Mr. RESCH. It is not that high. 

Mr. HARRIS [continuing]. To the EIA and complained about this? 

Mr. RESCH. We do on a regular basis—— 

Mr. HARRIS. Okay. 

Mr. RESCH [continuing]. With EIA and try to get—— 

Mr. HARRIS. What do you think it is, the levelized cost without 

subsidies, levelized cost, what are you thinking? 

Mr. RESCH. The levelized cost today is below 15 cents. 

Mr. HARRIS. Okay. And what do you think it is for natural gas at $1.95 a million BTU in an advanced combined cycle natural gas 

facility? 

Mr. RESCH. Chairman Harris—— 

Mr. HARRIS. What do you think it is? 

Mr. RESCH [continuing]. I have worked in this—— 

Mr. HARRIS. Mr. Resch, what do you think it is? 

Mr. RESCH. I worked in the natural gas industry before I came 

to—— 

Mr. HARRIS. What do you think it is? 

Mr. RESCH [continuing]. Solar and I can tell you one thing about 

natural gas—— 

Mr. HARRIS. Mr. Resch, do you know what it is? It was 6 cents when natural gas was over $5 a million BTU. What do you think 

it is at $1.95 a million BTU? Don’t beat around the bush. You 

worked in the industry. It is under 5 cents. 
179 

Mr. RESCH. What it should be is about—— 

Mr. HARRIS. It is 1/3 the cost. 

Mr. RESCH [continuing]. Four cents per kilowatt hour. 

Mr. HARRIS. Four cents? 

Mr. RESCH. That is right. 

Mr. HARRIS. One-fourth. Now, Mr. Resch, who is going to pay 

that difference? My ratepayer and my taxpayer in my district? Who 

is going to pay that difference for an inefficient delivery of an electric—of electric generation to my seniors and my veterans and my 

schools because my school system has got to pay three times as 

much for their power they don’t have as much for books and they 

don’t have as much for teachers? Who is going to pay it? We have 

a $1.3 trillion deficit. We have to borrow that 1603 money from 

China. Mr. Resch, you are smiling there—— 

Mr. RESCH. Because your numbers are wrong. 

Mr. HARRIS. Why are you smiling? 

Mr. RESCH. Mr. Chairman, with all due respect—— 

Mr. HARRIS. Mr. Resch, we have a $1.3—— 

Mr. RESCH [continuing]. You are speaking about natural gas—— 

Mr. HARRIS. Mr. Resch, excuse me. 

Mr. RESCH [continuing]. Which is wholesale generation—— 

Mr. HARRIS. It is my time—— 

Mr. RESCH [continuing]. And solar electricity—— 

Mr. HARRIS. Mr. Chairman—— 

Mr. RESCH [continuing]. Is generated—— 

Mr. HARRIS [continuing]. Would you remind the witness—— 

Mr. RESCH [continuing]. Distributed generation. 

Mr. HARRIS [continuing]. It is my time, not his. Mr. Resch, you 

had your five minutes; now I get mine. Now, you are sitting there 

smiling because we have a $1.3 trillion deficit. You are coming to 

ask us to borrow money from China to pay for—— 

Mr. RESCH. Not at all. That is not what we are asking at all. 

Mr. HARRIS. Where do you think we are going to get this money? 

Do we just print it over at the Treasury? Oh, actually, we might. 

Mr. Resch, and you are sitting and grinning again, but people in 

my district don’t grin about a $1.3 trillion deficit. They don’t grin 

about paying three times as much for energy that you want to force 

them to pay in higher taxes and higher rates. Now, you might 

think that is funny—— 

Mr. RESCH. It is not. 

Mr. HARRIS [continuing}. But the taxpayers and ratepayers in my 

district don’t. 

Mr. RESCH. It is not accurate. 

Mr. HARRIS. What is disturbing is you sit there—— 

Mr. RESCH. What you are saying is not accurate, Chairman. It 

is not accurate. 

Chairman BROUN. Mr. Resch, Mr. Resch—— 

Mr. HARRIS. You can reply in writing. 

Chairman BROUN. Mr. Resch, would you just—— 

Mr. HARRIS. Dr. Thorning—— 

Chairman BROUN. Dr. Harris, suspend just for a moment. I know 

you feel a little attacked, but please allow the gentleman to ask 

questions and please answer the questions. 

Mr. RESCH. If I am asked a question, I am happy to answer it. 
180 

Chairman BROUN. Well—— 

Mr. TONKO. Mr. Chairman, if I might, I think there should be a 

decorum here that at least shows respect to our witnesses. They 

have come—traveled the long miles to be here and there should be 

a sign of respect for the witnesses that are here. 

Chairman BROUN. Well, thank you, Mr. Tonko. 

Mr. TONKO. We are here to glean information, and I would think 

if they are asked a question, they should respond. 

Chairman BROUN. Well, I think Dr. Harris is trying to get some 

information and the witness—— 

Mr. TONKO. Harassing the witness is not asking a question. 

Chairman BROUN. Okay. Thank you, Mr. Tonko. 

Dr. Harris, you may continue. 

Mr. HARRIS. Thank you very, very much. 

Dr. Zycher, are my figures wrong? Is in fact this an incredible 

economic inefficiency to force Americans to pay—and I will tell you, 

Mr. Resch, I am going to go with the EIA numbers more than four 

times as much for their energy to subsidize an inefficient industry. 

Am I wrong somewhere here? Can we compete in a world economy 

paying four times as much for energy? 

Dr. ZYCHER. I—well, no. I would say—you are absolutely right, 

but I would say it a bit differently. The rationales have been offered in support of subsidies for very expensive power are uniformly wrong. The green jobs argument, the sustainability are all 

the ones I talked about in my oral testimony here today in the testimony for the record. There is simply no—and all the hand waving 

in the world cannot erase the fact renewable power is very, very 

expensive. It is not cleaner. That is simply a myth. And somebody 

has to pay for it, ultimately, either taxpayers or ratepayers. 

Mr. HARRIS. Sure. Doctor, do you think that the student who is 

just running up to pull that switch was told that that power was 

at least four or five, six, seven times more expensive than the 

power and was taking money from taxpayer and ratepayer dollars 

that could be used for something else in the economy? Do you think 

Americans understand that without a subsidy and even with a subsidy how expensive this power is? 

Dr. ZYCHER. Well, I don’t know. The surveys of taxpayer attitudes on this are varied. It is certainly—I would be rather surprised if that student were informed of the realities of the relative 

cost. At a more general level, it is certainly true that there has 

been a decades-long effort to propagandize students on green politics, which I think has been quite destructive. 

Mr. HARRIS. I couldn’t agree with you more and I see it in my 

children’s textbooks that they bring home. 

Thank you, Mr. Chairman. 

Chairman BROUN. Thank you, Dr. Harris. 

I recognize Mr. McNerney for five minutes. 

Mr. MCNERNEY. Thank you, Mr. Chairman. 

Mr. Resch, I apologize for the attempt at intimidation that we 

just witnessed. 

Mr. Royer, you seemed to address the domestic production issues, 

but wouldn’t it be true to say that developing superior technology 

here in the United States will open up significant opportunities for 

U.S. export and manufacturing? 
181 

Mr. ROYER. Yes, and actually it already has. In fact, I am entertaining an order of my business right now that will result in a 

project that is going to Uruguay, for example. Many of my customers are not only looking at sales of equipment in the United 

States but the rest of the Americas as we speak. Exactly the 

project I just mentioned, for example. 

Mr. MCNERNEY. Thank you. 

Mr. Erby. 

Mr. ERBY. Yes, sir. 

Mr. MCNERNEY. In your testimony, you concluded—I concluded 

from your testimony that the 1603 Program has been very helpful 

in helping startups getting established. 

Mr. ERBY. Correct. 

Mr. MCNERNEY. Could you comment on that? 

Mr. ERBY. Correct. It has made a level playing field, if you will. 

We cannot compete with the national companies. With a startup industry, we need this leg up, if you will, to get started in this industry. And the overall response that we are finding is the American 

people want this, and that is proven in our sales. 

Mr. MCNERNEY. And both—as a comment, both Democratic and 

Republican politicians point to small businesses as the job creators 

of this country, so thank you for what you are doing, and I hope 

that we can continue that sort of program. 

Ms. Linowes, I hope I am not mispronouncing your name. 

Ms. LINOWES. It is Linowes. 

Mr. MCNERNEY. Linowes, thank you for your thoughtful testimony and also for recognizing my concern about the political nature of this hearing. I do have a question, though, that concerns me 

about your organization—the Industrial Wind Action Group. Does 

that group, IWAG, receive any money from oil companies or gas 

companies or coal companies? 

Ms. LINOWES. We do not. I am probably the only person in the 

room not being paid to be here. I don’t represent anyone. The organization does not pay to present anyone else’s views. My views 

and—represent tens of thousands of people who have been negatively impacted by Section 1603 because—— 

Mr. MCNERNEY. In your opinion, that is. You said tens of thousands of people that are negatively impacted. That is, in your opinion, they are being natively impacted. 

Ms. LINOWES. It is not my opinion. I have worked directly with 

these people. We have—— 

Mr. MCNERNEY. Tens of thousands of people? 

Ms. LINOWES. Yes, I have a network of organization by—that is 

networked across the country. Each State has key people that have 

their own people that have contacts with people that live within 

the vicinity of wind energy facilities, and we have easily collected 

names from tens of thousands of people. I am not making that 

number up. 

Mr. MCNERNEY. Well, I would like to see a little more transparency in your organization’s funding if you are going to be making those kinds of claims. 

Ms. LINOWES. We are not funded—— 

Mr. MCNERNEY. You also claim—— 

Ms. LINOWES. I have no money. 
182 

Mr. MCNERNEY. You also claim that the Production Tax Credit 

will—that allowing the Production Tax Credit to expire will lead to 

significant—will not lead to significant economic damages, but I 

strongly disagree. I think it is, during a time of economic difficulty, 

to pull the rug out from any number of people in the clean energy 

sector is a travesty. And I think that is going to be the impact of 

this expiration. 

Ms. LINOWES. May I clarify my point on that? 

Mr. MCNERNEY. Sure. 

Ms. LINOWES. It is not the Production Tax Credit that is driving 

wind energy development. What is driving wind energy development are natural gas prices and the mandates, the State mandates, the RPS policies. And the—each case—in each situation 

where the Production Tax Credit was allowed to expire, at those 

same instances we also had extremely low gas prices, and we also 

had—we didn’t have that many RPS policies in place. So the demand for wind wasn’t there and the gas prices were too low to justify anyone going out and building wind. The only time that we 

saw wind energy actually going up when there was a threat of PTC 

was back in 2008, when we had gas prices, again, up—and these 

are transportation gas prices—up around $4 a gallon. And at that 

time, there is a connection between gas and natural gas and when 

the transportation prices were up, so was gas prices. But—— 

Mr. MCNERNEY. All right. I just want to move on to Mr. Zycher. 

And you argued that renewable energy is flawed because it is 

intermittent and a few other reasons. But I would say with complete confidence that any energy source has its problems and difficulties. Some of us are concerned about global warming, about 

groundwater pollution. It is very appropriate that we look at these 

energy sources on a level playing field and decide on economic and 

environmental basis what is the best long-term vision for our country. 

You had a fairly impressive list of economic erroneous projections, and I applaud you for that—— 

Chairman BROUN. The gentleman’s time is expired. I am sorry. 

Mr. MCNERNEY. All right. 

Chairman BROUN. If you have—— 

Dr. ZYCHER. I would be happy—— 

Chairman BROUN. Dr. Zycher, you could very quickly answer the 

question, please do. 

Dr. ZYCHER. Which erroneous projections are you talking about, 

if I may ask? 

Mr. MCNERNEY. Oh, you had a whole list of erroneous projections—— 

Dr. ZYCHER. Well, could you name one for me? 

Mr. MCNERNEY. That you—well, the projections of running out 

of oil and so on that you had a whole list of projections that showed 

that—— 

Dr. ZYCHER. No, I said that the argument that the world is going 

to run out of oil and that justifies—— 

Mr. MCNERNEY. Right. 

Dr. ZYCHER [continuing]. Is itself incorrect. 

Mr. MCNERNEY. But my comment is that it is a lot easier to 

project the present than the future. Everyone makes mistakes 
183 

when they project the future, and we should be very much on 

guard about these kinds of projections. 

Chairman BROUN. The gentleman’s time is expired. 

Mrs. Adams, you are recognized for five minutes. 

Mrs. ADAMS. Thank you, Mr. Chairman. And I have just been sitting here listening. 

And Mr. Resch, it is interesting; facts are stubborn things, you 

know. You have heard that old saying, but can you tell me 4 cents 

versus approximately 96 cents a kilowatt? What is the better value 

for the American people? 

Mr. RESCH. Well, if those were the facts, then I would say 4 cents 

is but that is not the fact. Remember, solar is distributed generation. It generates at the point—— 

Mrs. ADAMS. Mr. Resch—— 

Mr. RESCH [continuing]. Of consumption so you are continually 

retailing—— 

Mrs. ADAMS [continuing]. This is the time I have, okay? 

Mr. RESCH. Okay. I am answering—— 

Mrs. ADAMS. And I am not going—— 

Mr. RESCH [continuing]. Your question. 

Mrs. ADAMS [continuing] To be filibustered. I just asked you one 

simple question and then you said those are not the facts. But I 

was sitting here when you said you thought it was about 4 cents. 

Are you changing that cost analysis now? 

Mr. RESCH. Four cents is for wholesale—— 

Mrs. ADAMS. Thank you—— 

Mr. RESCH [continuing]. Generation—— 

Mrs. ADAMS. Thank you—— 

Mr. RESCH [continuing]. Solar is retail generation. You cannot 

compare the two. 

Mrs. ADAMS. So what would wholesale—— 

Mr. RESCH. You don’t pay 4 cents at your house. You pay 16 

cents at your house because it is generated at power plant, it goes 

through—— 

Mrs. ADAMS. So 16 cents versus—— 

Mr. RESCH [continuing]. Transmission lines through utilities and 

taxes—— 

Mrs. ADAMS [continuing]. Ninety six cents, tell me that? 

Mr. RESCH. Solar today is less than that. Solar today, as I pointed out before, is about 20 cents or less per kilowatt hour distributed generation. It is not 96. 

Mrs. ADAMS. Well, the—Dr. Harris has the research and the information, and apparently you disagree with the companies so we 

will move on. But I, you know, this—— 

Mr. RESCH. I represent the industry. These are the facts—— 

Mrs. ADAMS. Mr. Resch—— 

Mr. RESCH [continuing]. Of the industry. 

Mrs. ADAMS. —I currently hold the time. 

Mr. RESCH. Fine. 

Mrs. ADAMS. And I have five minutes and I plan on getting my 

questions answered. 

Dr. Thorning or Dr. Zycher, Dr. Sherlock’s testimony earlier said, 

‘‘for renewable energy projects with longer planning horizons tax 

uncertainty might prevent marginal projects from moving for-
184 

ward’’—marginal projects. Can you speak to how the possibility of 

increased capital gains and dividend tax rates and marginal income 

tax rates impact the perception of the tax certainty for energy 

firms? 

Dr. THORNING. Yeah, I will take a shot at that. Increasing the 

capital gains tax rate from the current 15 percent to 20 percent 

and dividends up to 39.8, which is what is going to happen at the 

beginning of 2013 will certainly raise the cost of capital and the 

hurdle rate for new energy investments but for all investments and 

is likely to have a negative impact on overall investment. 

Mrs. ADAMS. And would likely cause utility bills to do what? 

Dr. THORNING. Well, it will certainly mean that any new utility 

project is going to have to earn a larger rate of return, so that will 

have to be passed on to utility customers, households, and industries. 

Mrs. ADAMS. Well, I can tell you, in our district I think my constituents believe that utility bills are high enough but not too high. 

So Dr. Thorning, how would you reduce—how would reducing the 

overall corporate tax rate influence the global competitiveness of 

American energy firms? 

Dr. THORNING. I think it would be helpful. Lowering the corporate tax rate would certainly tend to reduce the cost of capital. 

Each new investment would have a lower hurdle rate so more investments would occur. However, if at the same time you reduce 

the corporate tax rate and eliminate accelerated depreciation deferral, LIFO, other provisions that are currently in the code, those 

have an offsetting impact. As you know, the Bowles-Simpson plan 

proposed to eliminate most deductions that companies use. So 

those—it is going to be a tradeoff and, you know, one would have 

to look carefully at what the cost of—what you have to give up to 

lower the corporate tax rate. 

Mrs. ADAMS. So Dr. Sherlock’s testimony states, ‘‘ideally, the energy tax policy should be designed to allow markets to choose 

which technologies best meet energy policy objectives.’’ If America’s 

energy policy objective were to provide the cheapest form of energy, 

what would such an energy tax policy look like? 

Dr. THORNING. Well, there should be neutrality in the tax code, 

provisions that are available like accelerated depreciation, LIFO, 

Section 199 should be available to all types of energy investments. 

We need a level playing field. 

Mrs. ADAMS. And Dr. Zycher, presumably the reason for tax subsidies for projects to reduce carbon dioxide emissions is to reduce 

possible impacts from global warming. Has anyone calculated what 

lower baseline carbon emissions specifically from these projects 

would mean to global warming? 

Dr. ZYCHER. Yeah, there are a number of projections. Pat Michaels at Cato has done that, Chip Knappenberger at—I forget the 

name of his institution—has done that. There have been various— 

essentially, the policies being proposed by the IPCC audience for 

want of a better term if implemented by the entire industrialized 

world, including China and India, would have the effect of reducing 

global temperatures if you believe the IPCC models—which I don’t, 

by the way, but if you do believe them—by an amount that is im-
185 

perceptible over the next century. It is all cost and no benefit even 

under the terms of the IPCC models. 

Mrs. ADAMS. All cost, no benefit. 

Dr. ZYCHER. Right. 

Mrs. ADAMS. My time is expired. I yield back. 

Chairman BROUN. Thank you, Mrs. Adams. 

I want to thank the witnesses for your valuable testimony and 

the Members for their questions. The Members of either Subcommittee may have additional questions for you all, for the witnesses and we will ask you to respond to those in writing. The 

record will remain open for two weeks for additional comments 

from Members. 

The witnesses are excused and the hearing is now adjourned. 

And I thank you. 

[Whereupon, at 12:33 p.m., the Subcommittees were adjourned.] 
186 

ANSWERS TO POST-HEARING QUESTIONS
187 

ANSWERS TO POST-HEARING QUESTIONS
188 

l 

~ Congressional 

:;;;= ~ Rese,,!rch t ""'""" Servlce--------------------

MEMORANDUM May 25, 2012 

To: Committee on Science, Space, and Technology, Subcommittee on Investigations and 

Oversight 

Attention: John Serrano 

From: Molly Sherlock, Specialist in Public Finance, 7-7797 

Subject: Written Responses to Member Questions for the Record 

This memorandum provides written responses to Member Questions for the Record following the April 

19,2012, hearing titled, "Impact of Tax Policies on the Commercial Application of Renewable Energy 

Technology." The questions, as submitted, are reproduced in bold below followed by CRS responses. 

Questions submitted by Dr. Paul Broun, Chairman, Subcommittee on 

Investigations and Oversight 

1. On page 12 of your testimony, you mention one concern of renewable energy tax 

credits is that state-level Renewable Portfolio Standards (RPS) might drive up the 

costs associated with federal tax incentives-as you say "tax credits might be simply 

be rewarding existing activity." And there is a similar concern about tax incentives 

for biofuels under the Renewable Fuel Standard (RFS) which has largely driven 

their consumption. 

How big of a problem is this? Is there any way to estimate how much renewable 

energy investment is driven by state-level RPS, as opposed to federal renewable 

energy tax credits? 

Through 201 I, ethanol blenders qualified for a $0.45 per gallon tax credit, the so-called volumetric 

ethanol excise tax credit (VEETC). A certain amount of ethanol use is also mandated as part of the 

Renewable Fuel Standard (RFS).' A 2009 Government Accountability Office (GAO) report found that the 

VEETC and the RFS "can be duplicative with respect to their effects on ethanol consumption.'" The 

GAO report went on to conclude that removing the VEETC would not affect ethanol consumption. 

I For additional background, sec CRS Report R40t55, Renewable Fuel Standard (RFS): Overview and fssues. by Randy Schnepf 

and Brent D. Yacobucci, 

2 U.S. Government Accountability Ot1ice, Bio/uels: Potential4YJects and Challenges of Required Increases in Production and 

Use, GAO·09·466, August 2009. pp. 93·100, ht'p:llwww.gao.gov/asscts/160/157718.pdt: 

Congressional Research Service 7-5700 www.crs.gov 
189 

Congressional Research Seroice 

Similar concerns exist regarding the relationship between state-level Renewable Portfolio Standards 

(RPS) and the renewable energy production tax credit (PTC). State-level RPS programs vary along a 

number of dimensions. Some states have mandatory renewable energy requirements, while other states 

have renewable energy goals that are not enforced by financial penalty.' Cost caps are also used in some 

states to limit price increases for consumers and to ensure that renewable energy resources are costeffective to consumers.' 

The PTC for renewable energy is more likely to be duplicative in states with stringent or binding RPS 

policies. If the RPS serves as a binding mandate, than renewable energy will be produced by the state to 

meet the mandate, regardless of cost. Thus, the mandate (not the tax credit) is motivating renewable 

energy production. However, in states where cost caps or less stringent mandates are in place, the PTC 

and the RPS may work together to promote renewable energy production. Specifically, the PTC may 

contribute to reduced costs for renewables, allowing the state to stay within cost caps. 

Wind resource potential is also an important factor driving investment in wind energy capacity.5 In Texas. 

for example, strong wind resources and tax credits have been identified as factors driving investment in 

wind power.6 While Texas does have an RPS, wind power exceeds mandated levels. making the policy 

effectively nonbinding.7 

Given the large degree of variation in state-level policies, and the diversity of wind site potential across 

the United States, empirically identifying and specifically quantifying the impact of various policies on 

wind capacity installations would be challenging. At this time, CRS is not aware of any studies that have 

attempted this specific type of analysis. 

2. Could you please comment on the use offeed-in tariffs, which guarantee renewable 

electricity generators the right to connect to the grid and requires the purchase of 

these generators' power at subsidized rates above market prices for an extended 

period of time? Are such tariffs economically efficient? 

The economic efficiency of a particular policy depends on the goal the policy aims to achieve. A common 

rationale for subsidies for renewable energy is to address environmental issues associated with the use of 

fossil fuels. To economists, the pollution resulting from the use of fossil fuels to generate electricity is an 

example of a "negative externality.'" One option for addressing negative externalities is to impose a tax 

on the activity that generates the externality. By increasing the price, this tax would cause markets to 

internalize the costs associated with the externality, reducing pollution to economically efficient levels. 

3 For details on state· level RPS program parameters. see the Database of Statt! Incentives for Renewables & Efficiency. at 

ht1p:llwww.dsireusa.orgjrpsdatalindex.cfin. 

4 Illinois, for example, stipulates that the retail cost to consumers for e1eetTicity under the RPS cannot exceed 0.5% of the amount 

paid per kilowatt-hour (kWh) during the year ending May 31. 2007. 

5 Maps illustrating wind-power potential can be found on the Department of Energy's (DOE) website, at 

http://www. windpowt!ringamcrica.goviwind ~ maps. asp. 

6 Scan D. Johnson and Elisabeth J. Moyer, Feasibility of u.s. Renewable Portfolio Standards Under Cost Caps and Case Study 

for Illinois, The Center for Robust Decision Making on Climate and Energy Policy, Working PaperNo. 12-07, March 2012. 

7 Ibid .• p. 3. 

8 In economics, an externality arises when voluntary transactions undertaken by two parties affect the well·being ofa third party, 

and the effects on the third party arc not reflected in market prices. For example. if harmful emissions are not priced. these 

emissions are considered a negative externality. 
190 

Congressional Research Service 

An alternative, but less economically efficient policy option for addressing negative externalities 

associated with pollution, is to subsidize non-polluting alternative energy sources. Tax subsidies for 

alternative energy are a less economically efficient policy option for several reasons. First, subsidies for 

alternative energy reduce the overall cost of electricity, encouraging additional electricity use. Second. 

instead of raising revenues for the government, subsidies must be linanced through taxes on other 

economic activity. Finally, instead of directly increasing the cost of the activity to be discouraged, 

subsidies require the government to identify alternative technologies to receive the subsidy. Thus, there 

are "picking winners" concerns.9 

As a subsidy, feed-in tariffs may be more economically efficient than general investment or production 

tax credits. However, feed-in tariffs are less economically efficient than a direct tax on polluting activities. 

Feed-in tariffs may be more economically efficient than direct tax subsidies when feed-in tariffs are 

designed to be paid by the ratepayer. Feed-in tariffs that are financed through higher electricity prices 

decrease the overall demand for electricity, whereas general investment and production tax credits reduce 

the overall prices (and thus increase demand for electricity). Feed-in tariffs that are financed through 

general government funds (e.g., tax revenues) are less economically efficient than those that are financed 

through premiums paid by ratepayers. 

3. Last November's CRS report on the Section 1603 Program you coauthored with 

Phillip Brown stated on page 24 that "any job creation estimate" attributed to the 

Program "be viewed with skepticism." Could you please elaborate on this? 

It is very difficult to empirically estimate the number of jobs that are created as the direct result of a 

particular tax incentive or grant program. The central reason for this difficulty is the inability to observe 

the activity that would have occurred without the program. In particular, if the Section 1603 grant 

program had not been enacted, it is likely that a number of projects that received Section 1603 grants 

would have taken place absent the grant. iO Thus, just because there were jobs associated with projects that 

received the Section 1603 grant, it does not mean that the Section 1603 grant program created those jobs. 

Studies that focus onjob creation often highlight "gross jobs." The Section 1603 grant program may have 

directed investment dollars towards renewables, simultaneously reducing investment in other industries. 

Reduced investment in these other industries may have led to job loss in those industries. Thus, the net 

impact ofthe Section 1603 grant program should consider not only jobs created in the renewable energy 

sector, but also potential jobs lost in other industries. The recent National Renewable Energy Laboratory 

(NREL) report examining job creation under the Section 1603 grant program models gross jobs. and thus 

does not consider potential job loss in other industries.' I Nor does the NREL report on Section 1603 job 

creation consider jobs that would have occurred in renewable energy without the program. 

'l Picking winners concerns arise when government policies may contribute to the success of certain or selected technologies, 

favoring selected technologies over alternatives. 

10 These projects may still have claimed renewable energy tax credits. 

11 Daniel Steinberg, Gian Porro, and Marshall Goldberg, Preliminary Ana~vsis of the .Jobs and Economic Impacts of the 

Renf!l-vable Energy Projects Supported by the Section 1603 Treasury Grant Program, National Renewable Energy Laboratory, 

NRELrrp-6A20-52739. April 2012. 
191 

Congressional Research Service 

Questions submitted by the Honorable Randy Neugebauer 

1. Is it a fair assessment to say that snbsidizing inefficient technologies that would not 

otherwise survive on the market removes a critical market signal that would spnr 

faster innovation withont those subsidies? 

4 

Well-functioning markets tend to direct economic resources to their most productive use. Subsidies that 

divert economic resources away from their most productive use reduce economic efficiency. In this sense. 

subsidies can distort market signals that would otherwise direct scarce economic resources to where they 

are most valuable. 

To fully evaluate subsidies, it is important to consider the policy objectives, or goals, of the subsidy. In the 

case of subsidies for renewable energy, policy objectives include addressing environmental concerns, job 

creation, and technological innovation. Further, ifthere are negative externalities, or other market failures, 

market outcomes may not generate the most economically efficient outcome possible. If this is the case, it 

is possible that subsidies or other policy interventions can improve economic efficiency. 

2. Do yon believe that false market signals derived from tax subsidies can convince the 

market (and a business or indnstry) that an inefficient technology is "good enough" 

and that drastic improvements in efficiency and rednctions in cost are not necessary 

for the prodnct to survive, thus slowing the development of more economically 

viable technologies. 

Subsidies for low-carbon technologies require the identification of certain technologies as being explicitly 

eligible for the subsidy. This may create a bias against newly emerging technologies, as it takes time to 

update the tax code to expand the list of qualifYing technologies." Further, once a specific product or 

technology begins to take hold in the market, it is possible that path dependence (or the tendency for 

markets to prefer technologies that are already being used) can create a barrier to entry for new 

technologies." 

!2 This point was made by Mony Sherlock in written testimony submitted to the House Committee on Science., Space, and 

Technology, Subcommittee on Investigations and Oversight and Subcommittee on Energy and Environment on April 19, 2011, 

for 11 hearing titled, "'Impact of Tax Policies on the Commercial Application of Renewable Energy Technology:' 

!3 Subsidies for renewable energy technologies could also be viewed as a policy designed to help overcome barriers to entry 

created by the markers heavy reliance on fi)ssil energy resources, 
192 

QUESTIONS FOR THE RECORD 

U.S. House Committee on Science, Space, and Technology 

Subcommittees on Investigations & Oversight and Energy & Environment Joint Hearing 

"Impact of Tax Policies on the Commercial Application of Renewable Energy 

Technology" 

Thursday, April 19,2012 

Questions for Mr. John Parcell 

Acting Deputy Tax Legislative Counsel 

U.S. Department of the Treasury 

Questions submitted by Dr. Paul Broun, Chairman. Subcommittee on Investigations & Oversight 

1603 Program 

1. How many Treasury staff administer the 1603 Program? 

In addition to the core staff of 6 people responsible for operating the program, we have been 

able to leverage other resources both within and outside of Treasury to ensure the program 

is properly staffed. Stafffrom bath Treasury's Office of Tax Policy and the Internal Revenue 

Service support the program as needed. Additionally, we have entered an interagency 

agreement with the Department of Energy under which DOE's National Renewable Energy 

Laboratory provides the needed technical expertise to operate the program. We 

continuously evaluate workforce needs and make adjustments if necessary. 

2. How much did Treasury initially estimate the 1603 Program would cost? 

The American Recovery and Reinvestment Act of 2009 (ARRA) provided three 

principal incentivesfor renewable power production: (1) a three-year extension of the 

Section 45 production tax credit; (2) an election by the taxpayer to claim the Section 48 

energy investment tax credit in lieu of the Section 45 production tax creditfor investments in 

qualified property; and (3) an election by the taxpayer to take the Section 1603 grants in lieu 

of the tax credits for facilities for which construction had commenced by the end of 20 10. In 

addition, ARRA repealed the cap on the investment credit for small windfacilities and 

repealed the limitation on property financed by subsidized energy financing. The Treasury 

initial~v estimated that the overall cost of these incentives would be about $7.9 billionfor the 

fiscal years 2009 through 2019. The outlays for the 1603 program were estimated to be only 

about $1.1 billion over this time period. The initial analysis projected that a majority of 

taxpayers would elect to take the Section 45 production tax credit or the Section 48 

investment tax credit. However, due to economic conditions, many taxpayers opted to claim 

the Section1603 grants in lieu of the applicable tax credits. The large number of grant 

claims reduced the amount of tax credits that would have been claimed. 
193 

3. The March 13,2012 list of 1603 awardees includes three for geothermal projects (Geysers 

Power Co., LLC; CPN Wild Horse Geothermal, LLC; and Shalmuk Investors, LLC) and 

eight for geothermal electricity projects (Omi 18 LLC; NGP Blue Mountain I LLC; Enel 

Stillwater, LLC; Enel Salt Wells, LLC; Amor IX, LLC; Beowawe Binary, LLC; Solutions In 

Human Resources, INC; and Thermo No. I BE-OI, LLC). What is the difference between a 

geothermal project and a geothermal energy project? 

The awards for geothermal projects (Geysers Power Co., LLC; CPN Wild Horse 

Geothermal, LLC; and Shalmuk Investors, LLC) are for property described in Intemal 

Revenue Code (Code) section 4S(a)(3)(A)(iii). This is equipment used to produce, distribute, 

or use energy derivedfi'om a geothermal deposit (within the meaning (){Code section 

613(e)(2)), but onZv, in the case of electricity generated by geothermal power, up to (but not 

including) the electrical transmission stage. To qual!fY for a section 1603 payment, the 

facility must be placed in service before 2017. 

The awards for geothermal electricity pr()jects (Omi IS LLC; NGP Blue Mountain 1 LLC; 

Enel Stillwater, LLC; Enel Salt Wells, LLC; Amor IX, LLC; Beowawe Binary. LLC; Solutions 

In Human Resources, INC; and Thermo No.1 BE-Ol, LLC) are for property that is part of a 

facility described in Code section 45(d)(4). This is afacility using geothermal energy to 

produce electricity. To qualifY jar a section 1603 payment thefacility must be placed in 

service before 2014. Thus, the class o{facilities qualifYingfor these awards is narrower than 

the class offacilities described in section 4S(a)(3)(A)(iii). Only facilities that produce 

electricity qual!fY as geothermal electricity projects described in section 45(d)(4), whereas 

geothermal projects described in section 4S(a)(3)(A)(iii) may include,for example,facilities 

producing only thermal energy. In addition, only facilities placed in service before the end 

of 2013 qualifY as geothermal electricity projects described in section 45(d)(4) whereas 

geothermal projects described in section 4S((a)(3)(A)(iii) also includefacilities placed in 

service in before the end 0{2016. 

4. How many recipients of 1603 cash grants have filed for bankruptcy, failed to produce 

energy, or laid off employees? Please identify each such recipient. 

Recipients of Section 1603funds are not required to report to Treasury regarding 

bankruptcy filings, unless the result (){such afiling is that the energy property for which the 

Section 1603 award was made is sold or ceases to be specified energy property. Recipients 

(){ Section 1603 awards are also not required to report whether or not employees have been 

laid off. The Section 1603 payment is not made until the property is placed in service (that 

is, ready and availablefor use in producing energy). 

5. The Treasury Inspector General (IG) audit of the EcGrove Wind LLC 1603 Program 

payment issued September 19,2011, questioned $2,080,452 of EcoGrove's award as a result 

of identifying $6,934,838 of questionable costs included in EcoGrove's 1603 Program 

claim. I EcoGrove management did not agree with all the costs that the IG questioned and 

I Recovery Act: Audit oj EcoGrove Wind LLC Payment Under 1603 Program. Office of Inspector General. 

Department of the Treasury, OIG-II-I03, September 19, 2011 (http://wwlV.treasury.gov/about/organizationaJstructure/igl Agency%20Documents/OIG'%20Rep0l1%2010IG-l1-1 03%20)-
194 

agreed to reimburse only $35,479 of its award to Treasury. The IG recommended that the 

Fiscal Assistant Secretary: (I) ensure that EcoGrove reimburse Treasury $2,080,452 for the 

excessive 1603 Program payment received for the subject property; and (2) direct EcoGrove 

and affiliated companies not to include in applications for 1603 Program awards 

inappropriate or otherwise ineligible costs in the claimed cost basis. According to the audit 

report, Treasury management agreed in part with the IG's findings, related to the 

reimbursement of$35,479 ofEcoGrove's 1603 Program award, but could not make a 

determination with respect to the remainder of the questioned costs without further analysis. 

What is the final outcome of this dispute? 

To date, Treasury has determined that a total of$284,827 was erroneously paid to 

EcoGrove. All of this amount has been returned to the Treasury. 

6. A February 24, 2012 Wall Street Journal article, titled "Cost of $1 0 Billion Stimulus Easier 

to Tally Than New Jobs,,,2 noted that Raser Technologies, Inc. filed for bankruptcy 

protection last April after receiving a $33 million grant for a geothermal plant on Beaver 

County, Utah. Is Treasury going to recover any of that money or will the taxpayers have to 

take the fall? 

To clarify, the entity that received Section 1603fundsfor a geothermal plant in Beaver 

County, Utah is Thermo No. I BE-OI, LLC Bejore the bankl'llptcyfiling, Thenllo No. 1 was a 

consolidated subsidiGlY of Raser Technologies, Illc. According to Thermo No. I's most recent annual 

reportfiled on May 6,2012, the project continues to operate and produce energy. 

7. The same February 24,2012 Wall Street Journal article also said: 

"Private-equity firm Wayzata Investment Partners created neither jobs nor energy 

with the $6.5 million it received for a plant in Thompson Falls, Mont. The facility 

had state permits to bum coal and wood for energy, and Wayzata had invested more 

than $20 million to comply with government rules, said a person familiar with the 

matter. 

"After finishing the work, this person said, Wayzata told Treasury officials the plant 

would bum only wood; coal-burning plants don't qualify for 1603 money. 

"But Wayzata found it couldn't make money operating the plant on just wood without 

investing millions of dollars more in equipment improvements, said three people with 

knowledge of the project. 

%20Audit%20of''1020EcoGrove%20LLC%20Payment%20Under%201603%20Program%20-

%20508%20compliant.pdO. 

2Ianlhe Jeanne Dugan and Justin Scheck, "Cost of$10 Billion Stimulus Easier 10 Tally Than New Jobs" The 

Wall Street Journal, Friday, February 24, 2012 

(htIP://online.wsj .com/article/Sa 1 000 1424052970203 71 0704577050412494713178.htmi). 
195 

"Wayzata submitted its application to the Treasury Department and in June 2010 

received its payment. By then, the plant had not produced power for months, 

regulatory filings show. The facility, which still doesn't produce power, is for sale." 

Is Wayzata entitled to retain the $6.5 million even if the plant never produces any more 

power or if it sells it to someone else? 

If the plant permanently ceases to produce powerfrom biomass Treasury will seek to 

recapture the funds. Sale of the project to a Section 1603 eligible entity or a temporary 

suspension of biomass power production (provided the owner intends to resume production) 

does not trigger recapture. 

8. The same February 24, 2012 Wall Street Journal article also said: 

"Another wood-burning plant, Blue Lake Power in Northern California, received more 

than $5.3 million in October 2010. The plant had a number of temporary shutdowns 

around that time, said Chief Executive Kevin Leary. About a year ago, it laid off most of 

its staff and stopped producing power. Mr. Leary said the plant is now scheduled to start 

operating again on March 15. If the plant doesn't work, he said, it may face bankruptcy." 

Will Treasury be able to recover any of the $5.3 million grant if Blue Lake Power goes 

bankrupt? 

Bankruptcy, in and of itself, does not trigger recapture unless the bankruptcy results in the 

property ceasing to be specified energy property. The most recent annual reportfor this 

property filed on May 14. 2012 indicates thatthe property is producing energy. 

48C Program 

9. Treasury's Internal Revenue Service (IRS) issued Notice 2009-72 containing detailed 48C 

Program guidance was effective on August 14,2009. The Notice stated that the IRS would 

consider projects under the 48C Program "only if' DOE provided "a recommendation and 

ranking for the project," and that DOE would "provide a recommendation and ranking only if 

it determines that the project has a reasonable expectation of commercial viability and merits 

a recommendation based on the criteria in §48C(d)(3)(B)". 

However, missing from these criteria is the §48C(d)(3)(B)(iv) statutory requirement that the 

Secretary of the Treasury "shall take in to consideration which projects" "have the lowest 

levelized cost of generated or stored energy, or of measured reduction in energy consumption 

or greenhouse gas emission (based on the cost of the full supply chain)". Also the Program 

Guidance included "Program Policy Factors" (Geographic Diversity, Technology Diversity, 

Project Size Diversity, and Regional Economic Development) that were not part of the law. 

9.1 Why are there inconsistencies between the IRS criteria and the 48C statutory criteria, and 

in particular, why was the lowest levelized cost criterion ignored? 
196 

Section 48C(d)(i) authorized the Secretary of the Treasury, in consultation with the 

Secretary of Energy, to establish a qualifying advanced energy program to consider and 

award certifications for qualified investments eligible for credits under section 48C. To 

qualifo for a credit under section 48C, an investment was required to satisfY the 

definitional provisions in section 48C(c)(i) and the requirement of section 48C(d)(3)(A) 

regarding commercial viability. In addition, the factors listed in section 48C(d)(3)(B) 

were required to be considered in determining which projects to certifo. Section 

48C(d)(3)(B) is not structured as an exclusive list of the factors that may be considered 

and Notice 2009-72 did not interpret the provision as providing an exclusive list. 

Allfactors listed in section 48C(d)(3)(B), including the lowest levelized cost criterion, 

were taken into account. The lowest levelized cost criterion is subsumed within the 

following criterion: 

Evaluation Criterion 3: has the greatest potential jor technological innovation and 

commercial deployment, as indicated by (i) the production of new or significantly 

improved technologies, (ii) improvements in levelized costs and performance, and (iii) 

manufacturing significance and value. 

The levelized cost criterion is described more extensively in Appendix B of Notice 2009-

72 in sections G.lll. C. and G. iV. 

9.2 What is the statutory authority for the addition of "Program Policy Factors"? 

As noted above, section 48C(d)(J) provides the authority to establish the program. While 

section 48C(d)(3)(B) provides a list o/factors that must be considered, the list does not 

purport to be exclusive and the guidance is structured accordingly. 

9.3 How did these inconsistencies impact project rankings? 

it is likely that some rankings would have diff'ered if the program policyfactors not listed 

in section 48C(d)(3)(B) had not been taken into account. 

10. How many 48C awardees have filed for bankruptcy or laid off employees? Please identify 

each such awardee. 

Section 48C awardees are not required to report to the Treasury Department when they file 

for bankruptcy or layoff' employees. 
197 

QUESTIONS FOR THE RECORD 

U.S. House Committee on Science, Space, and Technology 

Subcommittees on Investigations & Oversight and Energy & Environment Joint Hearing 

"Impact of Tax Policies on the Commercial Application of Renewable Energy 

Technology" 

Thursday, April 19, 2012 

Questions for Dr. Michael Pacheco 

Vice President, Deployment and Industrial Partnerships 

National Renewable Energy Laboratory 

Ouestions submitted by Dr. Paul Broun, Chairman. Subcommittee on Investigations & Oversight 

1. How many NREL staff are dedicated to the Treasury 1603 Program? 

Currently there are 28 staff memhers working on the 1603 Program. Many of the reviewers 

contribute their e...:pertise to the program while meeting other responsibilities and completing 

a range of other tash The assigned part-time stalj'typically devote ji-om 8 to 35 hours per 

week to their 1603 Program work. Given part-time involvement of a number of reviewers, 

the 28 personnel assigned to the 1603 Program average 18 FTEs (full time equivalent) per 

week on the 1603 Project. 

2. How much has Treasury reimbursed NREL for each ofFY 2009, FY 2010, FY 2011, and 

FY 2012 for provision of technical assistance to thel603 Program? 

FY 2009: $1,787,800. FY 2010: $450,000. FY 2011: $4,702,025. FY 2012: $1,454,332. 

Questions submitted by Dr. Andy Harris, Chairman, Subcommittee on Energy & Environment 

I. With respect to the 1603 program, you noted that all applications are rigorously evaluated 

against the criteria based on the tax codes. 

1.1 Please list the criteria wind projects need to meet in order to gain approval, including as 

they relate to the Treasury Department's five percent "safe harbor" rule. 

The attached Program Guidance details eligibility requirements. In summary, requirements 

are: 

Applicant eligihility; 

Commissioning of the system; 

Technical eligibility; 

Cost basis eligibility. 

Application must be submitted by an eligible member of the applying entity. 
198 

In regards to "safe harbor, " applicants must prove that they have incurred or paid at least 5 

percent of the costs associated with the energy system before 2012. The attached FAQ's on 

"Begun Construction" fiLrther details the "safe harbor" requirements. 

1.2 What project qualifications did NREL spend the most time validating? 

Technical eligibility, cost basis, applicant eligibility, commissioning/operation date. 

1.3 You cited approximately 3,000 applications as having been withdrawn or disqualified. 

Of applications withdrawn or rejected, approximately how many of each were for wind, 

solar, or other technologies? 

Rejected: 1- Wind 

64 -Solar 

13 - Other technologies 

Disqualified: 51 - Wind 

2,798 Solar 

50 - Other technologies 

1.4 What were the primary reasons applications were rejected? 

Applicant was ineligible; 

Technology was ineligible: 

Applicant did not provide an eligible cost basis. 

2. Tables five and six of the NREL reportl assessing the economic impact of 1603 program 

spending include estimates of direct and indirect jobs and economic output for large wind 

and solar projects during the construction and operation phases. In order to better assess the 

cost effectiveness of tax credit spending under this program, such spending should be 

considered in light of its economic impacts. 

Accordingly, for each row in tables five and six, please calculate the tax credit spending that 

corresponds to the estimated jobs supported. For example, with respect to the data in table 

five, what is the estimated 1603 spending per direct job (andjob-per-year) supported during 

the construction period? Additionally, please calculate the cost of each permanent job. 

'Daniel Stenberg, Gian Porro, and Marshall Goldberg, Preliminary Analysis of the Jobs and Economic Impacts of 

Renewable Energy Projects Supported by the .111603 Treasury Grant Program, NRELrrp-6A20-52739, April 2012 

(http://www.nrel.gov/docs/fyI2osti/52739.pdO· 
199 

Determining an estimate of tax credit spending per job, be it constl1Jction or permanent 

employment, was not part of the analysis that NREL conducted on behalf of the Department 

of Energy. The Department (Jf Energy is a more appropriate respondent to this question. 

Additionally, there are several reasons the information that the report does provide may be 

inappropriate for use in calculating the "cost" of each construction. and each permanent, 

job. First. the report acknowledges that its conclusions are preliminary in nature, and thus 

do not go to the depth that would be required to produce an accurate calculation of cost per 

job. Second, the "snapshot in time" nature o(the report could lead to an inaccurate 

representation of the overall program. The number of projects which have participated in the 

program to date is near{v 50 percent larger than those that NREL was able to assess in its 

report. Moreover, the total mix of project sizes, project types and project technologies is 

considerably different today than it was when the report analysis was conducted. 

3, Please provide a detailed summary ofNREL's Cooperative Research and Development 

Agreements (CRADAs) related to the renewable energy technologies considered at the 

hearing, including a list of the partners, technology types, and approximate value of the 

partner-contributed funds under such CRADAs. 

Please see attached list. 
200 

Payments for Specified Energy Property in Lieu of Tax Credits 

under the 

AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 

U.S. Treasury Department 

Office of the Fiscal Assistant Secretary 

July 20091 Revised March 20101 Revised April2011 
201 

Payments for Specified Energy Property in Lieu of Tax Credits 

under the 

American Recovery and Reinvestment Act of 2009 

Program Guidance 

Under Section 1603 of the American Recovery and Reinvestment Tax Act of2009 

(Section 1603), the United States Department ofthe Treasury (Treasury) makes payments 

to eligible persons who place in service specified energy property and apply for such 

payments. The purpose of the payment is to reimburse eligible applicants for a portion of 

the expense of such property. Eligible property under this program includes only 

property used in a trade or business or held for the production of income. Nonbusiness 

energy property described in section 25C of the Internal Revenue Code (IRC) and 

residential energy efficient property described in section 25D of the IRC do not qualify 

for payments under this program but may qualify for tax credits under those provisions. 

By receiving payments for property under section 1603, applicants are electing to forego 

tax credits under sections 48 and 45 of the IRC with respect to such property for the 

taxable year in which the payment is made or any subsequent taxable year. Applicants 

must agree to the tenus and conditions applicable to the Section 1603 program. 

This Guidance establishes the procedures for applying for payments under the Section 

1603 program and is intended to clarify the eligibility requirements under the prol,'Tam. 

Treasury welcomes questions about the program and the application process at 

1603Questionsuvdo.treas.gov. 

I. Overview 

On February 17, 2009, President Obama signed the American Recovery and 

Reinvestment Act of2009 (Public Law 111-5). The purpose of the Recovery Act is to 

preserve and create jobs and promote economic recovery in the near tenn and to invest in 

infrastructure that will provide long-tenn economic benefits. 

Section 1603 of the Act's tax title, the American Recovery and Reinvestment Tax Act, as 

amended by Section 707 of the Tax Relief, Unemployment Insurance Reauthorization, 

and Job Creation Act of 201 0 (Public Law 111-312), appropriates funds for payments to 

persons who place in service specified energy property during 2009, 2010, or 2011 or 

after 2011 if construction began on the property during 2009, 2010 or 2011 and the 

property is placed in service by a certain date known as the credit tennination date 

(described more fully below in the Property and Payment Eligibility section). Treasury 

will make Section 1603 payments to qualified applicants in an amount generally equal to 

10% or 30% of the basis of the property, depending on the type of property. Applications 

will be reviewed and payments made within 60 days from the later of the date of the 

2 
202 

complete application or the date the property is placed in service. Applicants who 

receive payments for property under Section 1603 are not eligible for the production or 

investment tax credit under sections 45 and 48 of the IRC with respect to the same 

property for the taxable year of the payment or subsequent years. In addition, any credit 

under section 48 previously allowed with respect to progress expenditures for the 

property will be recaptured. 

It is expected that the Section 1603 program will temporarily fill the gap created by the 

diminished investor demand for tax credits. In this way, the near term goal of creating 

and retaining jobs is achieved, as well as the long-term benefit of expanding the use of 

clean and renewable energy and decreasing our dependency on non-renewable energy 

sources. 

II. Application Procedures 

Applicants interested in receiving payments under Section 1603 may submit an 

application on-line by going to www.treasurv.gov/recovery. Applications may only be 

submitted after the property to which the application relates is placed in service, or is 

under construction. A completed application will include the signed and complete 

application form; supporting documentation; signed Terms and Conditions; and complete 

payment information. All applications must be received before the statutory deadline of 

October 1, 2012. 

For property placed in service in 2009,2010 or 2011, applications must be submitted 

after the property has been placed in service and before October 1, 2012. Treasury will 

review the applications and make payment to qualified applicants within 60 days from 

the date the completed application is received by Treasury. 

For property not placed in service in 2009, 201 0 or 2011 but for which construction 

began in 2009,2010 or 2011, applications must be submitted after construction 

commences but before October 1, 2012. If the property has been placed in service at the 

time of the application, Treasury will make payments to qualified applicants within 60 

days from the date the completed application is received. For property not yet placed in 

service at the time of the application, Treasury will review such applications and notifY 

the applicant if all eligibility requirements that can be determined prior to the property 

being placed in service have been met. If so notified, applicants must then submit, within 

90 days after the date the property is placed in service, supplemental information 

sufficient for Treasury to make a final determination. Treasury will conduct a final 

review of the application at that time and make payment to qualified applicants within 60 

days after the supplemental information is received by Treasury. Instructions provided 

on the application will indicate which portions of the application must be completed at 

the time the application is initially submitted and which portions must be completed at 

the time the application is supplemented. 

If an applicant is applying for Section 1603 payments for multiple units of property that 

are treated as a single, larger unit of property (see Section IV. D. below), all such units 

may be included in a single application. 

3 
203 

The application fonn requests, among other identifying data elements, the applicant's 

Data Universal Numbering System (DUNS) number from Dun and Bradstreet. If the 

applicant does not already have a DUNS number, it may request one at no cost by calling 

the dedicated toll-free DUNS Number request line at 1-866-705-5711. 

Applicants must also register with the Central Contractor Registration (CCR). To 

register, go to www.ccr.gov/startregistralion.aspx. The registration must be completed 

before a payment can be made. 

When Treasury detennines that an application is approved, it will send a notice to the 

applicant. The notice infonns the applicant that the payment will be made and 

incorporates the infonnation contained in the applicant's completed application fonn and 

the Tenns and Conditions. Treasury makes payment to the applicant no later than five 

days from the date of the notice. Payment will be made by Electronic Funds Transfer 

based upon the banking infonnation in the CCR. 

In cases where an applicant has not submitted sufficient infonnation upon which a 

detennination can be based, the applicant will be so notified and given 21 days from the 

date of the notice to submit additional infonnation. If additional infonnation is not 

received within the 21 day period, the application will be denied. 

When Treasury detennines that the application does not qualify for payment, the 

applicant will be so notified. Such notification will include the reasons for the 

detennination and will be considered the final agency action on the application. 

III. Applicant Eligibility 

Certain persons are not eligible to receive Section 1603 payments. These include: 

• any Federal, state or local goverrunent, including any political subdivision, 

agency or instrumentality thereof 

• any organization that is described in section 50 I (c) of the IRC and is 

exempt from tax under section 501(a) of the IRC 

• any entity referred to in paragraph (4) of section 540) of the IRC or 

• any partnership or other pass-thru entity, any direct or indirect partner (or 

other holder of an equity or profits interest) of which is an organization or 

entity described above unless this person only owns an indirect interest in 

the applicant through a taxable C corporation. 

As long as each direct and indirect partner in the partnership or shareholder or similar 

interest holder in any other pass-thru entity is eligible to receive Section 1603 payments, 

the partnership or pass-thru entity is eligible to receive Section 1603 payments. Having 

as a direct or indirect partner, shareholder, or similar interest holder a taxable C 

corporation any of whose shareholders are not eligible to receive Section 1603 payments 

does not affect the eligibility of the partnership or pass-thm entity. Neither a Real 

Estate Investment Tmst, nor a cooperative organization described in section 1381 (a) of 

the IRC is a pass-thm entity for this purpose. 

4 
204 

For an applicant to be eligible to receive a Section 1603 payment it must be the owner or 

lessee of the property and must have originally placed the property in service. Lessees 

are eligible to apply for Section 1603 payments only if the conditions described in 

Section VI of this Guidance are met. 

A foreign person or entity may be eligible for a Section 1603 payment if the person or 

entity qualifies for the exception in section 168(h)(2)(B) of the IRe. 

Applicant eligibility will be detennined as of the time the application is received. 

IV. Property and Payment Eligibility 

A. Placed in Service 

Qualified property must be originally placed in service between January 1, 2009, and 

December 31, 2011, (regardless of when construction begins) or placed in servi~e after 

2011 and before the credit tennination date (see below) if construction of the property 

begins between January 1,2009, and December 31,2011. Qualified property includes 

expansions of an existing property that is qualified property under section 45 or 48 of the 

IRe. 

Placed in service means that the property is ready and available for its specific use. 

B. Credit Tennination Date and Applicable Payment Percentage 

The following chart lists the Credit Tennination Date and the applicable percentage of 

eligible cost basis used in computing the payment for each specified energy property. 

Specified Energy Property Credit Termination Date Applicable 

Percentage of 

Elil!ible Cost Basis 

Large Wind Jan I, 2013 30% 

Closed-Loop Biomass Facility Jan 1,2014 30% 

Open-loop Biomass Facility Jan 1,2014 30% 

Geothennal under IRC sec. 45 Jan 1, 2014 30% 

Landfill Gas Facility Jan 1,2014 30% 

Trash Facility Jan 1,2014 30% 

Qualified Hydropower Facilitv Jan 1,2014 30% 

Marine & Hydrokinetic Jan I, 2014 30% 

Solar Jan 1,2017 30% 

Geothennal under IRC sec. 48 Jan 1,2017 10%* 

Fuel Cells Jan 1, 2017 30%** 

Microturbines Jan 1,2017 10%*** 

Combined Heat & Power Jan 1,2017 10% 

Small Wind Jan 1,2017 30% 

Geothennal Heat Pumps Jan 1,2017 10% 

5 
205 

*Geothennal Property that meets the definitions of qualified property in both § 45 and 

§ 48 is allowed either the 30% credit or the 10% credit but not both. 

** For fuel cell property the maximum amount of the payment may not exceed an 

amount equal to $1,500 for each 0.5 kilowatt of capacity. 

*** For microturbine property the maximum amount of the payment may not exceed an 

amount equal to $200 for each kilowatt of capacity. 

C. Beginning of Construction 

Construction begins when physical work of a significant nature begins. Work perfonned 

by the applicant and by other persons under a written binding contract is taken into 

account in detennining whether construction has begun. An applicant may elect the safe 

harbor described below to detennine when construction begins. 

Physical work of a significant nature. Both on-site and off-site work may be taken into 

account for purposes of demonstrating that physical work of a significant nature has 

begun. For example, in the case of a facility for the production of electricity from a wind 

turbine, on-site physical work of a significant nature begins with the beginning of the 

excavation for the foundation, the setting of anchor bolts into the ground, or the pouring 

of the concrete pads of the foundation. If the facility's wind turbines and tower units are 

to be assembled on site from components manufactured off site and delivered to the site, 

physical work of a significant nature begins when the manufacture of the components 

begins at the off-site location. If a manufacturer produces components for multiple 

facilities, reasonable methods must be used to associate individual components with 

particular facilities. Physical work of a significant nature does not include preliminary 

activities such as planning or designing, securing financing, exploring, researching, 

clearing a site, test drilling of a geothennal deposit, test drilling to detennine soil 

condition, or excavation to change the contour of the land (as distinguished from 

excavation for footings and foundations). 

Self construction. If an applicant manufactures, constructs, or produces property for use 

by the applicant in the applicant's trade or business (or for the applicant's production of 

income), the work perfonned by the applicant is taken into account in detennining when 

physical work of a significant nature begins. 

Construction by contract. For property that is manufactured, constructed, or produced 

for the applicant by another person under a written binding contract (as described below) 

that is entered into prior to the manufacture, construction, or production of the property 

for use by the applicant in the applicant's trade or business (or for the applicant's 

production of income) the work perfonned under the contract is taken into account in 

detennining when physical work of a significant nature begins. A contract is binding 

only if it is enforceable under State law against the applicant or a predecessor, and does 

not limit damages to a specified amount (for example, by use of a liquidated damages 

provision). For this purpose, a contractual provision that limits damages to an amount 

equal to at least 5 percent of the total contract price will not be treated as limiting 

damages to a specified amount. If a contract provides for a full refund of the purchase 

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price in lieu of any damages allowable by law in the event of breach or cancellation, the 

contract is not considered binding. A contract is binding even if the contract is subject to 

a condition, as long as the condition is not within the control of either party or a 

predecessor. A contract will continue to be binding if the parties make insubstantial 

changes in its terms and conditions or any term is yet to be determined by a standard 

beyond the control of either party. For example, minor modifications to the design 

specifications of property to be produced under a contract, such as a cold weather 

package for wind turbines, do not affect the binding nature of the contract. A contract 

that imposes significant obligations on the applicant or a predecessor will be treated as 

binding notwithstanding the fact that certain terms remain to be negotiated by the parties 

to the contract. An option to either acquire or sell property is not a binding contract. A 

binding contract does not include a supply, or similar, agreement if the amount and 

design specifications of the property to be purchased have not been specified. 

Safe Harbor. An applicant may treat physical work of a significant nature as beginning 

when more than 5 percent of the total cost of the property has been paid or incurred and 

may treat physical work of a significant nature as not having begun until more than 5 

percent of the total cost of the property has been paid or incurred. In the case of property 

constructed by the applicant, costs of the property are treated as paid or incurred when 

paid or incurred by the applicant. In the case of property manufactured, constructed, or 

produced for the applicant by another person under a binding written contract that is 

entered into prior to the manufacture, construction, or production of the property (i) the 

cost of the property under the contract is treated as paid or incurred when the property is 

provided to the applicant, and (ii) for periods before the property is provided to the 

applicant, costs paid or incurred with respect to the property by such other person are 

treated as costs of the property that are paid or incurred when paid or incurred by such 

other person. If the property includes both self-constructed components and components 

constructed under a contract, the costs relating to the self-constructed components and the 

costs relating to the components constructed under a contract are combined in 

determining if the 5 percent of total costs has been exceeded. All costs included in the 

eligible basis (as described in section V) of the specified energy property and only such 

costs are taken into account in determining if 5 percent of total costs has been exceeded. 

If the applicant is a lessee of property for which the lessor has elected to pass-through the 

payment to the lessee, this safe harbor must be met by the lessor (unless the applicant 

sold and leased back the property). An applicant may elect to use this safe harbor by 

stating in section 2F of the application that the applicant is electing this safe harbor and 

describing the costs that satisfy the requirements for this election. See also section 6B of 

the application regarding supporting documentation. 

Reliance on prior Guidance. An applicant may determine when construction begins 

under the Program Guidance in effect before March 15,20 I O. This Guidance can be 

found at 

http://www.treasury.gov/initiatives/recovcrvlDocumcnts/SUMMARY%200F%20PROP 

OSED%20CHANGES %20TO%20SECTION%20 1603 %20PROGRAM%20GUIDANC 

E.doc 

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D. Units of Property 

For purposes of detennining the beginning of construction of property or the date 

property is placed in service, all the components of a larger property are a single unit of 

property if the components are functionally interdependent. Components of property that 

are produced by, or for, the applicant are functionally interdependent if the placing in 

service of each of the components is dependent on the placing in service of each of the 

other component. For example, on a wind fann for the production of electricity from 

wind energy, the electricity generating wind turbine, its tower, and its supporting pad are 

the single unit of property. Each wind turbine on the wind farm can be separately 

operated and metered and can begin producing electricity individually. A control system 

on a wind fann that optimizes the operation of the fann is a unit of property that is 

separate from the wind turbines. 

The owner of multiple units of property that are located at the same site and that will be 

operated as a larger unit may elect to treat the units (and any property, such as a computer 

control system, that serves some or all such units) as a single unit of property for 

purposes of detennining the beginning of construction and the date the property is placed 

in service. In such a case, the entire cost of such larger unit of property is taken into 

account in applying the safe harbor. The owner may not include within this larger unit 

any property that was placed in service before January I, 2009. For example, the owner 

of a wind fann may treat as a single unit a wind fann that will consist of fifty turbines, 

their associated towers, their supporting pads, a computer system that monitors and 

controls the turbines, and associated power condition equipment. In cases where the 

applicant treats multiple units of property as a single unit, failure to complete the entire 

planned unit will not preclude receipt of a Section 1603 payment. For example, in the 

example noted above if only 40 of the planned 50 turbines were placed in service by the 

credit tennination date, an otherwise eligible applicant would be eligible for a payment 

based on the 40 turbines placed in service. 

E. Specified Energy Property Installed on Other Property 

Only the portion of a facility that is described in section 48 of the IRC is taken into 

account in computing the Section 1603 payment. For example, in the case of a building 

with solar property on its roof, only the cost ofthe solar property (including the cost of 

mounting the solar property on the roof) qualifies for a Section 1603 payment; the cost of 

the building does not qualify. In the case of a truck on which solar energy property is 

mounted, the cost of the solar energy property and the cost of mounting the property may 

be eligible for a Section 1603 payment. However, the truck on which the property is 

mounted is not specified energy property. Likewise, in the case of a forklift powered by 

a fuel cell power plant, the fuel cell power plant may be eligible for a Section 1603 

payment. However, the forklift in which it is used is not specified energy property. 

F. Location of Property 

Property which is used predominantly outside the United States does not qualify for a 

payment under section 1603. The detennination of whether property is used 

predominantly outside the United States is made by comparing the period of time during 

which the property is physically located outside the United States with the period of time 

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during which the property is physically located within the United States in a given year. 

If the property is located outside the United States during more than 50% of the year, 

such property is considered to be used predominantly outside the United States during 

that year. This limitation does not apply to property described in section 168(g)(4) of the 

IRC. 

G. Original Use 

The original use of the property must begin with the applicant. If the cost of the used 

parts contained within the property is not more than 20 percent of the total cost of the 

property (whether acquired or self-constructed), an applicant will not fail to be 

considered the original user of property because it contains used parts. 

If new property is originally placed in service by a person and is sold to an applicant and 

leased back to the person by the applicant within three months after the date the property 

was originally placed in service by the person, unless the lessor and lessee elect 

otherwise, the applicant-lessor is considered the original user of the property and the 

property is considered to be placed in service not earlier than when it is used under the 

lease back. 

H. Required Documentation 

Applicants must submit supporting documentation demonstrating that the property is 

eligible property and that it has been placed in service, and if placed in service after 

December 31,2011, that construction began in 2009,2010 or 2011 (See section V below 

for documentation required to support costs). The following documents are required as 

indicated below: 

Eligible Property - the following documentation must be provided, as applicable, to 

demonstrate that the property is eligible (for further details on property eligibility, see 

sections 45 or 48 of the IRC): 

Design plans (required of all applicants). Final engineering design documents, stamped 

by a licensed professional engineer. 

Documentation demonstrating that the property is designed to have a nameplate capacity 

that meets required minimums or maximums (see Section 4A of the Application for 

properties with minimum or maximum nameplate capacity requirements) : [open-loop 

biomass facility (livestock waste nutrients), marine and hydrokinetic renewable energy 

facility, fuel cell property, microturbine property, combined heat and power system 

property, and small wind energy property only]. This documentation can be included 

within the required design plans or commissioning report, or with the original equipment 

manufacturer (OEM)/equipment vendor specification sheets. 

Documentation demonstrating that the property is designed to meet the electricity-only 

generation efficiency requirements described in Section 4A of the Application (fuel cell 

property and microturbine property only). The system efficiency is typically calculated 

as a ratio of the electrical energy output from the device to the amount of fuel consumed 

to produce the electricity divided by the lower heating value (LHV) of the fuel (if 

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alternating current, be sure to include conversion losses). OEM/equipment vendor 

specification sheets that specify the above values can be used as supporting 

documentation for nameplate capacity and system efficiency. This documentation can 

also be included within the required design plans or commissioning report, as long as it 

specifies the above values. 

For combined heat and power system property only, documentation demonstrating that 

the system is designed to meet the requirements described in Section 4A of the 

Application. See IRC section 48(c)(3)(C) for calculation of the system energy efficiency 

percentage. This documentation can be included within the required design plans or 

commissioning report, or with OEM/equipment vendor specification sheets. 

For a closed-loop biomass facility modified to use closed-loop biomass to co-fire with 

coal, other biomass, or both, documentation demonstrating approval under the Biomass 

Power for Rural Development Program or documentation demonstrating that the facility 

is part of a pilot project of the Commodity Credit Corporation. 

FERC certification (applicable to incremental hydropower production projects only). 

Certification provided by the Federal Energy Regulatory Commission that certifies the 

baseline and incremental increase in energy production for incremental hydropower 

production. 

FERC license (applicable to hydropower facility installed on a qualifying 

nonhydroelectirc dam only). 

Placed in Service - the following documentation must be provided, as applicable, to 

demonstrate that the property is placed in service: 

Commissioning report (required for all properties placed in service). A report provided 

by the project engineer, or the equipment vendor, or an independent third party that 

certifies that the equipment has been installed, tested, and is ready and capable of being 

used for its intended purpose. 

Interconnection agreement (required only for properties placed in service that are 

interconnected with a utility). A formal document between the applicant and the local 

utility that establishes the terms and conditions under which the utility agrees to 

interconnect with the applicant's system. Applicants must also submit any subsequent 

documentation to demonstrate that the interconnection agreement has been placed in 

effect. 

Under Construction but not yet Placed in Service - the following documentation must 

be provided, as applicable, to demonstrate that construction has begun on the property: 

Paid invoices and/or other financial documents demonstrating that physical work of a 

significant nature has begun on the property as described in Section IV.C. Ifbeginning 

of construction is based on the safe harbor, these documents must demonstrate that more 

than 5 percent of the total cost of the property) has been incurred or paid by the applicant. 

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Binding contract (required for property not yet placed in service that is being 

manufactured, constructed or produced for the applicant by another person). The binding 

contract for the manufacture, construction or production of the property as described in 

section IV.C above. 

Leased Property - the following documentation must be provided where the applicant is 

the lessee ofthe property to demonstrate that the lessor and lessee have entered into the 

agreement required by section VI of this Guidance. 

The written agreement with the lessor described in Section VI of this Guidance. 

I. Types of Property 

Property eligible to receive Section 1603 payments is "specified energy property." 

Specified energy property includes only tangible property (not including a building) that 

is an integral part of the facility. The tangible property is tangible personal property and 

other tangible property as defined in sections 1.48-1 ( c) and (d) of the Income Tax 

Regulations. Specified energy property is property for which depreciation (or 

amortization in lieu of depreciation) is allowable. 

Qualified property must be placed in service in 2009,2010 or 2011 or, in the case of 

property placed in service after 2011 for which construction begins in 2009,2010 or 

2011, before the credit termination date. Property that satisfies this placed-in-service 

requirement may be qualified property even if it is an addition to or expansion of a 

qualified facility placed in service before 2009. 

Qualified property includes only tangible property that is an inteb'fal part of the qualified 

facility. Qualified property does not include a building but may include structural 

components of a building. Property is an integral part of a qualified facility if the 

property is used directly in the qualified facility and is essential to the completeness of 

the activity performed in that facility. Roadways and paved parking areas located at the 

qualified facility and used for transport of material to be processed at the facility or 

equipment to be used in maintaining and operating the facility are integral to the activity 

preformed there, but roadways or paved parking lots that provide solely for employee and 

visitor vehicle traffic are not an integral part a qualified facility. Property is considered 

used as an integral part of a qualified facility if so used either by the owner of the 

property or by the lessee of the prope11y. 

In the case of an open-loop biomass, closed-loop biomass, or municipal solid waste 

facility, an integral part of the qualified facility may include property used for unloading, 

transfer, storage, reclaiming from storage, or preparation (shredding, chopping, 

pulverizing, or screening) of the material to be processed at the plant. If the facility uses 

a gas or liquid derived from open-loop biomass, closed-loop biomass, or municipal solid 

waste to produce electricity, equipment used to produce and process such gas or liquid 

may also be an integral part of the facility. However, equipment used to cultivate c1osedloop biomass, equipment used to collect open-loop biomass, closed-loop biomass, or 

municipal solid waste, and trucks, railroad cars, barges and pipelines that transport 

open-loop biomass, closed-loop biomass, or municipal solid waste (or a gas or liquid 

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produced from any of the foregoing) to a qualified facility or between noncontiguous 

parts of a qualified facility are not an integral part of the facility. Property that is integral 

to a geothermal facility includes equipment that transports geothermal steam or hot water 

from a geothennal deposit to the site of ultimate use. This includes components of a 

heating system, such as pipes and ductwork that distribute within a building the energy 

derived from the geothermal deposit and, if geothermal energy is used to generate 

electricity, includes equipment that transports hot water from the geothermal deposit to a 

power plant. 

For qualified property that generates electricity, qualified property includes storage 

devices, power conditioning equipment, transfer equipment, and parts related to the 

functioning of those items but does not include any electrical transmission equipment, 

such as transmission lines and towers, or any equipment beyond the electrical 

transmission stage, such as transformers and distribution lines. 

Specified energy property, within the meaning of Section 1603, consists of two broad 

categories of property - certain property that is part of a facility described in IRC section 

45 (Qualified Facility Property) and certain other property described in IRC section 48. 

The followin? types of property are specified energy property within the meaning of 

Section 1603 : 

Qualified Facility Property: 

Qualified Facility Property is property that is an integral part of a qualified facility 

described in IRC section 45(d)(l), (2), (3), (4), (6), (7), (9), or (l1).Although this 

Guidance does not address the placed-in-service requirements ofIRC section 

45,Qualified Facility Property must be part of a facility that meets those requirements. 

Qualified Facility Property may, however, be a post-2008 addition to or modification of a 

facility placed in service before 2009 so long as the facility meets the placed-in-service 

requirements of section 45. In the case of a post-2008 addition to or modification of a 

qualified facility described in section 45(d)(1), (2), (3), (4), (6), (7), (9), or (11) and 

placed in service before 2009, no credit is allowed with respect to such facility under 

section 45, or with respect to such property under section 48, in the taxable year a Section 

1603 payment is made or in any subsequent year. 

Windfacility: A wind facility is a facility using wind to produce electricity (wind 

turbines 100kW or less may also qualify as qualified small wind energy property, 

but only one payment is allowed with respect to the property). 

Closed-loop biomass facility: A closed-loop biomass facility uses closed-loop 

biomass to produce electricity. Closed-loop biomass is any organic material from 

a plant that is planted exclusively for purposes of being used at a qualified facility 

to produce electricity. A closed loop biomass facility includes the modifications to 

I The property descriptions included in this Guidance are intended to assist applicants in determining if a 

property qualifies for funding. They are not intended to change the meaning of the terms as they are used 

in sections 45 or 48 of the IRe. 

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a facility that was originally placed in service and modified to use closed-loop 

biomass to co-fire with coal, with other biomass, or with both, but only if the 

modification is approved under the Biomass Power for Rural Development 

Programs or is part ofa pilot project of the Commodity Credit Corporation as 

described in 65 Fed. Reg. 63052. 

Open-loop biomassfacilities: An open-loop biomass facility uses open-loop 

biomass to produce electricity. Open-loop biomass is any agriculture livestock 

waste nutrients or any solid, nonhazardous, cellulosic waste material or any lignin 

material that is derived from qualified sources. 

• Agricultural livestock waste nutrients are agriculturale livestock manure 

and litter, including wood shavings, straw, rice hulls, and other bedding 

material for the disposition of manure. Agricultural livestock includes 

bovine, swine, poultry, and sheep. 

• The qualified sources from which solid, nonhazardous, cellulosic waste 

material or any lignin material must be derived are: 

1. Any of the following forest-related resources: mill and harvesting 

residues, precommercial thinnings, slash, and brush; 

2. Solid wood waste materials, including waste pallets, crates, 

dunnage, manufacturing and construction wood wastes (other than 

pressure-treated, chemically-treated, or painted wood wastes), 

landscape or right-of-way tree trimmings, but not including 

municipal solid waste, gas derived from the biodegradation of solid 

waste, or paper that is commonly recycled; and 

3. Agriculture sources, including orchard tree crops, vineyard, grain, 

legumes, sugar, and other crop by-products or residues. 

An open-loop biomass facility does not include: 

• A facility that bums fossil fuel (co-firing) beyond such fossil fuel required 

for startup and flame stabilization; or 

• A facility using agricultural livestock waste nutrients that has a nameplate 

capacity rating ofless than 150 kilowatts. 

Geothermalfacility: A geothennal facility uses geothennal energy to produce 

electricity. Geothennal energy is energy derived from a geothennal deposit. A 

geothennal deposit is a geothennal reservoir consisting of natural heat that is 

stored in rocks or in an aqueous liquid or vapor (whether or not under pressure). 

Lan4fill gas facilities: A landfill gas facility is a facility producing electricity 

from gas derived from the biodegradation of municipal solid waste. 

Trash facilities: A trash facility is a facility, other than a landfill gas facility, that 

uses municipal solid waste to produce electricity. In the case of a new unit placed 

in service in connection with a trash facility placed in service before October 23, 

2004, only property related to the new unit can qualify as specified energy 

property that is eligible for a Section 1603 payment. 

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Qualified hydropower facility: 

Incremental hydropower: A facility that produces incremental 

hydropower production described in IRC section 45(c)(8)(B). The percentage of 

incremental hydropower and baseline must be certified by the Federal Energy 

Regulatory Commission. The determination of incremental hydropower 

production shall not be based on any operational changes at such facility not 

directly associated with the efficiency improvements or additions of capacity. 

Only property related to the efficiency improvements and additions to capacity to 

which the incremental hydropower production is attributable can qualify as 

specified energy property that is eligible for a Section 1603 payment. 

Nonhydroelectric dam: Qualified hydropower facilities also include any 

hydropower producing facility described in IRC section 45( c)(8)(C) (relating to 

hydroelectric projects installed on a nonhydroelectric dams that were placed in 

service before August 8, 2004, and did not produce hydroelectric power on 

August 8, 2004). The hydroelectric project must be licensed by the Federal 

Energy Regulatory Commission and must meet all other applicable 

environmental, licensing, and regulatory requirements. The hydroelectric project 

must be operated so that the water surface elevation at any given location and 

time that would have occurred in the absence of the hydroelectric project is 

maintained, subject to any license requirements imposed under applicable law that 

change the water surface elevation for the purpose of improving environmental 

quality of the affected waterway. The Secretary of the Treasury, in consultation 

with the Federal Energy Regulatory Commission, shall celtify that the 

hydroelectric project licensed at a nonhydroelectric dam meets these critelia. 

Only property related to the turbines or other generating devices added to the 

facility to produce hydroelectric power can qualify as specified energy property 

that is eligible for a Section 1603 payment. 

Marine and hydrokinetic renewable energyfacilities: A marine or hydrokinetic 

renewable energy facility is a facility that produces electricity from marine and 

hydrokinetic renewable energy and has a nameplate capacity rating of at least 150 

kilowatts. Marine and hydrokinetic renewable energy is energy derived from: 

• Waves, tides, and currents in oceans, estuaries, and tidal areas, 

free flowing water in rivers, lakes, and streams; 

• Free flowing water in an irrigation system, canal, or other man-made 

channel, including projects that utilize nonmechanical structures to 

accelerate the flow of water for electric power production purposes; or 

• Differentials in ocean temperature (ocean thermal energy conversion). 

Marine and hydrokinetic renewable energy does not include any energy that is 

derived from any source that utilizes a dam, diversionary structure (except as 

provided above for man-made projects), or impoundment for electric power 

production purposes. 

Energy property described under IRe section 48: 

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Specified energy property for purposes of Section 1603 includes, in addition to qualified 

property that is part of a qualified facility, any other energy property described under IRC 

section 48. Such energy property must meet performance and quality standards that are 

prescribed either in IRC section 48 or in associated Treasury Regulations and that are in 

effect at the time of the acquisition of the property. 

Solar property: Equipment that uses solar energy to generate electricity, to heat 

or cool (or provide hot water for use in) a structure, or to provide solar process 

heat, excepting property used to generate energy for the purposes of heating a 

swimming pool; equipment that uses solar energy to illuminate the inside of a 

structure using fiber-optic distributed sunlight. 

Geothermal property: Equipment used to produce, distribute, or use energy 

derived from a geothermal deposit, but only, in the case of electricity generated 

by geothermal power, up to (but not including) the electrical transmission stage. 

A geothermal deposit is a geothermal reservoir consisting of natural heat that is 

stored in rocks or in an aqueous liquid or vapor (whether or not under pressure). 

Qualified fuel cell property: Qualified fuel cell property is a fuel cell power 

plant that has a nameplate capacity of at least 0.5 kilowatt of electricity using an 

electrochemical process and has an electricity-only generation efficiency greater 

than 30%. A fuel cell power plant is an integrated system comprised of a fuel cell 

stack assembly and associated balance of plant components that converts a fuel 

into electricity using electrochemical means. Payments for qualified fuel cell 

property cannot exceed an amount equal to $1,500 for each 0.5 kilowatt of 

capacity of such property. 

Qualffied microturbine property: Qualified microturbine property is a stationary 

microturbine power plant that has a nameplate capacity of less than 2,000 

kilowatts and has an electricity-only generation efficiency of not less than 26% at 

International Standard Organization conditions. A stationary microturbine power 

plant is an integrated system comprised of a gas turbine engine, a combustor, a 

recuperator or regenerator, a generator or alternator, and associated balance of 

plant components which converts a fuel into electricity and thermal energy. The 

microturbine power plant also includes all secondary components located between 

the existing infrastructure for fuel delivery and the existing infrastructure for 

power distribution, including equipment and controls for meeting relevant power 

standards, such as voltage, frequency, and power factors. Payments for qualified 

microturbine property cannot exceed an amount equal to $200 for each kilowatt of 

capacity of such property. 

Combined heat and power (CHP) system property: Combined heat and power 

system property is property comprising a system that meets the following 

requirements: 

• The system uses the same energy source for the simultaneous or sequential 

generation of electrical power, mechanical shaft power, or both in 

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combination with the generation of steam or other forms of useful thermal 

energy (including heating and cooling applications). 

• The system--

o Produces at least 20% of its total useful energy in the form of 

thermal energy that is not used to produce electrical or mechanical 

power (or combination thereof); and 

o Produces at least 20% of its total useful energy in the form of 

electrical or mechanical power (or combination thereof); and 

o Has a system energy efficiency percentage in excess of 60%. This 

requirement does not apply to a facility designed to use biomass 

[within the meaning ofIRC section 45(c)(2) and (3) without regard 

to the last sentence of paragraph (3)(A)] for at least 90% of the 

energy source. (See IRC section 48(c)(3)(C) for calculation of the 

system energy efficiency percentage and IRC section 48(c)(3)(D) 

for the reduction in payment for biomass systems with an energy 

efficiency ofless than 60%.) 

o Does not have a capacity in excess of 50 megawatts or a 

mechanical energy capacity in excess of 67,000 horsepower or an 

equivalent combination of electrical and mechanical energy 

capacities. 

CHP system property does not include property used to transport the energy 

source to the facility or to distribute energy produced by the facility. 

Qualified small wind energy property: Qualitied small wind energy property is 

property that uses a qualifYing small wind turbine to generate electricity. A 

qualifying small wind turbine is a wind turbine that has a nameplate capacity of 

not more than 100 kilowatts. 

Geothermal Heat Pump Property: Equipment that uses the ground or ground 

water as a thermal energy source to heat a structure or as a thermal energy sink to 

cool a structure. 

V. Eligible Basis 

The basis of property is determined in accordance with the general rules for determining 

the basis of property for federal income tax purposes. Thus, the basis of property 

generally is its cost (IRC section 1012), unreduced by any other adjustment to basis, such 

as that for depreciation, and ineludes all items properly included by the taxpayer in the 

depreciable basis of the property, such as installation costs and the cost for freight 

incurred in construction of the speci tied energy property. If property is acquired in 

exchange for cash and other property in a transaction described in IRC section 1031, in 

which no gain or loss is recognized, the basis of the newly acquired property is equal to 

the adjusted basis of the other property plus the cash paid. 

Costs that will be deducted for federal income tax purposes in the year in which they are 

paid or incurred are not includible in the basis on which the payment is determined. For 

example, if the applicant will take the IRC section 179 deduction for all or part of the cost 

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of the property, then no payment is allowed for the portion of the cost of the property for 

which the IRC section 179 deduction will be taken. For geothermal property, if 

intangible drilling and development expenses will be deducted by the applicant, no 

payment will be allowed on the costs that will be deducted as intangible drilling and 

development expenses. If the applicant will capitalize intangible drilling and 

development expenses, only those costs that may be recovered through depreciation are 

includible in the basis on which the payment is allowed. However, if the applicant will 

elect under IRC § 59(e) to deduct intangible drilling and development costs over 60 

months, the payment is based on the amount for which the election under § 59(e) applies 

because the effect of § 59( e) is to treat these costs as amortizable. 

Only the cost basis of property placed in service after 2008 is eligible for a Section 1603 

payment. Thus, if property is placed in service in 2009 at a qualified facility that was 

placed in service in an earlier year, only the basis of the property placed in service in 

2009 is eligible for a Section 1603 payment. 

Limitation on eligible basis. The eligible basis of a qualified facility does not include the 

portion of the cost of the facility that is attributable to a non qualifying activity. For 

example, for a biomass facility that bums fuel other than open-loop biomass or closedloop biomass, the eligible cost basis is the percentage of total eligible costs that is equal 

to the percentage of the electricity produced at the facility that is attributable to the openloop biomass and closed-loop biomass. In the case of costs that relate to both a 

nonqualifying activity and a qualifying activity, the costs must be reasonably allocated 

between the nonqualifying and qualifying activities. For example, if combustion 

equipment bums both qualifying biomass and other fuel, the equipment's eligible cost 

basis is limited to the percentage of its otherwise eligible cost corresponding to the 

percentage of the equipment's electricity production that is attributable to the qualifying 

biomass. Similarly, the eligible basis of a qualified hydropower facility producing 

incremental hydropower includes the entire costs of the modification even though only a 

portion of the power produced from the modification is attributable to the modification. 

Applicants must submit with their application for a Section 1603 payment documentation 

to support the cost basis claimed for the property. Supporting documentation includes a 

detailed breakdown of all costs included in the basis. Other supporting documentation, 

such as contracts, copies of invoices, and proof of payment must be retained by the 

applicant and made available to Treasury upon request. For properties that have a cost 

basis in excess 01'$500,000 applicants must submit an independent accountant's 

certification attesting to the accuracy of all costs claimed as part of the basis of the 

property. 

VI. Leased Property 

A lessor who is eligible to receive a Section 1603 payment with respect to a property may 

elect to pass-through the Section 1603 payment to a lessee. The election may only be 

made with respect to property that would be eligible for the Section 1603 payment if 

owned by the lessee. Such an election will treat the lessee as having acquired the 

property for an amount equal to the independently assessed fair market value of the 

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property on the date the property is transferred to the lessee and will generally follow the 

rules in the IRC and Treasury regulations governing elections to allow lessees to receive 

energy tax credits. 

The lessor and lessee must agree that the lessor waives all right to a Section 1603 

payment or a production or investment tax credit with respect to the eligible property, 

before the lessee may apply for a Section 1603 payment with respect to such property. 

The lessee must agree to include ratably in gross income over the five year recapture 

period an amount equal to 50 % of the amount of the Section 1603 payment. 

In order to make this election, both the lessor and the lessee must be persons eligible to 

receive a payment under Section 1603. Additionally, this election may not be made by a 

lessor that is a mutual savings bank or similar financial organization, a regulated 

investment company or a real estate investment trust. 

The election of a lessor to allow the lessee to receive a Section 1603 payment may be 

made with respect to each property leased by the lessor to the lessee. The lessee's written 

consent is required. The lessor's election is made by a written agreement with the lessee 

that contains the following information: 

• A waiver of the lessor's right to receive any payment under Section 1603 with 

respect to the property, as well as a waiver of the lessor's right to claim a 

production or investment tax credit under sections 45 and 48 of the IRC with 

respect to the same property for the taxable year of the payment or subsequent 

years; 

• All information necessary to determine the amount of lessee's Section 1603 

payment; 

• The name, address, and employer identification number of the lessor and the 

lessee; 

• A description of each property with respect to which the election in being made; 

• The date on which possession of the property is transferred to the lessee; and 

• The lessee's consent to the election. 

A copy of this agreement must be included in the lessee's application for the Section 

1603 payment. This election is irrevocable. 

Special Rule for Sale-leaseback Transaction 

In a sale-leaseback transaction, the lessee, who is not the owner of the property, may 

claim the Section 1603 payment, if three conditions are satisfied: 

• First, the lessee must be the person who originally placed the property in service. 

• Second, the property must be sold and leased back by the lessee, or must be 

leased to the lessee, within three months after the date the property was originally 

placed in service. 

• Third, the lessee and lessor must not make an election to preclude application of 

the sale-leaseback rules. 

VII. Recapture 

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If the applicant disposes of the property to a disqualified person or the property ceases to 

qualify as a specified energy property within five years from the date the property is 

placed in service (hereinafter "disqualifying event"), the Section 1603 payment must be 

repaid to the Treasury as follows: 100% of the payment must be repaid if the 

disqualifying event takes place within one year from the date placed in service; 80% of 

the payment must be repaid if the disqualifying event takes place after one year but 

before two years from the date placed in service; 60% of the payment must be repaid if 

the disqualifying event takes place after two years but before three years from the date 

placed in service; 40% of the payment must be repaid if the disqualifYing event takes 

place after three years but before four years from the date placed in service; and 20% of 

the payment must be repaid if the disqualifying event takes place after four years but 

before five years from the date placed in service. 

Property is considered to have been disposed of to a disqualified person if any interest in 

the property or in the applicant or in any partnership or pass-thru entity that is a direct or 

indirect owner of an interest in the applicant is sold to: any Federal, state or local 

government, including any political subdivision, agency or instrumentality thereof; any 

organization that is described in section 501(c) of the IRC and is exempt from tax under 

section 501(a) of the IRC; any entity referred to in paragraph (4) of section 54(j) of the 

IRC; or any partnership or other pass-thru entity any partner (or other holder of an equity 

or profits interest) of which is a Federal, state or local government, including any political 

subdivision, agency or instrumentality thereof; an organization that is described in section 

501(c) of the IRC and is exempt from tax under section 501(a) of the IRC; or an entity 

referred to in paragraph (4) of section 54(j) of the IRC. A taxable corporation some or all 

of whose shareholders are disqualified persons is not a disqualified person and such a 

corporation's ownership of an interest in a partnership or other pass-thru entity will not 

cause the partnership or other entity to be treated as a disqualified person. 

Property ceases to qualify as a specified energy property if the use of the property 

changes so that it no longer qualifies as specified energy property. For example, use of 

property predominantly outside the United States in a year will result in recapture. 

Temporary cessation of energy production will not result in recapture provided the owner 

of the property intends to resume production at the time production ceases. Permanent 

cessation of production will result in recapture. Permanent cessation of production due to 

natural disaster will not result in recapture unless the property is replaced with property 

for which a Section 1603 payment is allowed. Replacement would be treated as 

occurring if the applicant uses IRC section 1033 to avoid gain recognition. 

For a hydropower property where incremental hydropower production has been licensed 

by FERC, recapture will not take place if actual incremental increases in energy 

production do not occur that year due to environmental and/or regulatory factors. 

Recapture for a hydropower facility installed on a nonhydroelectric dam will occur if the 

Federal Energy Regulatory Commission license is surrendered or repealed based on 

significant changes in water surface elevation caused by operation of the facility. 

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If the amount of the Section 1603 payment depends on the percentage of electricity 

produced from biomass (in the case of closed-loop and open-loop biomass facilities) or 

the energy efficiency percentage (in the case of combined heat and power system 

property using biomass) and the percentage is reduced, a proportionate percentage of the 

property ceases to qualify as specified energy property. The applicable percentages will 

be determined on an annual basis for the year beginning on the date the property is placed 

in service and for each succeeding year within the recapture period. No additional grant 

will be allowed in a subsequent year in which the percentage increases. 

Selling or otherwise disposing of the property to an entity other than a disqualified person 

does not result in recapture provided the property continues to qualify as a specified 

energy property and provided the purchaser of the property agrees to be jointly liable 

with the applicant for any recapture. Recapture would occur in the event the property is 

resold to a disqualified person or ceases to qualify as a specified energy property. The 

applicant remains jointly liable to the Treasury for the recapture amount even if the 

applicant no longer has control over the property. 

Where a lessor elects to pass through the Section 1603 payment to a lessee, if the lessor 

sells the property to a disqualified person, the lessee is liable to the Treasury for the 

recapture amount even if the lessee maintains control over the property. If the lease is 

terminated and possession of the property is transferred by the lessee to the lessor or any 

other person, the lessee is liable to the Treasury for the recapture amount if the use of the 

property changes during the recapture period so that it no longer qualifies as specified 

energy property. 

Applicants are not required to post a bond as a condition of receiving payment under the 

section 1603 program and receipt of payment does not create a lien on the property in 

favor of the United States. However, funds that must be repaid to the Treasury under 

these rules are considered debts owed to the United States and if not paid when due, will 

be collected by all available means against any assets of the applicant, including 

enforcement by the United States Department of Justice. Debts arising under these rules 

are not considered tax liabilities. 

VIII. Miscellaneous Provisions 

A. Assignment of Payment 

Applicants may submit, along with their request for payment, a Notice of Assignment, 

assigning the payment to a third party provided the requirements of the Federal 

Assignment of Claims Act (31 U.S.C. 3727) are met. The Notice of Assignment will 

include the DUNS number for the third party. The third party will be required to register 

inCCR. 

B. National Environmental Protection Act (NEP A) 

A Section 1603 payment with respect to specified energy property does not make the 

property subject to the requirements ofNEPA and similar laws. 

C. Davis- Bacon 

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A 1603 payment with respect to specified energy property does not make the property 

subject to the requirements of the Davis-8acon Act. 

D. Treatment of Payments as Taxable Income 

Except as described in Section IV of this Guidance with respect to leased property, a 

Section 1603 payment with respect to specified energy property is not includible in the 

gross income of the applicant. The basis of the property is reduced by an amount equal to 

50% of the payment. 

E. Real Estate Investment Trusts 

A Real Estate Investment Trust (REIT) will be eligible to receive Section 1603 payments 

only to the extent allowed by section 50 of the IRC. IRC section 50( d)( I) specifies that 

rules similar to the rules offormer IRC section 46(e) will apply. IRC section 46(e)(l)(8) 

provides that, in general, in the case of a REIT, qualified investment is limited to the 

REIT's ratable share of such qualified investment. The ratable share is a ratio, the 

numerator of which is its taxable income and the denominator of which is its taxable 

income computed without regard to the deduction for dividends paid (provided by IRC 

section 8S7(b )(2)(8)). For this purpose, the REIT's taxable income is determined 

without regard to any deduction for capital gains dividends and by excluding any net 

capital gain. 

F. Applicability of Normalization Rules 

Payments received under the Section 1603 program must be normalized. See former IRC 

Section 46(f). 

G. Reporting 

Applicants will be required to provide reports, as required by Treasury, including an 

annual performance report as set forth in the Terms and Conditions. 

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Payments for Specified Energy Property in Lieu of Tax Credits 

Under the American Recovery and Reinvestment Act of 2009 

FREQUENTLY ASKED QUESTIONS AND ANSWERS 

BEGUN CONSTRUCTION 

Ql. How does an applicant demonstrate that construction has begun on a project in 2009, 

2010 or 2011? 

AI. There are two ways to show that construction has begun. One is to begin physical work of 

a significant nature. The other is to meet a 5% safe harbor. 

Physical Work of a Significant Nature 

Q2. What does it mean to begin physical work of a significant nature? 

A2. This means that physical work on the specified energy property has started. Physical work 

of a significant nature includes any physical work on the specified energy property at the site. 

Physical work of a significant nature also includes physical work that has taken place under a 

binding written contract for the manufacture, construction, or production of specified energy 

property for use by the applicant's facility provided the contract is entered into prior to the 

work taking place. 

Q3. What is included in specified energy property in the case of a qualified facility described in 

section 45 of the Internal Revenue Code? 

A3. In the case of a qualified facility described in section 45, specified energy property is 

limited to tangible personal property and other tangible property used as an integral part of the 

activity performed by the qualified facility and located at the site the qualified facility. For such 

a facility, specified energy property includes property integral to the production of electricity, 

but does not include property used for electrical transmission. Thus, physical work on a 

transmission tower located at the site is not physical work of a significant nature because the 

transmission tower is not part of the qualified facility. However, physical work on a 

transformer that steps up the voltage of electricity produced at the facility to the voltage 

needed for transmission is physical work of a significant nature because power conditioning 

equipment is part of the qualified facility. 

Q4. How much physical work is required? Is laying the foundation for one wind turbine that is 

part of a larger wind farm sufficient? 

A4. In general any physical work on the specified energy property will be treated as the 

beginning of construction even if such work relates to only a small part of the facility, but see 

Qs/As below. 

Qs. Once physical work has begun, must physical work on the project be continuous to satisfy 

the requirement that construction has begun? For example, if a single foundation for a wind 

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turbine is laid in 2011 but no other physical work on a 50-turbine project takes place until 2013, 

has the requirement been met? 

AS. Treasury will closely scrutinize any construction activity that does not involve a continuous 

program of construction or a contractual obligation to undertake and complete within a 

reasonable time, a continuous program of construction. Disruptions in the work schedule that 

are beyond the applicant's control (for example, unusual weather or a site at which work can 

only be performed during certain seasons) will be taken into account in determining whether or 

not an applicant has undertaken a continuous program of construction. 

Q6. Is starting work on roads physical work of a significant nature? 

A6. Only work on specified energy property is physical work of a significant nature for purposes 

of showing that construction has begun. In the case of a qualified facility described in section 

45, roads on the site that are integral to the qualified facility are specified energy property; 

these include onsite roads that are used for moving materials to be processed (for example, 

biomass) and roads for equipment to operate and maintain the qualified facility. Starting 

construction on these roads constitutes the beginning of construction. Roads for access to the 

site, or roads used solely for employee or visitor vehicles are not specified energy property; 

starting construction on these roads is not starting physical work of a significant nature on 

specified energy property. 

Q7. Is preliminary work such as clearing land, obtaining permits or putting up fencing physical 

work of a significant nature? 

A7. Preliminary work such as clearing land and obtaining permits is not physical work of a 

significant nature on specified energy property. Erecting a fence (or beginning to erect a fence) 

is not the beginning of physical work of a significant nature because, generally, fencing is not an 

integral part of the qualified facility. 

QB. An applicant plans to build a new facility for the production of electricity from wind power. 

The facility will be constructed on an existing wind facility site. In order to construct the new 

wind facility, the existing facility will be dismantled and removed. If an applicant begins to 

remove portions of the existing facility has physical work of a significant nature commenced? 

AB. No. Generally, the cost of removal is associated with the property being removed or is 

capitalized to non-depreciable land. Removal of the existing turbines and towers is preliminary 

work and, therefore, does not constitute physical work of a significant nature on specified 

energy property. 

Q9. Is the construction at the site of a building that will be used for operations and 

maintenance physical work of a significant nature? 

A9. Because a building is not specified energy property, construction of a building is not 

physical work of a significant nature. However, the following structures are not treated as 

buildings for this purpose: (1) a structure that is essentially an item of machinery or equipment, 

or (2) a structure that houses property used as an integral part of a qualified activity if the use 

of the structure is so closely related to the use of the housed property that the structure clearly 

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can be expected to be replaced when the property it initially houses is replaced. See Treas. 

Regs.§ 1.48-1(e)(1). 

Q10. Is test drilling of a geothermal deposit considered physical work of a significant nature? 

AlD. Test drilling for a geothermal deposit is a preliminary activity and is not physical work of a 

significant nature. 

Q11. When is a contract binding? 

All. To be binding, a contract must be enforceable under state law. Additionally, the contract 

terms cannot limit damages in the event of a breach to less than 5% of the total contract price. 

Q12. What is included in work performed under a binding written contract? 

A12. Work performed under the contract includes only work that takes place after the binding 

written contract is entered into. The work is treated as physical work of a significant nature 

only if it is work on property that will become specified energy property of the applicant. For 

example, if a contractor is manufacturing solar panels specifically for the applicant under a 

binding written contract, any physical work on those panels is physical work of a significant 

nature on specified energy property of the applicant. If an applicant has a binding written 

contract with a contractor who is manufacturing solar panels for a number of customers, 

physical work on the panels would only be considered work performed under the applicant's 

binding written contract if the contractor can reasonably demonstrate that physical work has 

started on panels that will become specified energy property of the applicant. The contractor 

may use any reasonable, consistent method to allocate work it performs among its customers. 

Whether a method is reasonable depends on all the relevant facts and circumstances. 

Q13. If an applicant purchases components or other parts from the inventory of a vendor 

under a binding written contract entered into before January 1, 2012, has physical work of a 

sign ifica nt n atu re begu n ? 

A13. No. Work performed under a contract does not include work to produce components or 

parts that are in existing inventory or are normally held in inventory by a manufacturer. 

Q14. If physical work takes place pursuant to a binding written contract on property 

manufactured, constructed or produced for the applicant's project but the specific site for the 

project will not be identified prior to the deadline for submitting initial applications (or the site 

changes after an initial application is submitted), has physical work of a significant nature 

begun? 

A14. If the work performed otherwise meets the requirements for physical work of a significant 

nature and work on the project is continuous (see QS/AS). the fact that the specific site of the 

project has not been identified at the time of the initial application (or changes after the initial 

application) does not impact whether or not construction has begun. 

5% Safe Harbor 

Q1S. How is the 5% safe harbor met? 

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A15. An applicant meets the 5% safe harbor if the applicant pays or incurs 5.00% or more of 

the total cost of the specified energy property before the end of 2011. 

Q16. What does "paid or incurred" mean? 

A16. The term "paid or incurred" generally means paid or incurred within the meaning of 

Treas. Regs. §1.461-1(a)(1) and (2). That is, costs are taken into account when cash-method 

taxpayers "pay" them and when accrual-method taxpayers "incur" them. A cost is generally 

"incurred" for tax purposes when 1) the fact of the liability is fixed, 2) the amount of the liability 

is determinable with reasonable accuracy, and 3) the economic performance test (see Treas. 

Regs. §1.461-4) has been met with respect to such cost. Although the specific reference to the 

§461(h) economic performance rules was deleted in the revised Program Guidance, the 

economic performance rules continue to apply in determining whether costs have been 

incurred. The 5% safe harbor contained in the Program Guidance includes a single exception to 

the general principles that are used to determine when amounts are "incurred." Under general 

rules for property manufactured, constructed, or produced for the applicant by another person 

under a binding written contract that is entered into prior to the manufacture, construction, or 

production of the property, the cost of such property is treated as "incurred" when the 

property is provided to the applicant. The exception is that for periods before the property is 

provided to the applicant, costs incurred with respect to the property by such other person are 

treated as costs of the property that are incurred by the applicant when the costs are incurred 

by such other person. 

Q16A: When are costs paid or incurred by the person providing the property to the applicant 

under a binding contract? 

A16A: Costs are paid or incurred by the person providing property to the applicant as that 

person pays or incurs costs in connection with providing property to the applicant. For 

example: In 2011, accrual-method taxpayer W enters a binding written contract to provide a 

wind turbine to A in June 2013. In 2011, W, pursuant to a contract with Y, pays Y to provide 

parts in May 2012 for use in the wind turbine. W's employees provide W with services 

necessary to design and plan for the production of the wind turbine in 2011 and with services 

to manufacture (assemble) the wind turbine in 2013. W incurs the cost to design and plan for 

the production of the turbine assembly in 2011, incurs the costs for the parts in May 2013 when 

Y delivers the parts to W, and incurs the costs for W's employees to assemble the wind turbine 

in 2013. See § 1.461-4(d)(4), § 1.446-1(c)(1)(ii), and Example 3 of § 1.461-4(d)(7) of the Income 

Tax Regulations. For purposes of determining whether A has met the 5% safe harbor, A may 

only include the costs incurred by W to pay its employees to plan and design the turbine in 

2011. 

Q17. If title to the property has passed to the applicant, but the property remains in storage at 

the manufacturer's site, has the property been provided to the applicant? 

A17. Property is provided to the applicant either when title to the property passes to the 

applicant or when it is delivered to or accepted by the applicant, depending on the applicant's 

method of accounting. In addition, property that the applicant reasonably expects to be 

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provided within 3-1/2 months of the date of payment will be considered to be provided on the 

payment date. See, generally, Treas. Regs. §1.461-4(d)(6). 

Q18. In the case of property manufactured, constructed, or produced for the applicant by 

another person (the supplier) under a binding written contract that is entered into prior to the 

manufacture, construction, or production of the property, how does the applicant determine 

what costs have been paid or incurred on its behalf by the supplier? (Note that this Question 

and Question 19 assume that the supplier uses the accrual method of accounting) 

A18. The applicant may rely on a statement by the supplier as to the amount incurred by the 

supplier with respect to the property to be manufactured, constructed, or produced for the 

applicant under the binding written contract. The supplier may use any reasonable, consistent 

method to allocate the costs incurred by the supplier among the units of property to be 

manufactured, constructed, or produced by the supplier. Only costs incurred by the supplier 

after the binding written contract is entered may be reasonably allocated to the property 

manufactured, constructed, or produced under that contract. The economic performance rules 

apply to determine when costs have been incurred by the supplier. The exception described in 

Q16/A16 does not apply in determining when costs are incurred by the supplier. Thus, if 

components are manufactured for the supplier by a subcontractor, the cost of those 

components is incurred only when the components are provided to the supplier and not as the 

subcontractor pays or incurs the costs of manufacturing the components. 

Q19. An applicant may enter into a binding written contract for mUltiple units of property to be 

manufactured, constructed, or produced for the applicant by another person under a binding 

written contract that is entered into prior to the manufacture, construction, or production of 

the property. How does the applicant allocate the costs paid or incurred with respect to the 

contract to the units of property acquired pursuant to the contract? 

A19. Costs incurred when property is delivered to the applicant are allocated to such property. 

Costs that are treated under Q16/A16 as incurred when incurred by the supplier with respect to 

the property are allocated to the property with respect to which the supplier incurred the costs. 

The supplier may use any reasonable method to allocate the costs it incurs among the units of 

property manufactured, constructed or produced by the supplier and to allocate the units of 

property it produces among its customers. Whether a method is reasonable depends on all the 

relevant facts and circumstances. In addition, property that the supplier reasonably expects to 

receive from a subcontractor within 3-1/2 months of the date of the supplier's payment to the 

subcontractor is considered to be provided by the payment date. See, generally, Treas. Regs. 

§1.461-4(d)(6). 

Q20. A developer may enter into a binding written contract for multiple units of property to be 

manufactured, constructed, or produced for the developer by another person under a binding 

written contract (a "master contract") that is entered into prior to the manufacture, 

construction, or production ofthe property. The developer may then assign its rights to certain 

units of property to an affiliated special purpose vehicle (generally, a limited liability company) 

that will own the project for which such property is to be used and will apply for the payment. 

Such assignment typically is represented by a new contract (the "project contract") between 

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the special purpose vehicle and the person manufacturing, constructing, or producing the 

property. An adjustment is then made to the master contract between the developer and the 

person manufacturing, constructing, or producing the property to reflect the assignment. 

Assume costs paid or incurred with respect to the master contract between the developer and 

the person manufacturing, constructing, or producing the property are considered to have been 

paid or incurred in 2009,2010, or 2011 for purposes of determining whether construction has 

started. For purposes of determining whether construction has started, may these costs then 

be allocated to the special purpose vehicle if its project contract and the master contract, as 

adjusted, both reflect this assignment? 

A20. Costs that are allocated to the property under the principles of Q19/ A19 are treated as 

costs of the property notwithstanding the substitution of the project contract with respect to 

such property. 

Q21. What happens if the project's costs are more than expected? Is it sufficient to show that 

an applicant reasonably expected costs paid or incurred before the end of 2011 to be 5% of the 

project costs? 

A2l. No. To satisfy the 5% safe harbor applicants must demonstrate that costs paid or incurred 

before the end of 2011 are equal to or greater than 5% of the actual total costs of the specified 

energy property. However, if the applicant's project includes multiple units of specified energy 

property, an applicant can opt to apply for a payment based on some, but not all, units of 

property. For example, if an applicant incurs $25,000 in costs in 2011 for specified energy 

property in a 5 turbine wind farm anticipating total costs for specified energy property of 

$500,000 but the actual total costs of specified energy property amount to $600,000, the safe 

harbor would not be satisfied. However, the applicant can opt to apply for a payment based on 

the costs of 3 turbines and would satisfy the safe harbor if the $25,000 of costs incurred in 2011 

relates to the 3 turbines and their total cost does not exceed $500,000. 

Q22. An applicant demonstrates that the applicant meets the 5% safe harbor as of December 

31,2011, with respect to a facility. The facility will not be placed in service until 2012. Must 

the applicant continue to work at the site in 2012 in order to qualify for payment in 2013? 

A22. No. 

Q23. For applicants relying on the 5% safe harbor, what happens if ownership of the energy 

property changes between the time the property is acquired for use in a project and the time 

the project is placed in service? 

A23. If a person (the transferor) contributes, assigns or transfers property to a second person 

(the transferee) and the transferee uses the property in a project, the transferee is treated for 

purposes of the 5% safe harbor as having paid or incurred, at the same time as the transferor, 

the costs that the transferor paid or incurred to acquire the property, but only if the transferor 

acquired the property for use in that project and is related to the transferee. A transferee and 

transferor that are related persons within the meaning of section 197(f)(9)(C) of the Internal 

Revenue Code immediately before or immediately after the contribution, assignment, or 

transfer of the property will be considered related for this purpose. However, if property is sold 

to an unrelated purchaser after December 31, 2011, the purchaser may not take the costs that 

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the transferor incurred with respect to the property into account in determining whether the 

5% safe harbor is met. This limitation does not apply in the case of a sale/leaseback 

arrangement. If an entity which met the 5% safe harbor with respect to a facility sells the 

facility to an unrelated entity and leases the facility back from that entity within 90 days of the 

placed in service date, the purchaser of the facility (assuming all other eligibility requirements 

are met) would be treated as satisfying the 5% safe harbor. 

Q24. For applicants relying on the 5% safe harbor, what happens if ownership of the entity that 

met the 5% safe harbor changes before the property is placed in service? 

A.24. If ownership of the entity that met the 5% safe harbor changes after December 31, 2011, 

and before the property is placed in service, eligibility is not affected if (1) the purchaser is an 

otherwise eligible Section 1603 applicant and (2) the entity being sold had commenced 

development of a project as evidenced by activity such as acquiring land, obtaining permits and 

licenses, entering into a power purchase agreement, entering into an interconnection 

agreement, and contracting with an Engineering, Procurement and Construction contractor. 

The purchaser of an entity which holds equipment only may not rely on costs paid or incurred 

to acquire that equipment. For example, a project company meets the safe harbor and 

commences development of a project by acquiring permits, a power purchase agreement and 

an interconnection agreement. A partnership interest in the project company is sold to a tax 

equity investor (or the tax equity investor makes a capital contribution in exchange for a 

partnership interest) in a partnership flip transaction. The project company (with the tax equity 

investor as a partner) may rely on costs incurred by the project company to satisfy the 5% safe 

harbor. On the other hand, if a project company meets the safe harbor by purchasing and 

taking delivery of equipment but does no other activity, the purchaser of the project company 

may not rely on costs incurred by the project company to satisfy the 5% safe harbor. 

Process 

Q2S. Under what circumstances and when is an applicant required to submit an application 

demonstrating that construction has begun? 

A2S. All applications must be submitted before the statutory deadline of October 1, 2012. For 

property that has been or will be placed in service in 2009, 2010, or 2011 an application 

demonstrating that construction has begun is not required. For property that is placed in 

service after December 31,2011, but before October 1, 2012, applicants may submit an 

application before October 1, 2012, demonstrating both that construction began on the 

property in 2009, 2010, or 2011 and that the property has been placed in service. For property 

that is placed in service on or after October 1, 2012, applicants must submit a preliminary 

application before October 1, 2012, demonstrating that construction on the property began in 

2009,2010, or 2011. Such applications must then be supplemented at the time the property is 

placed in service. 

Q26. If an applicant submits an application demonstrating that construction has begun, will the 

applicant receive a response? 

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A26. Yes. Although we cannot provide assurance that an applicant meets all the requirements 

for a payment until all facts and circumstances are known (at time the facility is placed in 

service), we will tell the applicant whether or not the work performed is physical work of a 

significant nature or, for applicants relying on the safe harbor, whether qualifying costs have 

been paid or incurred. 

Q27. What documentation is required? 

A27. For projects relying on "physical work of a significant nature" applicants must document 

the physical work. For example, to demonstrate that physical work of a significant nature has 

commenced at the site, applicants should submit a written report from the project engineer or 

installer, signed under penalties of perjury, describing the project's eligibility; including a 

detailed construction schedule; estimated budget for the project and a description of the work 

that has commenced including any invoices for the work performed. For projects with an 

anticipated cost basis of $1 million or more, the report must be from an independent engineer. 

To demonstrate that physical work of a significant nature has commenced under a binding 

written contract, applicants should submit a copy of the binding written contract and a 

statement from the contractor, signed under penalties of perjury, describing the work that has 

commenced and certifying that the work commenced pursuant to the binding written contract. 

For projects relying on the 5% safe harbor, applicants must submit a statement from an 

authorized representative of the applicant signed under penalties of perjury, or for projects 

with an estimated eligible cost basis of $1 million or more, from an independent accountant, 

attesting to the method of accounting used by the applicant for federal tax purposes (cash or 

accrual). For applicants that use the cash method of accounting, the statement should state 

the amount that has been paid before the end of 2011; a detailed description of the costs that 

have been paid; and an estimate of the total cost of the specified energy property and must 

include evidence of payment such as invoices or other financial records. For applicants that use 

the accrual method of accounting, the statement should state the amount that has been 

incurred before the end of 2011; a detailed description of the costs incurred; and an estimate 

of the total cost of the specified energy property and must include evidence of the costs 

incurred such as invoices or other financial records. If an applicant is relying on costs paid or 

incurred by a contractor, a copy of the binding written contract and a statement from the 

contractor, signed under penalty of perjury, of costs paid or incurred and allocated to 

applicant's project must be included. 

Additional documentation may also be required depending on the facts and circumstances. If 

additional documentation is required applicants will be notified. 

8 
229 

Q3: Please provide a detailed summary of NREL's Cooperative Research and Development Agreements 

(CRADAs) related to the renewable energy technologies considered at the hearing, including a list ofthe 

partners, technology types, and approximate value of the partner-contributed funds under such 

CRADAs. 

A listing of the partnerships related to the technologies considered at the hearing is provided below. A 

total of $20.5 million in partner-contributed funds have been committed to these wind and solar 

partnerships and most ofthese projects are executed over a three to five year period. 

Solar Research (Partner Contributed Funds Totaling $17. 1M) 

3M Company 

Abengoa Solar PV, Inc. 

Ampulse Corporation 

Applied Nanotech Holdings, Inc 

Applied Optical Sciences Corporation 

CH2M Hill 

Colorado School of Mines (CSM) 

Corning, Incorporated 

Crystal Solar 

Dass Tech Co., Ltd. 

EPIR Technologies, Inc. 

Greenville College 

HelioVolt Corporation 

Kansas State University 

Konarka Technologies, Inc. 

Mattson Technology 

MEMC Electronic Materials Inc. 

MicroLink Devices, Inc. 

Natcore Technologies 

National Institute of Advanced Industrial Science and Technology 

New Energy Technologies, Inc. 
230 

Plextronics, Inc. 

PrimeStar Solar 

RF Micro Devices Inc. 

Rohm and Haas Company 

Sharp Laboratories of America 

Solar Junction, Inc. 

Solarmer 

South Dakota School of Mines and Technology 

Spectrolab Inc. 

Sunshine Bottling LLC 

Suntricity Corporation 

SuperPower, Inc. 

SVTC Technologies, LLC 

TDA Research, Inc. 

United Solar Ovonic LLC 

University of Queensland 

Wind Energy Research (Partner Contributed Funds Totaling $3.4M) 

Alstom Power Inc. 

Amonix, Incorporated 

Boulder Wind Power 

Catch the Wind, Inc. 

CENER-CIEMAT Foundation 

Energy Research Centre of the Netherlands 

Florida Atlantic University Board of Trustees 

Free Flow Power Corporation 

Garrad Hassan & Partners Ltd. 

Indiana University 
231 

Lake Benton Power Partners 

Massachusetts Technology Collaborative 

MidAmerican Energy Company 

Mitsubishi Power Systems Americas, Inc. 

Narec (National Renewable Energy Centre Limited) 

New England Marine Renewable Energy Center (MREC) 

Oregon State University 

Principle Power 

RES Americas Inc. 

Siemens Energy and Automation Inc. 

Southwest Windpower 

SWAY AS 

Technical University Delft 

Texas Tech University 

The Gear Works Seattle Inc 

University of Colorado at Boulder 

University of Delaware 

University of Washington 

Verdant Power 

Xcel Energy 
232 

RESPONSE TO QUESTIONS FOR THE RECORD FOR 

RHONE RESCH, PRESIDENT & CEO 

SOLAR ENERGY INDUSTRIES ASSOCIATION 

SUBMITIED TO THE 

U.S. HOUSE COMMITIEE ON SCIENCE, SPACE AND TECHNOLOGY 

SUBCOMMITIEE ON INVESTIGATION AND OVERSIGHT & 

SUBCOMMITIEE ON ENERGY AND ENVIRONMENT 

REGARDING JOINT HEARING ON 

IMPACT OF TAX POLICIES ON COMMERCIAL ApPLICATION OF RENEWABLE 

ENERGY TECHNOLOGY 

APRIL 19,2012 

SB>'IA Solar Energy J Industries 

, , '" .*ih" Associotion(" 

Solar Energy Industries Association 

575 7th Street NW, Suite 400 

Washington, DC 20004 

(202) 682-0556 

www.seia.org 
233 

Question submitted by Dr. Paul Broun. Chairman. Subcommittee on Investigations & Oversight 

1. I understand that some 30 states plus the District of Columbia have enacted renewable portfolio 

standards (RPS) and that eight more states have established "voluntary goals" for the use of 

renewable energy. Why won't meeting these standards drive solar and wind industry demand? 

Chairman Broun -I appreciate having the opportunity to address this issue. 

Renewable portfolio standards ("RPS") have and will continue to help drive the deployment of 

renewable energy resources such as solar. States have enacted RPSs to address a variety of policy 

concerns. A state can use an RPS to diversify its energy portfolio, improve its energy security, and avoid 

dependence on a single source of energy. Since there are no fuel costs associated with solar projects, 

these projects are not subject to the price volatility often associated with commodity-based energy 

sources. Utilities and ratepayers can further benefit from solar's price stability through the use of longterm power purchase agreements ("PPAs"), which provide a stable, predictable means to account for 

future energy costs. A state can also employ an RPS to reduce harmful emissions as a way to address 

environmental and health concerns. 

While state RPSs undoubtedly help deploy renewable technology, this patchwork of inconsistent state 

policies is not a substitute for a cogent federal policy that provides a stable, reliable framework that 

encourages the nationwide development of a diverse, abundant and affordable supply of energy. 

Currently, there is not a federal RPS or other equivalent federal policy mechanism that compels the use 

of solar technology. The primary federal policy that drives the expanded deployment and use of solar 

energy technology is the residential and commercial solar Investment Tax Credit ("ITC"). For states that 

have RPS requirements, the RPS often functions as a ceiling, with utilities using the minimum amount of 

renewable energy required to comply with the state's RPS requirements. In these instances, the federal 

ITC provides a meaningful economic incentive to exceed the renewable requirements provided for by a 

state RPS. In states that do not have a RPS or a comparable renewable requirement, the federal solar 

ITC is the primary policy that encourages the expanded deployment and use of solar technology. Thus, 

the combination of these state and federal policies have helped rapidly expand the deployment of a 

variety of solar energy technologies; reduced costs for consumers; and helped build a nationwide solar 

value chain that now employs more than 100,000 Americans at 5,600 companies in aliSO states. 

Questions submitted by Dr. Andy Harris. Chairman. Subcommittee on Energy & Environment 

1. There was significant discussion at the hearing regarding the comparative cost of electricity 

generation by solar PV versus combined cycle natural gas. You stated that, for solar PV, "the 

levelized cost today is below 15 cents" [per kilowatt/hr). 

Chairman Harris -I appreciate the chance to address these issues for the record. 

During the hearing, you asserted that the cost of solar energy for end use by consumers exceeded 20 

cents per kilowatt hour ("kWh"), and fu rther indicated that this was four times higher than what retail 

consumers pay for electricity produced from natural gas. 1 would respectfully note that this is an 

inaccurate portrayal of the facts. 
234 

The levelized cost of electricity ("LCOE") figures for solar you referenced were derived from outdated 

figures in the Energy Information Administration's ("EIAU) Annual Energy Outlook 2011. These LCOE 

figures, which represent an average cost and apply only to utility scale photovoltaic (PV) projects, are 

derived from calculations that are over 18 months old. During that time frame, the cost of utility scale 

PV has dropped 33 percent, and the price of solar panels has dropped by over SO percent in the last 

year. The LCOE for solar is actually lower than 15 cents per kWh, and in the case of the recent California 

Renewable Auction Mechanism (URAMU), contracts have been signed at lower than 9 cents per kWh. It 

is also worthwhile to note that due to the very nature of solar technology, solar production tends to 

coincide with peak loads - a time when electricity prices are highest. 

In making the assertion that solar was four times more expensive for end-use consumers, you compared 

solar's retail costs to natural gas-fired advanced combined cycle generation, which represents the bestcase wholesale cost scenario for electricity generated from natural gas. Pricing in wholesale and retail 

electricity markets are completely different, and thus, comparing retail solar prices to wholesale natural 

gas prices is, to use a common adage, an uapples to oranges" comparison. Further, solar energy does 

not compete against a single year of combined cycle production. Instead, solar competes against the 20 

or 25 year expected cost of natural gas combined cycle production in some cases. This is due to the fact 

that both solar and natural gas generating assets are long-lived, and the fuel costs over the life of a 

natural gas plant need to be considered, not simply relying on current natural gas prices that have been 

at record lows. If one considers the expected LCOE for a 20-year contract for a new natural gas 

combined cycle plant, the likely prices is more likely to be in the 9-10 cents per kWh range. As I noted 

above, there are already instances where solar is competitive with this pricing, and as solar costs 

continue to fall, solar will be competitive with all energy sources in the marketplace. 

It is also worthwhile to note that residential solar installations grew by 15 percent in the fourth quarter 

of 2011, and non-residential market grew by 44 percent in the same time frame. This growth occurred 

because solar technology allows residential and commercial customers to cut their electricity costs 

when compared to rates charged by incumbent utilities. 

As the attached chart illustrates, we have historically seen significant volatility in natural gas prices. It is 

reasonable to assume that this volatility will persist in the future. This highlights the policy benefits of 

an energy policy that not only encourages an abundant, but a diverse supply of energy. Solar energy 

projects do not rely on a volatile commodity as a fuel source to produce energy. Residential, 

commercial and utility-scale solar projects provide a predictable - both from a cost and generation 

standpoint - source of energy that also happens to be the safest and cleanest form of energy production 

on the planet. And as I noted in my testimony before the committee, solar costs have and continue to 

fall in response to vigorous global competition and rapid advances in technology. Relying solely on 

existing, conventional energy technologies that are subject to commodity price volatility is a shortsighted policy that would ultimately hurt consumers and small businesses financially. However, 

developing a diversified portfolio of technologies with some having no fuel costs like solar, will proVide a 

hedge against rising energy costs and save consumers money in the long run. 

1.1 Please provide data or general/example contract information that support this figure. 

Individual contracts are private and thus, not publicly available. That said, as I referenced above, the 

average solar contract presented under the recent California RAM proVide electricity for less than 9 

cents per kWh. In addition, attached is a frequently cited and respected LCOE analysis provided by 

Lazard demonstrating that the LCOE for solar can be as Iowa 7.3 per kWh. 
235 

1.2 Does this figure include full installation costs? If not, how much are such costs for the subfifteen cent contracts mentioned? 

By definition, LeOE includes all costs associated with generating power including installation costs, 

operations and maintenance costs. 

1.3 Does this figure include the 30% Federal tax credit for residential solar projects? 

LeOE calculations include tax preferences provided for all sources of energy, both renewable and 

conventional. 

1.4 Does this figure include the cost of lease payments associated with such contracts? If not, 

how much are such contracts? 

LeOE analysis accounts for costs associated with lease payments. 

2. What are the approximate installed costs per kilowatt/hr for central station solar PV and solar 

thermal? 

As I noted both in my testimony and in a previous question, the cost of solar equipment has continued 

to drop dramatically. Thus, information published by the Energy Information Administration on this 

issue is typically dated due to the rapid and ongoing cost reductions in solar industry. With this in mind, 

the installed cost for a central station/utility scale solar facility is now in the $2,000 to $3,500 per 

kilowatt (kW) range. By comparison, this ranges from $3,000 to $8,000 per kW for coal generation 

facilities and $5,000 to $8,000 per kW range for nuclear. This information is based on solar PV projects. 

There is no comparable public information for solar thermal electric (otherwise known as concentrating 

solar power) projects. 

2.1 What are the approximate transmission costs for solar electricity delivered to load centers? 

Transmission costs vary based on the nature of a specific project. For example, rooftop residential and 

commercial distributed generation solar projects will have very little if any transmission costs and can 

potentially mitigate the need for some new transmission. For utility scale projects, transmission costs 

will vary based on the project's location. In many cases the transmission costs will be the same or 

higher for solar than for existing fossil generation on the same transmission line. To minimize these 

costs, increasingly project developers are locating plants at locations inside load centers to both help 

reduce transmission costs and inject power where it is most needed to alleviate grid congestion. 
236 

z 

0 

en 

'" '" ;> 

'" >-

..J 

.,; 

Z 

.,; 

c;, 

>- ~ '" '" ~ z 

'" "' 

~ 0 

'"' 

0 N u 

~ C 

'" ~ ~ N 

-< ..J 

'" t-.; ;> H -< '" ,..:: ..J 
LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS VERS

Introduction 

Levelized Cost of Energy Analysis ("LCOE") addresses the following topics: 

il!II Comparative "levelized cost of energy" for various technologies on a $/MWh basis, including sensitivities, as relev

Fuel costs 

u.s. federal tax subsidies 

Anticipated capital costs, over time 

III Illustration of how the costs of energy compare against peak power costs in large metropolitan area

the United States 

!Ii Comparison of assumed capital costs on a $/kW basis for various generation technologies 

III Decomposition of the levelized costs of energy for various generation technologies by capital costs, fIxed operation

maintenance expense, variable operations & maintenance expense, and fuel costs, as relevant 

II Considerations regarding the applicability of various generation resources, taking into account factors such as loca

requirements/ constraints, dispatcb characteristics, land and water requirements and other contingencies 

III Summary assumptions for the various generation technologies examined 

II Summary of Lazard's approach to comparing the levelized cost of energy for various conventional and Alternative 

Energy generation technologies, including identification of key potential sensitivities not addressed in the scope o

this presentation 

1 LAZA,RD 
LAZARD'S LEVELlZED COST OF ENERGY ANAL\'SIS VER

Levelized Cost of Energy Comparison 

Certain Alternative Energy generation technologies are becoming increasingly cost-competitive with conventional gen

technologies under some scenarios, before factoring in environtnental and other externalities (e.g., RECs, transmission 

generation/system reliability costs) as ·well as construction and fuel costs dynamics affecting conventional ge

technologies 

h h 

o 

Solar P\T _ Crystalline Rooftop 

Solar PV - Crystalline Gwund ;\louor:') 

Solar p\, - 'Dun-Film 

Solar Thermal ;c) 

hlclCeli 

Dmxt 

(;cothcrmal 

WinJ $30 

[(leel !» 

l'udear"! 

CoalJ! 

Gas Combirwd Cycle 

so 

2LAZARD 

$80 Crt) $109 

$73 '.1;$89 

$120 

$107 

$81 

$13 

$7. 

$50 

$97 

$77 

$70 

$69 $97 

$50 SIOO 

$136 $192 

$124 +$157'" 

$179 

$198 

$236 

$136 

$135 

$164 

H 

$126 

$113 

$152 

S150 S200 S250 $300 5350 

Lcvelized Cost ($/MWb) 
LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS - YERS

Levelized Cost of Energy Comparison - Sensitivity to Fuel Prices 

Variations in fuel prices can materially affect the IcveHzed cost of energy for conventional generation technologies, but 

conlparisnns against "competing" Alternative Energy generation technologies must take into account issues such as dcharacteristics (e.g., baseload and/or dispatchable intctnlcdiatc load vs. peaking or intermittent technologies) 

Solar PV - Crystalline Rooftop 

Solar PV - (,'rysraUirtt: Ground Mountr,; 

Solar P\' -

Solar Thermaf'; 

J'udC.:U 

H!om".l-ssDircct 

(,cothcrmal 

Wind $30 

IGC(}h) 

Gas Combined Cycle 

so 

SWim: 

3 LAZAH.D 

$136 $192 

$80 ill' $109 $124 +$157/ci 

$73 \fS89 $179 

$120 $198 

$96 IIiIIII liliiii $248 

!7711 IIiIIIII $150 

$73 $135 

$79 $164 

$50 

:Jol'JllRl!!llll IIiIIIIII $258 

$90 ill ill $134 

$761 I $115 

$63 II l1li $161 

$58 IIiIIII liliiii $109 

$5U $100 S150 S200 $250 $3(1) $350 

Levelized Cost ($/MWh) 
Population (mm) 

Cumulative '% of 

U.S. population 

LAZARD'S LEVELIZED COST OF ENERGY ANAL\SIS - VERS

Peak Pricing for the 10 Largest U.S. Metropolitan Areas(a) 

Setting aside the demand for solar and other Alternative Energy resources, solar is hecoming a m

economically viable peaking energy product in many areas of the V.S., and, as pricing declines, could become econom

competitive across a broader array of geographies; this observation, hmvcver, docs not take into account the full costs o

incremental ttansmission and generation/systcln reliability costs 

Price ($/MWh) 

$160 

1138 

140 

120 $109 

100 $86 

80 

60 

40 

20 

Los "\nge1es York Oucago 

33 30 17 

11';/0 27% 

$109 510" $95 $91 $97 

$67 

.----. 

Dallas Philadelphia Houston !'.fiami \X'ashington Boston 

6 

29% 31% 33% 34% 36'% 38'% 3SWo 

II Peak Power Price ;e) Illustrative Delivery Charge 

(1I) Defined JS 10 :>ktrop()ht;m S(MistJca! \rfas per the C S. (,,'11S11S Bureau for a total popu!'u!O!l of tll) mlJIJ.On 

LAZAHD 

C
LAZARD'S LEYELIZED COST OF EI\!ERGY ANALYSIS - VER

Levelized Cost of Energy - Sensitivity to U.S. Federal Tax Subsidies 

u.s. federal tax subsidies remain an important component of the economics of Alternative Energy generation technol

(and government incentives are important in all regions); future cost reductions in technologies such as solar PV, solar 

and fuel cells have the potential to enable these technologies to approach "grid parity" without tax subsidies and wind 

teaches "grid parityH under certain conditions (albeit such observation does not take into account Issues such as dispa

characteristics, the cost of incremental transluission and back-up generation/system reliability costs or other factors) 

Solar PV - CryMaUine RJx)ftop 

Sobr P" - Cryst,lllinc Ground .\lount(>" 

Solar PV -

l'-.ot(; 

(t) (J) 

L.r:Jrdcrf/JJtJtef. 

LAZAHD 

Solar ThermaYc) 

Fueled) 

BI(J!1ussDjrcct 

(;eothermal 

\\'ind $30 

so 

$SO $109 

$10S+ 

$73 $S9 

$99+$121 

$120 

$107 

$117 

$Sl 

$S7 

$73 

$S9 

$79 

$50_$92 

S50 S100 

$136 $192 

$186 $261 

$124 + $157 

$148_ $166 $213 

$179 

$242 

$198 

$162 $265 

$236 

$238 

$136 

$141 

$135 

$142 

$164 

<) $167"' 

$150 S200 $250 5300 5350 

Lcvelized Cost ($/MWh) 

BascCase('j .;";oTax !nccouycs(f, 
LAZARO'S LEVELIZED COST OF ENERGY ANALYSIS - VER

Capital Cost Comparison 

While capital costs for a number of Alternative Energy generation technologies {e.g" solar PV, solar ther1nal) arc (:urre

excess of conventional generation technologies (e.g., gas, coal), declining costs for many Alternative Encfb'Y generatio

technologies, coupled with rising long-term consuuction and uncertain long-term fuel costs for conventional generatio

technologies, are working to dose formerly vdde gaps in electricity costs. This assessment, ho·wevef, does not take into 

issues such as dispatch capacity factors, fuel and other costs needed to c01npare generation technologi

S(,lar PY - Cry,t'.ltlinc Rooftop 

ScAM P\' - Crystalline Croulld \Iount,n) 

Sohr P\' - Thin-Film 

Solar Thennal:<) 

Fueledl 

Hiom;lssDirect 

Ge()thcfOlal 

IC;CCE! 

::-';udear 

Coati') 

Gas Combilltd C}de 

fwr:r: 1"I;;:artiofl!l/()fe<. 

w 

6LAZAHD 

so 

$2,500.'1>! $2,750 

$2.000 $2.500 

$3,000 

$1,300 $1,900 

$800 $1,000 

$3,000 

$3,750 $4,500 

$3,500+ $4000" 

$4,000 

$5,000 

$3,800 

$3,750 

$4,000 

$4,600 

+$4,375'1; 

$5,250 

$5,385 

$1,006 

Sl,OOO 

$1,319 

S2,000 S3,000 $4,UOO S5,000 S6,OOO 

Capital Cost ($/kW) 

$6,500 

$7,000 

$7,250 

S7,OOO S8,OOO 

$
LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS VERS

Levelized Cost of Energy - Sensitivity to Capital Costs(a) 

An important finding in respect of solat PV technologies is the potential for significant: cost reductions over time as 

manufacturing scale along the entire production value chain increases; by contrast, conventional generation technologi

experiencing capital cost inflation, driven by long-term global denland for conventional generation equipment, where 

potentially cost-reducing manufacturing improvements for these mature technologies arc largely incremental in nature 

BIi This assessment, however, does not take into account the intermittent nature of solar PV as compared with the disp

nature of conventional generation; the key fInding in this regard is that solar PV technologies will play an increasin

complementary role in generation portfolios 

LeOE 

($/MWh) 

$230 

$FO 

$217 

5J:1-1 

$110 

$50 

2011 2012 2013 2014 2015 2016 2017 2018 2019 2

--TIun-Film SoJar PV - Subsidies --Thin-Film Solar PV Crystalline Solar PV - No Subsidies 

--Crystalline Solar PV Gas-Fired CCGT 

LAZAHD 
LAZARD'S LEVELIZED COST OF ENERGY A:'>.:ALYSIS - VERS

Levelized Cost of Energy - Sensitivity to Cost of Capital 

A key issue facing Alternative Energy generation technologies resulting from the potential for intermittently disrupted markets is the reduced availability, and increased cost, of capital; these dynamics have a greater relative impact on Alte

Energy generation technologies,. '\vhose costs reflc(,:t esscntially only return on, and of, the capital invcstment required 

build them 

LeOE 

($/MWh) 

$200 

150 100 

50 

• ,12

.. +28

II 

+7% 

,\fter-Tax IRR/WACC 6.2°/(1 6.9% 7.7°/fJ 8.4°;Q 9.2% 

Cost of Equiry 

Cost of Debt 

10.0% 

6.0% 

__ Crystalline P"\ T 

SLAZAHD 

11.0% 

7.0% 

--Thin··Film Solar PY 

12.0% 13.0% 14.0% 

8.0% 9.00/0 10.0% 

,Kuc1ear --CCGT 
LAZARD'S LEVELl ZED COST OTi ENERGY ANALYSIS - VERS

Levelized Cost of Energy Components - Low End 

Certain Alternative Energy generation technologies arc already cost-competitive \.\...Jth conventional generation technolo

key factor regarding the long-term competitiveness of currently more expensive Alternative Energy technologies is the 

of technological development and increased production volumes to materially lower the capital costs of certain Alterna

Energy technologies) and their lcvclizcd cost of energy) over time (e.g.) as is anticipated with solar PV technologies) 

Solar py Crysulline 

Sobr PV - Cf}'6tallinc Ground ).Jount 

Solar P\' - 'I11Ul,hlm 

Solar Thetmal 

hclCcll 

(;coth('mlal 

$41 

$3' 

$43 

$128 

$102 

$82 m 189 

$104 

Miin" $73 

\X'Uld $30 

m $136 

$109 

1m] $120 

1107 

Cas Pcaklo,l\" $127 $211 

Note 

('1 

(h) 

9LAZAHD 

Icee' 

:-":udcar ',t 

Coal 

Cas Combincd C:de 

50 

$64 $97 

$70 $77 

$42 $70 

$27 $69 

S50 5100 S150 5200 

Levelized Cost ($/MWb.) 

CapltalCost II Fixt:d 0&1'>\ D\'ariabkO&M -;,FudCost 
LAZARD'S LEVELIZED COST Of ENERGY ANALYSIS - VERS

Levelized Cost of Energy Components - High End 

Certain Alternative Energy generation technologies are already with conventional generation technolo

key factor regarding the long-term competitiveness of currently more expensive Alternative Energy technologies is the 

of technological development and increased production volumes to materially lower the capital costs of certain Alterna

Energy technologies} and their lcvelized cost of energy, over time (e.g., as is anticipated with solar PV technologies) 

j"orlh('" 

:":ote 

(,I) 

10 LAZARD 

Solar py - Thin-him 

Soiar Thermal 

FudCdl 

liiot11a%Dircct 

Gcothennal 

\X'mJ 

lGCC 

.,' 

Cual 

Cas Combmed Cycle $54 

so 

$178 lID $192 

$110 lID $124 

$88 

$107 

$112 

S50 

$164 

$168 

$2 $113 

$97 

5100 

$126 

5150 

lID $179 

1m! 

$152 

S200 

Levelized Cost ($/MWh) 

Capital Cost III FixcdO&M IliI Yariabk 0&:-'1 

S250 $300 

"< Fud Cost 
LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS 

Energy Resources: Matrix of Applications 

\Vhile the 1cvclized cost of energy for Alternative Energy generation technologies is becoming increasingly competitive 

conventional generation technologies, direct comparisons must take into account issues such as location (e.g., central s

VH. customer-located) and dispatch characteristics (e.g., baseload and/or dispatchable intermediate load vs. peaking or 

intermittent technologies) 

C\RBON 

LEYELlZED :-';Et:TRAL/ STATE 

LOCATION DlSPATC11 

COST OF REC OF C(:STOMER CENTR.AL LOAD- 

ENERGY POTE:-.iTIAL TECHNOLOGY LOCATED STATION GEOGRAPHY INTER!'\UTTENT PEAKING FOLLOWING 

S!(J7·236 

SDLARPY 589·192 

SOL"'R S120-1% 

D!llECT SH!·JVi 

573·1.35 

O'511ORE 53u-n Wl:\D 

GAS P 52!l-242 

$97"126 

}';CCLEAR 

COAL 570-152 

G/\S 

COMBI,SED S69"'}7 

Emerg!llg/ 

Commercml 

CornmefClal/ 

EnKrgmg 

l>laturt 

./ lI.falUrc ./ :'I-hture 

,( 

,( 

.\Iaruf(O ./ 

l:mcrgmg,d) 

lI.larurc/ 

Emergmg 

MaWK d) 

\1arurc ./ 

aSOUTIHnl' carbon capture and 

Carbon capture and comprb,<;H)1) tl..dHlolog)(;:s Me m <:ml..-rgmg stagt, 

11 LAZAHD 

Unln;nal 

Cnn-er,;aP'; 

,( S()ulhw(;",t 

,( ,( \'an:cs ,( \'anes ,( 

,( Cllllusal 

Co"locatdor 

rural 

Co,tocalcdor 

rural 

Jural 

l:nncrsaJ 
LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS VERS

Levelized Cost of Energy - Key Assumptions 

SolarPV Solar Thennal 

Crystalline Crystalline Trough 3 Hourli 

Ground Mount (c) Roof to.£.- Storage(d) 

ThinwFilm 

Utility(b) 

Net Facility Output 10 10 10 250 250 

EPC Cost 5/kW SZ,50(} - SA,OOO 53,500 52,750 53,750 54,500 53,700 55,400 $4,600 $4,700 S5

Capital Cost During Construction $!k\V included mcluded Included 11lcluded mdudcd Other Owner's Costs S/kW mcluded mduJcJ included 51,300 - tnduded $1,700 51,800 

Total Capital S/kW 52,500 54,000 $3,500 52,750 53,750 - 54,500 S5,000 55,400 56,300 - S6,5()lJ 55

Fixed O&M S/kW-yt S15.00 525.00 S15,00 - $2s.0n Sl5.00 $25.00 534.00 S6CJ.O(r 560.00 55

Variable O&M S/M'Wb 

Heat Rate Bru/kWh 

Capacity Factor " 200 '" 23°0 0 29u " 26"u 34°0 " 

Fuel Price S/\IMBtu. 

Construction Time .\!otHhs 12 12 12 " 24 

Facility Life Years 20 20 20 2() 20 

CO2 Equivalent Emissions TOIlS/M'X'h 

Investment Tax Credit " 30" 30"Q 30u e 0 

Production Tax Credit S/\1\\ih 

Levelized Cost of Enetgy S/.\I\Vh 5124 5136 5192 $146 5191 5167 

N'Jtc 

12 LAZARD 
LAZARD'S LEVELIZED COST OF ENERG\" ANALYSIS VER

Levelized Cost of Energy - Key Assumptions (cont'd) 

Gas Combined 

IGCCib) Cycle Gas Peaking{<:) Coal(d) Nuclear(") 

Net Facility Output J80 550 152 34 600 1,100 

EPCCost SjkW 53,054 54,193 S7","3 $1,004 5580 $700 $2,027 - 56,067 53,750 55,250 

Capital Cost During Construction S/kW S696 SI,057 5107 1'1+5 1tldudcu 5487 51,602 51,035 $1,4-+9 Other Owner's Costs S/kW irlc}lldt:d $156 S170 5220 S300 5486 31 S600 51,500 

Total Capital S/kW $3,750 - 55,250 51,006 - 51,319 5800 $1,000 S3,000 - 58,+00 55,385 - 58,199 

FixedO&M S/kW-yr 526.40 $28,2() 56.20 55.50 55.00 - S25.00 $20-41J 5.31.60 512.80 

Variable O&M S/M\X11 56.80 37.30 53.50 - 52.00 528.00 54.70 noo 55.90 

Heat Rate Hru!k\\1J 8,800 10,520 6,800 7,220 9,100 9,800 8,750 - 12,000 10,450 

Capacity Factor %, 75% 70% 40%, 

Fuel Price S/1f11Bw 52.50 55.50 55.50 S2.50 50.50 

Construction Time ,\{o[lths 57 OJ 36 25 00 66 69 

Facility Life Year" 40 20 20 40 4D 

CO2 Equivaleut Emissions I"omj.'Il\Xb 0.74 0.89 0.10 0.42 0.63 0.60 0.95 1.27 

Investment Tax Credit % 

Production Tax Credit SjM\\'h Leve1ized Cost of Energy S/:Vl\Xl1 S97 S126 S09 S97 5;211 5242 $70 5!52 S77 $113 

Note 

13 LAZAH.D 
LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS - VERS

Levelized Cost of Energy - Key Assumptions (cont'd) 

FueICell(a) Biomass Direct Wind Wind Geothermal 

Net Facility Output MW 2.4 35 100 210 30 

EPCCost S/kW 53/l00 - S7,000 S2,641 S3,522 Sl,OOO Sl,500 S2,500 5-1)20 S4,050 - $6,383 

Capital Cost During Construction S/kW included $359 5478 included includd 5550 S867 Other Owner's Costs >/kW 5800 included 5300 5600 S880 included 

Total Capital Cost(b) S/k\V 53,800 57,000 S3,000 54,000 51,300 51,900 53,100 - 55,000 54,600 - 57,250 

FixcdO&M S/kW-yr S169 $850 595,00 530,00 530,00 $60,00 - 5100.00 

Variable O&M 5/.IIM 510.83 515,00 S13.00 518.00 S30.00 540.00 

Heat Rate Btu/k\Xb 6,239 7,260 14,500 

Capacity Factor % 95':-'0 85'Y" ·H% JO% 45°/0 32% 90% 80% 

Fuel Price S/MfI.'IHtu 55.50 SUJO S),30 

Construction Time :\Ionths 36 12 12 36 

Facility Life 20 20 20 20 20 

COz Equivalent Emissions Tous/;\i\'Vlt 0.26 0.-1-2 

Investment Tax Credit o/Q 

Production Tax Credit S/'IWh 510 $20 $20 $20 Levelized Cost of Energy S/M\X'h 5107 $236 581 S136 S30 $79 S94 5235 S73 $135 

(a) 

14 LAZARD 
LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS - VER

Summary Considerations 

Lazard has conducted thh; study comparing the levelized co,,-t of cllergy for f'rJrious conventional and Altcrn;ltivc Ener

generation technologies in order to understand rrhich Alternative El1ergy gcnenltiOll teelmologies may be costwcompc

conventiolJ/1f gCllcr:.uiol1 tec-}1/101ogiesJ either non- or i11 the futureJ and under variol1s operadJJg :l8SUnlptions, as lrel1 as 

uilderstand which technologies are best suited for various applications b;vwd on location;t/ requiremcnt8, dispatch 

characteristics 311d other factors. We find that Alternative Energy technologies are cOltJplenlcntary to conventional gen

technologies, and believe tl1£lt tbeir UHC 'will be il1crcasitlg1y prevalent for a vadety of reasom" including government su

RPS requitelnCJ1ts, :.wd continuously itnprOYilljJ ecot1OJnics lI11dedying technologies inlpro've ;Jl1d production volum

increase. 111 this sludy; approf.lcil was to detcI1ninc tbe levelized cost of CI1c:rl?Y, 011 a basis, that l'Fould provide 

t:.lx lRR to equity holders equal to :.w aS8l11lled coM of equity capital. Cert:lill :,L'>'sl1!J1pti011S (e.g., required debt and eq

returns, capital structure, aIld ceolwInJe life) were identical for all in order to isolate the effccts of key 

dJffci'cnthucd inputs such as invC!;Ul1Cllt C08tSJ capacity factors, oper:lling costs, fuel (,08t5 (lvhcre relevfInt) and [,:5. fe

on the Ievelized cost of energy. Thefie inputs were developed with :lle:ulil1g cotlEuldog :wd engitlCcrin,g fir

Pot-rer & Energy lildllStf); aU{.{lncl1ted rn'th Lazardfs cOI1ullcrcial kuowfcdge where relevant. 

Lazard lws not In:wipulated capital costs or capital sttlJctuIe for various tCC/l1lOiogies, as the g(wf of the study was to c

the current st::l{e of 'variolls gelleratiol1 tecJ11101ogies, rather than tile benefits of financial engineering. The resui{s Donthis study fvvuld be altered by different 35'SlIll1ptiOllS regarding capitaj strllcture (e.g., increased lise of lcveragc) or cap

(e,g., ::1 niliingr1C8s ro accept lun-er returns tlwn those assuflled hereiD). 

Key sensitivities examined included fuel costs ;lIld tax subsidkw. Otlu.'r factOl's J,Fould it/SO have a potentially 

on the results cOtlt:Jillcd herein) but bave flot been examil1ed ill the scope of tbis current These <ldditiollal fa

ilJll01Jg others, could include f.'calc benefits or delrimcllts, the v:.due of Rellewable E'nelgy t'REC.,") or carbon 

clnL'i-,;ionfl offsets, the imp:lct of trallsnJission emus, sccoJld-order "'YStCJl1 C08tS to SUppOrL il1tcnnittellt gencnuion (e.,g

generation; roliage regulation, etc.), alld the ecollonl1'c life of the variuus' assets cxat]1ined. 

15 LAZAHD 
252 
253 

QUESTIONS FOR THE RECORD 

U.S. House Committee on Science, Space, and Technology 

Subcommittees on Investigations & Oversight and Energy & Environment Joint Hearing 

"Impact of Tax Policies on the Commercial Application of Renewable Energy 

Technology" 

Thursday, April 19,2012 

Mr. Terry Royer 

CEO 

Winergy Drive Systems 

Questions submitted by Dr. Andy Harris, Chailman, Subcommittee on Energy & Environment 

I. In your testimony, you state that "In just the last six years, 38,094MW of wind have been 

constructed under a consistent PTC." Of that figure, what percentage ofMWs installed were 

claimed under the PTC as opposed to Section 1603? 

As you know, the Section 1603 program was created in early 2009 as an alternative to 

enable companies to monetize the PTe. Since the creation ofthe Section 1603 program 

through 2011, about 14,400 MW ofthe wind energy capacity installed utilized Section 1603 

and about 7,500 MW used the PTC. Prior to 2009, before the Section 1603 program was in 

place, it could be assumed that virtually all of those installed megawatts were claimed 

under the PTC. Therefore, ofthe 38,000 MW of wind capacity installed since 2005, 

approximately 62 % of those installed megawatts were claimed under the PTC. 

2. By the end of2008 the wind industry touted 85,000 direct and indirect jobs in the United 

States including manufacturing jobs. By 2010, this number dropped to 75,000 despite 14,000 

MW of wind being installed in 2009 and 2010. Please explain the decline in employment 

during a period of intense installation? 

While, overall, this time period was one of robust wind energy capacity growth, there was a 

very large drop in wind energy capacity additions from 2009 to 2010. Like virtually every 

other industry, the economic crisis negatively affected wind energy capacity growth during 

that time. That is why annual capacity installations dropped from 10,000 MW in 2009 to 

5,214 MW in 2010. As a result, the wind industry's joh numbers decreased. 

Questions submitted by Dr. Paul Broun, Chairman. Subcommittee on Investigations & Oversight 

I. I understand that some 30 states plus the District of Columbia have enacted renewable 

portfolio standards (RPS) and that 8 more states have established "voluntary goals" for 

the use of renewable energy. Why won't meeting these standards drive solar and wind 

industry demand? 
254 

The issue here is that this patchwork of state standards will not drive new manufacturing 

growth in the wind industry. In order to sustain and build upon the manufacturing base 

you need a national production tax credit. Anyone of those state standards could be 

changed at any time and if you are a manufacturer located in that state or region it could 

create uncertainty for a company in the absence of an underlying national policy. If you are 

a company looking to invest in the U.S., those state standards will not be enough of a policy 

support for you to locate your company or factory here. 

2. What percentage of the small commercial solar systems your company installs and leases 

are manufactured overseas versus those manufactured in the U.S.? What is the typical 

price differential? 

Since we are not a solar manufacturer or developer I cannot comment on this question. 

Questions submitted by the Honorable Randy Neugebauer (R-TX) 

I. What is your best estimate for the year in which the wind industry, on a massive scale, 

will be truly cost competitive with coal and natural gas without subsidies? 

It is vitally important that Congress enact a near term extension ofthe PTC to stop the loss 

of American jobs. The wind industry would be receptive to working with Congress on a 

longer-term phase down of the PTC in the context of a broader legislative re-assessment of 

tax and/or energy policy. 

An immediate full extension ofthe PTC remains critical to the U.S. industry, and is our top 

priority. This immediate extension is needed to save 37,000 U.S. wind manufacturing jobs 

that will otherwise be lost in the next year. It would stop what would otherwise be felt as a 

crushing tax increase on wind energy. 

However, the wind industry is committed to discussing options after the PTC is extended 

this year. We have been clear that we do not need the PTC forever. We understand the 

significant financial challenges that Congress is facing, as well as a great need for our 

industry to have predictability. Unfortunately, without having a better understanding of 

our nation's overall energy and tax policy direction and the market conditions that would 

be created, even providing an estimate to answer your question is not possible. 

2. Could you please describe the technical improvements to the actual turbine designs and 

power distribution that are expected to reduce costs and increase efficiency within that 

timeframe? 

Increases in productivity are expected to come from improved designs, larger turbines on 

taller towers, and more effective maintenance and service procedures. For example, new 

materials and designs will extend the life of gearboxes. Advanced materials enable blades 

to be longer, thus capturing more "fuel" (wind). New materials used in wind turbine 

towers will enable turbines to be installed on taller towers to expose turbines to stronger 

winds. Further, investments in the long distance transmission of electricity will enable 
255 

broader use of low-cost electricity from wind turbines in the best wind resource areas in 

the U.S. Additionally the price of Wind Turbines have fallen from 2008 to 2010 as a result 

of improved technologies. 

3. Could you also please describe a couple specific examples of recent improvements to 

turbine design or power distribution that have helped reduce the cost of wind energy 

production? 

Examples of the improvements cited above have already been implemented in the wind 

industry. Between 2006 and 2011 the average hub height of turbines installed in the U.S. 

increased by nearly 25%. During that same time, the rotor diameter increased by an 

average of nearly 20%, resulting in the more recently installed turbines producing over 

24% more electricity. New high voltage transmission lines installed from good wind 

resource areas to load centers within California, Texas, Oklahoma and the Midwest have 

enabled low cost electricity from new wind projects to supply a broader base of customers. 
256 

QUESTIONS FOR THE RECORD 

U.S. House Committee on Science, Space, and Technology 

Subcommittees on Investigations & Oversight and Energy & Environment Joint Hearing 

"Impact of Tax Policies on the Commercial Application of Renewable Energy 

Technology" 

Thursday, April 19, 2012 

Dr. Benjamin Zycher 

Visiting Scholar 

American Enterprise Institute 

Questions submitted by the Honorable Randy Neugebauer (R-TX) 

1. Is it a fair assessment to say that subsidizing inefficient technologies that would not 

otherwise survive on the market removes a critical market signal that would spur faster 

innovation without those subsidies? Do you believe that false market signals derived from 

tax subsidies can convince the market (and a business or industry) that an inefficient 

technology is "good enough" and that drastic improvements in efficiency and reductions in 

cost are not necessary for the product to survive, thus slowing the development of more 

economically viable technologies? 

Answer: It is reasonable to predict that such subsidies have a dual effect: first, to shift resources 

generally, and research and development investment in particular, toward inefficient 

technologies and thus away from other technologies more likely to be efficient prospectively. 

Second: Because such subsidies have the effect of making inefficient technologies artificially 

"competitive," they hinder investment in more-efficient technologies, which prospectively 

face greater obstacles in terms of expected competitive pressures because of the subsidies. 

Accordingly, the subsidies can be predicted to yield less innovation in technologies more 

likely to prove efficient. I think that this formulation is a bit more rigorous than the "faster" 

approach stated in the question, as the time profile of investment behavior is a somewhat 

different parameter. I would argue that the "good enough" constraint also should be restated 

similarly: Efficient investment and technologies face greater competitive difficulties in the 

face of subsidies for other technologies, and so can be predicted to receive less research and 

development support in the capital market. But the general approach---the effect of subsidies 

on market competition for research and development investment---underlying Mr. 

Neugebauer's questions is correct. 

2. The nonpartisan Congressional Budget Office recently issued a report titled Federal 

Financial Support for the Development and Production of Fuels and Energy Technologies.' 

The CBO Director's Blog introducing the report stated that tax incentives "are generally an 

inefficient way to reduce environmental and other external costs of energy," and that "[t]hey 

'Terry Dinan and Philip Webre, Federal Financial Support/or the Development and Production of Fuels and 

Energy Technologies, Congressional Budget Office, Issue Brief, March 2012, 

(http://www.cbo.gov/sites/default/files/cbofiles/attachmentsl03-06-FuelsandEnergy Brief.pdO. 
257 

often reward businesses for investments and actions they intended to take anyway.',2 How 

can the government guarantee that taxpayer money is actually incentivizing the private sector 

rather than just lining the coffers of preferred companies? 

Answer: It certainly is the case that tax incentives may subsidize investments that otherwise 

would have been made, although most analyses would predict that tax incentives structured 

properly would increase the amount of such investment, so that not all of the subsidies would 

prove to be "inframarginal." In this sense, taxes on polluting activities often are cited as 

more efficient alternatives to such tax incentives, and to both cap-and-trade and regulatory 

approaches as well. At the same time, taxes, cap-and-trade programs, and regulatory 

mandates tend to hide the costs of such pollution-reduction efforts from government, so that 

such policies may yield incentives for government to impose constraints on industrial and 

other activities that are too stringent in an economic sense, that is, that lead to incremental 

costs of environmental protection greater than the incremental benefits. A tax incentive 

approach has some real drawbacks, as do all such policy tools, but it does offer the large 

benefit of forcing government officials and agencies to confront the costs of their 

environmental policies, at least in terms oftax revenues and/or budget dollars available for 

other uses. The current EPA regulatory effort in the context of carbon dioxide emission---

whatever our assumptions about the purportedly adverse effects of such emissions---is good 

example of policy making in which officials largely are not confronted with the economic 

costs of new constraints. 

'How Much Does the Federal Govemment Support the Development and Production of Fuels and Energy 

Technologies,? March 3, 2012 (http://www.cbo.gov/publication/43040). 
258 

QUESTIONS FOR THE RECORD 

U.S. House Committee on Science, Space, and Technology 

Subcommittees on Investigations & Oversight and Energy & Environment Joint Hearing 

"Impact of Tax Policies on the Commercial Application of Renewable Energy 

Technology" 

Thursday, April 19, 2012 

Dr. Margo Thorning 

Senior Vice President and Chief Economist 

American Council for Capital Formation 

Questions submitted by Dr. Paul Broun, Chairman. Subcommittee on Investigations & Oversight 

I. Are other countries maintaining or reducing subsidies for renewable energy? 

Answer: Several European countries, including Germany, the U.K. Spain, Italy and 

Australia have recently announced reductions or elimination of subsidies for wind, solar 

and biomass energy programs see I http://www.euractiv.com/encrgy/gennanyannounces-30-cuts-solar-subsidics-news-5l I 104, 

http://www . guardian.co. uk! environmcnt/20 11 1 oct/2 Ofren ew ab Ie-energy -subsidies-slashed 

2. We all recognize that it will take all forms of energy, conventional and alternative to meet 

our country's energy needs. That said, have those who promote the subsidy and use of 

alternatives assessed the costs of infrastructure upgrades required to deliver the energy 

associated with the alternative fuels? For example, grid costs for transmitting alternative 

energy and, switching to plug in electric vehicles, retail fueling infrastructure for ethanol 

fuel blends that exceed standards set by tank and pump manufacturers? 

Answer: The cost of the infrastructure upgrades needed to support the expansion of 

alternative c vehicles and renewable energy has not been given adequate attention by 

policymakers. These costs are likely to add significantly to overall costs of owning and 

operating alternative vehicles and to generating electricity from renewable sources. For 

example, home installation for recharging unit costs $900-$2,100 per vehicle. In addition, 

workplace and retail recharging stations will be needed; bureaucratic and technological as 

well as cost issues may hinder deployment. Finally, the U.S. electricity infrastructure will 

need upgrading if there were a large surge in EV purchases. Similarly, the cost of 

increasing the ratio of biofuel to gasoline or diesel beyond the current level will entail 

substantial costs. Private estimate suggest that ethanol fueling upgrades - tanks and 

pumps- would cost on average $250,000 to $300,000 or $ 29.5 to $ 35.4 billion 

Natural gas fueling compressed NG tanks, piping and retail fueling would cost 

$450,000 to $500,000 per site or a total of $ 53 billion to $ 59 billion 
259 

3. Dr. Sherlock's testimony states, "Ideally, energy tax policy should be designed to allow 

markets to choose which technologies best meet energy policy objectives." If America's 

energy policy objective were to provide the cheapest form of energy, what would such an 

energy tax policy look like? 

Answer: Putting all investments on an equal footing would be the most efficient way to 

induce the most efficient, lowest cost sources of energy. Over the years, many economic 

analyses have estimated that if the U.S. switched to a consumed income tax in which all 

investment was expensed, investment and economic growth would be enhanced. 

Expensing would increase cash flow which is very important to certain segments ofthe 

energy industry, especially for natural gas and independent oil exploration and 

development firms. As policymakers consider options for reforming the tax code they 

need to weigh carefully the impact of changes such as repealing accelerated depreciation 

that would raise the cost of capital for new investment and negatively impact the 

development of the U.S. energy industry(see my testimony before the House Committee 

on Ways and Means at http://accf.org/wp-contentluploads/2012/02/media 636.pdf 

Questions submitted by the Honorable Randy Neugebauer fR-TX) 

I. Is it a fair assessment to say that subsidizing inefficient technologies that would not 

otherwise survive on the market removes a critical market signal that would spur faster 

innovation without those subsidies? 

Answer: Subsidies reduce the signals provided by markets and result in a less efficient 

allocation of scarce resources. Innovation may in fact be stifled as investment funds are 

shifted into the subsidized industries such as solar panel, battery manufacturing or 

cellulosic ethanol. This diversion of scarce resources may "'crowd out" new technologies 

and innovations. 

2. Do you believe that false market signals derived from tax subsidies can convince the 

market (and a business or industry) that an inefficient technology is "good enough" and 

that drastic improvements in efficiency and reductions in cost are not necessary for the 

product to survive, thus slowing the development of more economically viable 

technologies? 

Answer: Yes, for example the U.S. solar panel industry may be an example of the 

phenomenon. Subsidized U.S. manufacturers of solar panels and wind turbines were 

blindsided by the lower cost, more efficient panels and turbines produced by our 

competitors. Had the U.S. subsidies not been in place, it is likely that our companies 

would have worked harder to stay "ahead of the curve" on new, cost effective 

technology. 
260 

1l1duslrial WInd Actioll Group 

facts, analysis, exposure of wmd energy's real impacts 

May 29, 2012 

The Honorable Paul Broun, MD, Chairman 

Subcommittee on Investigations and Oversight 

Committee on Science, Space, & Technology 

2321 Rayburn House Office Building 

Washington, DC 20515-6301 

The Honorable Andy Harris, M.D., Chairman 

Subcommittee on Energy and Environment 

Committee on Science, Space, & Technology 

2321 Rayburn House Office Building 

Washington, DC 20515-6301 

Re: April 19 Hearing Titled, Impact of Tax Policies on the Commercial Application of 

Renewable Energy Technology 

Dear Chainnan Broun and Chairman Harris: 

Thank you very much for permitting me to testify at the above mentioned hearing. I am grateful 

for your attention to the important matters considered at the hearing and pray my submissions will 

help inform the debate surrounding tax policy relative to renewable energy development. 

In response to your letter of May 14, I've prepared the following: 

1) A list of my suggested edits to the transcript; 

2) A list of typographical corrections to my testimony dated April 19, 2012; 

3) Responses to questions submitted to me by Committee members following the hearing. 

If you should have any questions, or if I can be of further service, please do not hesitate to contact 

me by phone at 603-838-6588 or e-mail at lIinowcs(il1windaction.org. 

Sincerely, 

Lisa Linowes 

for the Industrial Wind Action Group 

Industrial Wind Action Group www.windaction.org info@windaction.org 
261 

Linowes Responses Page 2 

Linowes - Recommended Transcript amendments: 

1) Line 1826: Should read - "Quick point about 1603, there is a claim that 1603 ... " 

2) Line 1834: Should read - " ... that Section 1603 funding in all of my cases exceeded ... " 

3) Line 2240: Should read - "The organization is not paid to present anyone else's views." 

Linowes - Typographical amendments to Testimony: 

1) All Pages - Added footer to include the brief description, page number and date. 

2) Page 3 - Deleted extra 'is': Any opportunity beyond that is, as DOE correctly states, is "a bonus, 

but not a necessity." 

3) Page 7 - Deleted extra 'a': In a press reports this month, A WEA CEO Denise Bode credited ... 

4) Page 11 - Deleted extra 'a': Of the 450+ facilities listed, a less than 75 represent plants dedicated 

to ... 

5) Page 13 - Changed reference to '169}' to '\603'. 

6) Page 14 - Moved word 'But' to beginning of sentence: "Transponder-only airspace but relies on 

pilots complying ... " changed to "But transponder-only airspace relies on pilots complying ... " 

7) Page 14 - Changed 'documentations' to 'documents': "Despite proposed technical mitigations, 

documents released ... " 

I've attached a .pdf of my amended testimony which also includes the slides I presented at the 

hearing. 

Industrial Wind Action Group www.windaction.org info@windaction.org 
262 

Linowes Responses Page 3 

Linowes responses to questions submitted by Dr. Andy Harris, Chairman, Subcommittee on 

Energy & Environment: 

01. What are the concerns with offshore wind, especially offshore Maryland? 

There are two significant issues facing deployment of offshore wind that, to date, have receive 

only limited analysis. They are energy costs and the impacts on U.S. Military and air navigation 

radars. I cover each briefly below. For more information on the radar question, please see my 

response to Dr. Harris' question 2. 

Cost: According to the latest figures from EIA, the cost to build an offshore wind energy facility 

is nearly $6,0001 per kilowatt as compared to onshore wind ($2,438/kw) and natural gas ($978/kw 

combined cycle). Offshore wind is extraordinarily expensive to construct, especially when one 

considers the project is expected to deliver only 39% of the time with no guarantee its generation 

will arrive when most needed. With high upfront costs and fewer hours to spread the cost over, 

long-term (15+ year) power purchase agreements are now a requirement in order to attract 

investor financing. 

In 2011, the Massachusetts Supreme Court upheld the Commonwealth's approval of a purchase 

contract between National Grid and Cape Wind. In the contract, Grid will purchase half of the 

project's energy at an initial bundled energy price (energy, capacity, renewable credits) of$186 

per megawatt hour (MWh) with a 3.5% escalation factor per year plus a 4% charge paid to 

National Grid for its effort. The wholesale price assumes the project will be eligible for available 

federal subsidies including Section 1603, the Production Tax Credit, or other comparable 

programs in place when the project goes on line. If these subsidies go away, the price is even 

higher. By the end of the IS-year contract, the project will be cost Massachusetts ratepayers $300 

per megawatt hour. 

Since Massachusetts is a deregulated state, the burden of paying for Cape Wind would normally 

be bome by small consumers who purchase their energy from their utility. Large industrial users 

are free to purchase their energy from competitive suppliers. But a change in state law permitted 

the National Grid to apply the high cost of Cape Wind to the delivery side of the electricity bill. 

By spreading the cost too as many ratepayers as possible, the cost to a single ratepayer would be 

reduced. Even in this scheme, residential customers will pay an addition $1-2 per month to pay for 

Cape Wind's energy. According to the state's attomey general, the contract for half the energy will 

cost ratepayers $4 billion in above market costs over the next 15 years - in a state that already pays 

some of the highest rates in the nation. 

There is no indication that the cost of offshore wind will come down in the next 10-15 years 

especially if prices are locked through power contracts. 

I Updated Capital Cost Estimates for Electricity Generation Plants, Nov 2010 

http://www.eia.gov/oiafibeck_plantcosts/ 

Industrial Wind Action Group www.windaction.org info@windaction.org 
263 

Linowes Responses Page 4 

Impacts on Radar: The Patuxent River Atlantic Test Ranges (ATR) provides full-service support 

for testing and evaluating aircraft and for warfighter training missions. Wind turbines along the 

Maryland, Virginia, and North Carolina coastlines could severely degrade radar tracking systems 

including fixed and mobile facilities. 

As discussed in my response to Dr. Harris' question #2, radar mitigation technology is not mature, 

fielded, or approved. The entire area used by the A TR should be declared a 'no turbine' zone until 

such time when mitigations can be proven to work without degrading radar resolution. However, 

the DoD Siting Clearinghouse (footnote #2) is actively pursuing mitigation plans that will pave the 

way for thousands of offshore wind turbines along our eastern seaboard. 

Industrial Wind Action Group www.windaction.org info@windaction.org 
264 

Linowes Responses Page 5 

02. You state in your testimony that U.S. Military and air navigation radars have been 

impaired by wind turbines. Please provide a brief summary of the problems with technical 

mitigations now used. 

Currently, large expenditures of time and funds are being expended in pursuit of technical 

mitigations to correct for the spinning turbines which interfere with radar operations. While some 

mitigations portend future promise, the Raytheon Lead DASR-II engineer (Peter Drake) and the 

Navy's radar technical subject matter expert (Rich Obrien) have stated that radar mitigation 

technology does not yet exist. 

I have interviewed radar specialists familiar with technical mitigations proposed and implemented 

at Travis Air Force base, the Naval Air Station in Kingsville, TX (NASK), as well as the Fossil 

Oregon long-range military radar. In all cases, their concerns reflect the Navy Radar Working 

Group's published recommendations which state: 

(a) radar mitigation technologies, while under study, have not been tested or approved by FAA or 

DOD, 

(b) no schedule for deployment has been developed, and 

(3) anticipated relief is two or more years away. 

The military and FAA are aware that radar mitigation technology is not mature, fielded, or 

approved. Despite this position, the DoD Siting Clearinghouse2 has approved turbine installations 

conditioned on deployment of these unverified mitigations. 

The most recent instance is documented in an agreement signed between the DoD Siting 

Clearinghouse and the Texas Wind Group (TWG) involving the Riviera I wind turbine facility 

proposed to be sited within 10-15 miles ofNASK. In the Memorandum of Agreement signed on 

March 8, 20123 (see footnote link, also attached), the Navy agreed to drop its objection to the 

project provided the developer agreed to limited curtailment of the project and to pay $500,000 to 

help offset some of the costs of mitigation. 

The primary mitigation involves the suppression of returns from the wind farm region using RAG 

(range azimuth gate) mapping techniques. 

Important: RAG mapping techniques used elsewhere have been shown to degrade radar 

performance in the region around the wind farm. The extent and nature of the degradation is 

unknown and site specific but can seriously impair air traffic services including increased aircraft 

separation commensurate with the loss of radar coverage and changes to aircraft routing, 

impacting both efficiency and effectiveness. 

2 The DoD Siting Clearinghouse was established under Section 358 of the 2011 National Defense Authorization Act. 

H. David Belote serves as the executive director. 

3 Memorandum of Agreement, March 2012 - greenfleet.dodlive.mil/filesiZ012/04rrWG-MOA.pdf 

Industrial Wind Action Group www.windaction.org info@windaction.org 
265 

Linowes Responses 

Degradation can appear as target masking, false target generation, scintillation, and the 

spontaneous appearance ( or disappearance) of aircraft targets. 

Page 6 

The $500,000 payment represents a fraction of to tal mitigation costs if a new (third) DASR-II 

radar is required to complete the mitigation. A new radar unit will push the price as high as $15 

million. 

If the Riviera I facility is constructed and the untested, unfielded mitigation degrades radar 

capability to a point where it is too dangerous for pilots to fly and train safely, the agreement with 

the wind company prohibits the Navy from taking further action with the developer to protect 

NASK from the encroachment by the turbines. 

The reliance on unproven mitigation techniques by the DoD Clearinghouse is compromising US 

military preparedness. It is imperative Congress take action before it is too late to stop these 

developments. 

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Linowes Responses Page 7 

Linowes responses to questions submitted by the Honorable Randy Neugebauer (R-TX): 

01. What is your best estimate for the year in which the wind industry, on a massive scale, 

will be truly cost competitive with coal and natural gas without subsidies? 

With natural gas selling at record lows and supplies expected to be abundant through this decade, 

it is unlikely the wind industry will achieve price parity with coal or gas anytime soon, if ever, 

unless the price of traditional sources of generation are forced up due to government regulation, 

including a carbon tax. That is not to say that individual wind projects cannot operate without the 

PTe or Section 1603 provided they're sited in areas with excellent, steady winds and within close 

proximity to existing transmission. But industry-wide, such sites are rare. 

Wind developers are under pressure from investors to secure long-term power purchase 

agreements with utilities that will ensure their power will be purchased at a fixed price. Most longterm (10+ years) purchase agreements I've read lock in the price for onshore wind at 2-3 times the 

wholesale price of other, more traditional sources of generation. Offshore wind is even more 

costly. The industry frequently argues that since wind has no fuel cost, ratepayers are protected 

from wide price swings. These long-term contracts may have a stabilizing effect on energy prices 

for wind, they do so at an excessive price to the ratepayers. 

What matters to developers and utilities is cost recovery. With capacity factors for onshore wind 

averaging around 30%, there are fewer hours of operation to recover the cost. In the last decade, 

more than half of the states adopted RPS policies believing that by introducing resources with no 

fuel cost they'd ultimately reduce energy prices. This is not true. Rather, these policies merely 

mandated a market for energy resources that are otherwise non-competitive. Many of these states 

are now coming to understand the high cost of developing intermittent wind resources. 

One final point: wind energy is not being deployed in the US to meet our energy needs. Since 

wind is an "energy" resource and not a "capacity" resource, both DOE and the American Wind 

Energy Association have made clear that any capacity value derived from wind " ... should be 

viewed as a bonus, but not a necessit/." Thus, even if wind were able to achieve price parity with 

gas or coal, it would not negate the need to build new reliable generation to meet our energy 

needs. 

While small amounts of wind can be integrated into regional grids, larger amounts require costly 

accommodations meant to address wind's locational constraints and its intermittency and 

unpredictability. Operating reserve generators, improVed forecasting tools and extensive 

transmission deployment are needed to deliver and manage wind's variability within a reliable 

system. Any analysis that evaluates the cost of wind energy must weigh the value of wind's 

environmental benefit against all other costs. 

420% Wind Power by 2030 - http://wwwl.eere.cnergy.gov/windandhydro/pdfs/41869.pdf 

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Linowes Responses Page 8 

02. Could you please describe the technical improvements to the actual turbine designs and 

power distribution that are expected to reduce costs and increase efficiency within that 

timeframe? 

The biggest impediment to wind energy achieving reduced costs is the fuel source itself. As long 

as wind farms operate at or near 30% capacity factors, there are too few hours of generation per 

year to spread the large up front capital costs over. This issue is compounded by two other 

limitations of wind power: 

a) Wind energy typically generates at a time of day and year when the energy is least needed and 

thus the market price for its energy is low; 

b) Wind energy must be sited where the winds are, which is typically long distances from load. 

The locational constraints are driving the need for costly transmission. 

There are two technologies that could enhance wind's value: Forecasting and storage. 

Forecasting: Efforts are underway to improve the predictability of wind energy through better 

forecasting tools. If grid-operators could more precisely anticipate when the wind will blow, how 

long it will blow, and at what speed/direction, it would help in power dispatch schedules (when to 

turn down a fossil plant in order to accept wind). Forecasting helps address wind's 

unpredictability, but it cannot correct for wind's intermittency. Current prediction tools are 

accurate only about 15% of the time. 

Storage: Improved storage technology is the only option that could help increase wind's 

usefulness as a capacity resource. But large-scale storage is prohibitively expensive and the 

technology is limited to small quantities of megawatts. Last year, DOE committed a $117 million 

(Section 1705) loan guarantee to First Wind to erect the Kahuku facility, a 30 megawatt wind 

project on the island of O'ahu in Hawaii. The funding was for a battery system to help with 

electricity load stability by flatten out wide swings in winds. The battery is not meant to store 

nighttime generation for dispatch during peak hours of energy consumption. The industry predicts 

we are at least 10+ years away any breakthrough that would permit grid-scale storage technology. 

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Linowes Responses Page 9 

03. Could you also please describe a couple specific examples of recent improvements to 

turbine design or power distribution that have helped reduce the cost of wind energy 

production? 

Capacity factors have generally increased for projects in the last 5 years. This increase is driven by 

a combination of higher hub heights and larger rotor diameters. Increased hub heights (location of 

a turbine's nacelle) enable turbines to access higher average wind speeds and therefore achieve 

higher capacity factors. 

In addition, turbine manufacturers now provide models that operate in low-wind regimes thus 

expanding development to sites that were previously considered to have inadequate winds. These 

improvements have driven wind turbine costs up somewhat, but the increased capacity factors 

have helped to mitigate the higher costs. There is an upper limit to the size of the turbines before 

ground transportation becomes a limiting factor. We are likely close to that limit now with turbine 

blades now exceeding l60-feet in length. 

In the last six years, US wind installations have reached over 48,000 megawatts. Turbines are now 

sited in areas with extreme climate variations such as the tops of mountains. Rather than steady, 

prevailing winds, turbines must operated in areas where the wind speeds and direction change 

rapidly. Manufacturing improvements have focused on improving the availability of the 

equipment in these difficult climates, especially with regard to gearboxes and blades. 

Industrial Wind Action Group www.windaction.org info@windaction.org