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45–544—PDF 2007

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INTERNATIONAL PERSPECTIVES ON ALTERNATIVE

ENERGY POLICY: INCENTIVES AND

MANDATES AND THEIR IMPACTS

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES,

AND INFRASTRUCTURE

OF THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 12, 2007

(

Printed for the use of the Committee on Finance
COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

SUBCOMMITTEE ON ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE

JEFF BINGAMAN, New Mexico, Chairman

KENT CONRAD, North Dakota

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

ORRIN G. HATCH, Utah

JIM BUNNING, Kentucky

TRENT LOTT, Mississippi

MIKE CRAPO, Idaho

(II)
C O N T E N T S

OPENING STATEMENTS

Page

Bingaman, Hon. Jeff, a U.S. Senator from New Mexico, chairman, Subcommittee on Energy, Natural Resources, and Infrastructure, Committee

on Finance ............................................................................................................ 1

Thomas, Hon. Craig, a U.S. Senator from Wyoming ............................................ 2

WITNESSES

Boortz, Charles, vice president of business development, Advent Solar, Albuquerque, NM ......................................................................................................... 3

Johns, Jonathan, partner, Renewable Energy, Waste, and Clean Energy

Group, Ernst & Young, UK ................................................................................. 6

Krenicki, John, Jr., president and CEO, GE Energy, Atlanta, GA ..................... 8

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Bingaman, Hon. Jeff:

Opening statement ........................................................................................... 1

Boortz, Charles:

Testimony .......................................................................................................... 3

Prepared statement with attachments ........................................................... 25

Cantwell, Hon. Maria:

Prepared statement .......................................................................................... 38

Johns, Jonathan:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 40

Krenicki, John, Jr.:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 68

Salazar, Hon. Ken:

Prepared statement .......................................................................................... 78

Thomas, Hon. Craig:

Opening statement ........................................................................................... 2

(III)

(1)

INTERNATIONAL PERSPECTIVES ON

ALTERNATIVE ENERGY POLICY:

INCENTIVES AND MANDATES

AND THEIR IMPACTS

THURSDAY, APRIL 12, 2007

U.S. SENATE,

SUBCOMMITTEE ON ENERGY,

NATURAL RESOURCES, AND INFRASTRUCTURE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 2:15 p.m., in

room SD–215, Dirksen Senate Office Building, Hon. Jeff Bingaman

(chairman of the subcommittee) presiding.

Present: Senators Kerry, Cantwell, Salazar, Crapo, and Thomas.

OPENING STATEMENT OF HON. JEFF BINGAMAN, A U.S. SENATOR FROM NEW MEXICO, CHAIRMAN, SUBCOMMITTEE ON

ENERGY, NATURAL RESOURCES, AND INFRASTRUCTURE,

COMMITTEE ON FINANCE

Senator BINGAMAN. This is a first hearing of a new subcommittee

that Senator Baucus has established here in the Finance Committee. This is the Subcommittee on Energy, Natural Resources,

and Infrastructure. Senator Thomas is the ranking Republican on

the subcommittee and I am the chair of the subcommittee. We welcome everybody and hope we can make it a useful initiative on the

part of the Finance Committee.

This hearing today is trying to give us a global perspective to see

what the policies are that other countries have adopted to encourage more development and use of alternative energy.

In 2005, when we passed EPAct, we began the process of trying

to put in place a national energy policy for the United States. I

think we included in that bill several provisions that I think are

important in moving our country toward more use of renewable energy and alternative energy.

The long-term policy that we have in this area has to obviously

contain three, or be consistent with, three primary goals. First, to

ensure adequate and affordable supplies of energy—I think everyone agrees with that. That goes without saying. Second, improve

the efficiency and productivity of our energy use. And, third, be

mindful of the environmental effects of different choices that we

are making in our energy.

In current law, we have a production tax credit for alternative

energy. We have investment tax credits, we have accelerated depre-
2

ciation schedules, we have deductions for manufacturers, buyers,

residents, and builders, as well as financing provisions and other

measures. Each of these provisions that we put into the law was

designed to stimulate supply, to increase demand, and to motivate

development of new technology.

I think we all intend to try to build on what has been done. Build

a market in which there are cost-effective, reliable, and environmentally responsible alternatives to traditional energy supplies. So

that is sort of the goal as I would see it. We want to identify those

energy tax provisions that have been helpful to us in achieving policy goals we have set so far, and apply these concepts to new markets and, of course, learn what we can from mature global markets

for alternative energy as to what has worked elsewhere in the

world.

I think it is important testimony that we are going to hear today,

and the incentives which we are able to put in place with some of

these provisions, I think are very important to moving us in the direction we want the country to move in.

So whether it is alternative energy price supports, or production

incentives, or investment incentives, or mandates, we need to know

what the right mix is, and I very much welcome the witnesses

today.

Let me call on Senator Thomas for any comments he has, and

then after that I will introduce the panel of witnesses that we have

today.

Senator Thomas?

OPENING STATEMENT OF HON. CRAIG THOMAS,

A U.S. SENATOR FROM WYOMING

Senator THOMAS. Thank you, Mr. Chairman. Thank you all for

being here. We had a hearing this morning on bio-fuels and that

sort of thing, so it is good that we are continuing to look at this.

I look forward to your comments.

We are concerned about the environment, of course, and the

emissions and the finite nature of fossil fuels which I feel a little

different than some about.

Interestingly enough, the technology for a lot of these alternatives has been developed here, but has not been used as much

here as perhaps in some of the foreign jurisdictions. So I think we

are here to explore how these investment decisions can develop policy for ourselves.

Tax incentives have been around in the United States, of course,

for a long time. None of these has enjoyed widespread mass deployment. I believe that we need to further examine our goals in this

arena. Our primary goal is to control emissions, to improve efficiency, or to find the intersection of both. We need to examine the

incentives that are currently in place and determine to what extent

they have been working.

My view is, the goal of these incentives needs to be temporary

assistance so that we do not develop technologies that have to sustain themselves by government funding, and certainly a resultsoriented approach is what we need to do.

I do want to make the point that there are some alternative uses

and activities related to fossil fuels—coal being one of our largest
3

resources. Clean coal becomes similar to most other alternative

fuels, and I think in terms of the interim period, between where

we are now and when these other things really get into place, we

need to take a look at some of the fuels that we have available and

we know how to take care of as we move towards the others.

We look forward to your comments today, and I thank you again

for being here.

Thank you, Mr. Chairman.

Senator BINGAMAN. Thank you very much. Let me just introduce

our witnesses. Mr. Charles Boortz is vice president of business development with Advent Solar, which is an Albuquerque-based manufacturer of new solar technology that serves markets both in Europe and in Asia. One reason that Mr. Boortz is here is I was able

to attend their open house when they opened their manufacturing

facility, and I noticed that most of the people in the room seemed

to be foreigners. That caught my attention. Mr. Jonathan Johns is

here. He is a partner in charge of the Renewable Energy, Waste,

and Clean Energy Group for Ernst & Young in the United Kingdom. Thank you very much for being here. And, a familiar face for

this committee is Mr. John Krenicki, who is the president and CEO

of GE Energy in Atlanta. He was here testifying—how long ago

was that? Two weeks ago. So, we very much welcome him back. We

look forward to hearing from all of you on your insights.

Since we have the time, I suggest you take 6 or 8—10 minutes—

whatever you think is needed to summarize your main points. Obviously, your full statements will be included in the record, as they

have been submitted. If you could make the main points so that

Senator Thomas and I and any other members who arrive could

understand those, that would be most useful. Then we will have

some questions.

Why don’t we go first with you, Mr. Boortz? Why don’t you give

us your perspective on this set of issues?

Would you be sure to push the button there, so that you are able

to be heard?

Mr. BOORTZ. Okay, I think I’m in business now.

Senator BINGAMAN. Thank you.

STATEMENT OF CHARLES BOORTZ, VICE PRESIDENT OF BUSINESS DEVELOPMENT, ADVENT SOLAR, ALBUQUERQUE, NM

Mr. BOORTZ. Mr. Chairman and distinguished members of this

subcommittee, thank you very much for giving me the opportunity

to address you this afternoon. My name is Charles Boortz. I am

vice president of business development for Advent Solar. We are located in Albuquerque, NM. Advent was founded in 2002. We currently have 165 rather well-paid employees. We have just commenced operation on our first commercial line—a 25-megawatt

line—in our facility in Albuquerque.

Advent manufactures photovoltaic cells. We use a technology

that we licensed from the Sandia National Laboratories, in Albuquerque. Our cell is rather unique. It is an emitter wrap-through

photovoltaic cell. This is a 156-millimeter square cell. It is a backcontact cell with negative and positive gridlines on the back side.

It contains approximately 25,000 laser-drilled holes in this one cell.

I am going to pass it up to you to look at, if you like.
4

Presently, Advent ships its cells to an OEM module manufacturer or fabricator in Dresden, Germany. We sell our product into

the European markets. Eighty percent of our production is sold into

Europe at this present time.

In addition to that, I would like to point out, in our new manufacturing facility, nearly all of our cell manufacturing equipment

comes from the leading equipment vendors in Europe and in

Japan. So at this point in time, although we are Albuquerquebased, a good bit of our business in equipment buying is done in

European and Japanese markets.

I would like to take just a moment, very briefly—I think you are

familiar with some of this data—but just look at the size of the

photovoltaic market and the growth that we’ve been experiencing

in the last number of years.

As you can see from this chart, the industry has grown from approximately 200 megawatts in 1999 to 2.6 gigawatts in 2006. These

numbers are getting to be very large. This represents a 40-percent

compounded rate of growth, and really an exponential rate of

growth over this period of time.

Senator BINGAMAN. Let me just interrupt. This is worldwide?

Mr. BOORTZ. Yes sir. This is a global consideration here.

Senator BINGAMAN. Global production of solar cells?

Mr. BOORTZ. That is correct. And leading industry analysts are

predicting that by 2010 this number will be 15 gigawatts, so we

will need a log scale really to present this to the hearing. By 2015

we are predicting multiples of the 2010 number.

The point I would like to make here is that this industry is scaling, and it has grown very, very rapidly. For companies like Advent

Solar, there is a need to scale as well, and to get on board with

the growth of the industry.

Time is running out really for the United States in this context.

The world is moving forward in this technology, and we have some

room to make up.

Let me go on to the next chart, if I may, and consider what is

driving this growth in the industry. The markets that have done

the best are the markets that have benefitted from demand-side incentive initiatives, public policy incentives to motivate demand in

their respective markets.

This is a chart showing cells by countries. As you can see, the

primary markets in this industry—you probably realize this already—are Japan and Germany. Between Japan and Germany, the

two account for over 70 percent of the market share in the photovoltaic industry.

Senator BINGAMAN. Excuse me for interrupting again, but which

is the very tall?

Mr. BOORTZ. The very tall is Germany, which presently has approximately 55 percent of the global market. And, right in the middle is Japan. And the first one, which is quite small, is the United

States. I am just contrasting these three markets. The U.S. market

in 2006, about 80 percent of that is California. That is the market

that also benefits from demand-side incentives. So this gives you

some measure of the growth in these markets.

One of our purposes was to consider the benefits that are in

these respective countries. In Japan, they have had a rebate pro-
5

gram that began in the mid-90s. It is a rebate program for a 10-

year period. The way that worked is that consumers would get rebates on photovoltaic equipment purchases based on capacity. That

is referred to as a capacity-based incentive system.

In Germany, the incentives were performance-based. The country

used a feed-in tariff in which consumers would be actually paid for

the renewable, or in this case, photovoltaic energy they produced.

It would be based on performance. So it is performance-based with

a feed-in tariff, or capacity-based with a rebate.

Senator BINGAMAN. Who provides the rebate?

Mr. BOORTZ. The rebate, if I may speak to the capacity, Senator,

I am not exactly sure about who provided the rebate in Japan. In

Germany, the feed-in tariff, or the financial incentive, is provided

by the incumbent utilities or government. Then the cost of that is

spread over the entire rate base. I wouldn’t be surprised if that is

not a similar way that it is done in other countries.

So, in other words, in Germany, the people who put the photovoltaic on their rooftop have a direct benefit of the feed-in tariff,

but the cost of the program is spread across all rate payers in the

system.

Senator BINGAMAN. You think that is what happens with the rebate as well? You think the utility is the one that provides the rebate, and then everyone winds up paying for it?

Mr. BOORTZ. Yes sir, that would be my assumption. It is a way

to spread the cost of the incentive programs across the entire base.

My last graphic speaks to photovoltaic cell production. What we

can see by looking at this graphic—and again, here I have included

four markets. I have included the United States first.

Senator BINGAMAN. Could you move that a little further? The

light is fouled-up. That’s better. Thank you.

Mr. BOORTZ. Gentlemen, what I am trying to demonstrate here

is the impact of demand incentives on supply as well. We can see

that in the markets that dominate the photovoltaic cell production,

these are the markets that also have benefitted from the demand

incentives. Demand drives supply, demand drives the scale-up.

More supply causes the cost to be lowered, creates more demand

in the system, and the system moves in the right direction. That

is certainly what we have seen in these markets.

You can see from looking, just visually, at this graph, that Germany and Japan have benefitted from their early leadership positions, particularly Japan. Four of the six largest photovoltaic cell

producers in the world in 2006 were from Japan.

Japan instigated their rebate program in the mid-90s. It was a

10-year program, and it has since run its course. The German feedin tariff program commenced in the year 2000. And it is early on

in their program, but you can see the impact that it has had on

production.

Also on this chart I have China. China is a little bit of an outlier.

They do not have much of a domestic market for photovoltaics.

Their consumption is very low, but their production is accelerating

very, very rapidly. Many analysts feel that they will command over

50 percent of the market very quickly. They export 95 percent of

the photovoltaic goods that they make.
6

So, my point really is that the leading countries in this industry

are countries that have put demand incentives in place. Those demand incentives have spurred demand which has had an offsetting

effect of spurring supply, creating scale, lowering costs, and the industries have done quite well. Also, developing a lot of jobs.

At Advent, we are a very optimistic about the U.S. domestic market. We think there is a lot of potential. We are questioned often

by our colleagues in Europe and overseas about the U.S. market,

wondering when is it going to take off and achieve the kind of scale

that we have had elsewhere.

Certainly we have a lot of drivers, from energy security to energy

costs to environmental issues, and I cannot emphasize enough, economic development. No industry creates as many jobs, per watt, as

photovoltaics. Its distributed clean and scalable attributes make it

a perfect complementary energy source to a portfolio of fuel sources

in creating electricity in this country.

But it all begins with creating demand. We need demand in the

United States for Advent Solar and for us to grow the scale of our

industry to meet the demand in our own country. We can continue

to ship product overseas, but we will have a larger standing and

a better footing if we can say to our world competitors that we are

part of the world’s largest energy-consuming market and part of

the largest photovoltaic industry in the world.

So, that is certainly our desire and hope, and we ask you for your

leadership in creating the kind of demand incentives we need to

stimulate growth in our industry and allow us to participate on a

global basis in a manner that we are allowed to. This industry requires a lot of scale. The largest players are getting bigger by multiples. We are 25 megawatts, the largest players are approaching

one gigawatt.

And, years from now they are going to be approaching two or

three. The industry is scaling rapidly. The United States has an opportunity to participate in a big way, but we need to stimulate our

domestic demand to spur growth.

Thank you.

[The prepared statement of Mr. Boortz appears in the appendix.]

Senator BINGAMAN. Well, thank you very much. Mr. Johns, go

right ahead.

STATEMENT OF JONATHAN JOHNS, PARTNER, RENEWABLE

ENERGY, WASTE, AND CLEAN ENERGY GROUP, ERNST &

YOUNG, UK

Mr. JOHNS. Thank you, Mr. Chairman and members of the committee. I am Jonathan Johns. I am partner and head of Ernst &

Young’s global renewable energy unit based in the United Kingdom. We have 45 staff servicing a number of global corporates, entrepreneurs, and we also provide advice to government.

I appreciate your invitation and the opportunity to testify today

on International Perspectives on Alternative Energy Policy. In my

testimony are extracts from our global country attractiveness indices where we score over 20, soon 25 countries, on the attractiveness

for future investment. It is important to say that it is for future

investment.
7

Senator BINGAMAN. This is the chart on page 19 of your written

statement?

Mr. JOHNS. Yes.

Senator BINGAMAN. Thank you.

Mr. JOHNS. We have a number of underlying indices as well. A

lot of research goes into that. We look at a number of factors including tax planning, incentives, the finance climate, and the state

of the actual market in the country concerned.

Climate change is a global issue, and big business is dealing with

it on a global basis. The scale of the challenge means that, at

present, there are, in all probability, insufficient resources in the

supply chain to satisfy demand.

Consequently, countries are effectively competing with each other

for renewable energy resources, and, most importantly, financial

and corporate capital, which is moving rapidly to the most favorable investment climate.

I would like to make the following five points.

First, renewable energy infrastructure represents a long-term investment, and thus requires a long-term consistent—10 to 15

years—policy framework to ensure sustained development. Stop/

start mechanisms, or frequent changes in policy direction, produce

uncertainty in the investment community and have an adverse effect on corporate and individual behaviors. There is strong evidence

to suggest that longer incentive periods lead to greater capacity at

lower cost and foster domestic manufacturing industries.

Second, there has been much debate over the effectiveness of

feed-in tariffs compared with other mechanisms. Feed-in tariffs or

guaranteed fixed price payment mechanisms tend to leave more

risks to the State and usually have a direct effect on the taxpayer

or consumer.

They have been effective in introducing large volumes of capacity, particularly in Germany. In liberalized markets, the marketbased green certificate mechanism tends to be preferred. However,

if supply is constrained, then price distortions can occur.

Third, it is important to complement a regulatory incentive with

appropriate infrastructure. Ease of planning, appropriate grid investment to deal with distributed, as opposed to centralized energy

production and supply chain, can have a very significant effect on

the rate of deployment and undermine otherwise effective mechanisms.

Fourth, the U.S. Federal tax incentives, when combined with individual State renewable portfolio standards, could be effective if

applied more consistently over a longer term.

In a way, they all fit together as a hybrid system, with long-term

price certainty being provided by the production tax credit, and a

market mechanism by way of the portfolio standard.

This begs the question as to whether each State should have an

RPS to capitalize on its own resources. Many argue that carbon

trading can provide adequate incentives; however, individual

projects need visibility of forward prices for an investment to flow

in a cost-effective manner. Cap and trade carbon schemes are best

used as a means to curtail the activities of high carbon intensity

industries, not removing the State incentives for new renewable capacity.
8

It is a matter of choice whether a uniform incentive is applied

irrespective over the maturity of a technology or whether more favorable incentives are used to encourage emerging technologies. If

climate change is to be a policy driver, technologies will need to be

deployed in volume.

Five. Any renewable energy policy needs to be coherent with a

whole, with complementary measures focused on power production,

transport, fuel, heat, and energy efficiency. The democratization of

power whereby consumers, government, corporate, and the public

become suppliers of renewable energy in their own right, as well

as consumers, is likely to become an increasingly potent force. I

would advise the committee to continue the excellent work it has

begun to encourage the production of renewable energy in the U.S.

You will note that, in the table on page 19, the U.S. is number

one in our indices, and is currently the best place to invest future

capital. This is shown by the flows in investments that have taken

place in the past year.

However, this is predicated on the renewal of the production tax

credit and investment tax credit or their replacement by another

suitable long-term investment mechanism.

Thank you for the opportunity to share my views with you. I will

be pleased to answer any questions you might have.

[The prepared statement of Mr. Johns appears in the appendix.]

Senator BINGAMAN. Well, thank you very much. Mr. Krenicki, we

welcome you back to the Finance Committee and thank you for

coming.

STATEMENT OF JOHN KRENICKI, JR., PRESIDENT AND CEO,

GE ENERGY, ATLANTA, GA

Mr. KRENICKI. Mr. Chairman and members of the committee, I

am John Krenicki, president and CEO of GE Energy. In response

to the committee’s interest in renewable energy policies in place

overseas, I appreciate the opportunity today to offer an overview of

European and Asian programs currently driving the deployment of

renewable energy technologies.

The renewable energy industry is a truly global industry. There

are varying programs in place around the world to require or encourage greater use of renewables. Because GE’s business is global,

we have reviewed programs in the EU and several of its member

states and in the leading Asian markets, specifically, China, India,

and Japan.

Our objective was to share with the committee information that

may help you identify what, if any, of the approaches adopted overseas might be applied in this country.

Our conclusion is this: the increase in renewable generation in

Europe and Asia demonstrates that government incentive programs do work. However, there is no ‘‘silver bullet’’ to be found in

these programs that could be easily replicated in the United States.

We believe that Congress has already identified an efficient and effective incentive for the growth of renewable generation: the renewable energy production tax credit.

There are, however, certain aspects of other systems that can

help to improve the U.S. PTC approach. One very important lesson

that we can take from the European experience is the importance
9

of predictable and consistent incentives. This is one area in which

U.S. policy has not been optimal, as the ‘‘on again, off again’’ nature of the PTC demonstrates.

Earlier this year, the EU heads of state adopted a binding target

of obtaining 20 percent of primary energy from renewables by 2020.

With the EU agreement on extension of the renewable mandate to

2020, suppliers have the additional certainty they need to be able

to make investments in production capacity.

While this target for renewable energy is EU-wide, it is implemented by a differentiated national target for each of the EU member nations. Each member state adopts its own system for achieving its target.

Frameworks currently being used by the EU member states include the feed-in tariff system. The FIT is a relatively simple system, which has clearly been successful in promoting technologies

that range from those that are far from being competitive with fossil fuel, such as solar, to those that are approaching mainstream

status.

One of the real benefits of the FIT has been its predictable and

long-term duration. This stable market at home has enabled European companies to become major players, for example, in the global

wind energy market.

Another lesson to be learned is that an incentive must be set

high enough to be effective. While the feed-in tariff mechanism has

been successful in spurring new renewable generation in Europe,

it has been less effective in China. We believe it is, in part, a factor

of the levels at which the tariffs are set.

Here again, the U.S. has gotten it just about right with the production tax credit. The credit has been high enough to stimulate

substantial investment while not putting an undue burden on electricity users.

For financial incentives to work, they must be also paired with

sufficiently mature technology. One specific experience we have

with successful incentive programs relates to wind technology.

For solar power generation to be priced competitively with traditional power generation technology, technology innovations and

even breakthroughs must continue. Therefore, we believe that, for

solar incentives programs to be successful at this point in the technology development cycle, they should be investment-based, rather

than production-based. Also, these tax incentives must be coupled

with government-sponsored research and development programs

until this technology reaches sufficient maturity to be near-term

price-competitive with traditional technologies.

Finally, because this is a global market, we believe that it is appropriate for the committee to consider the effect of tariff barriers

on the growth of the renewable energy industry. Tariff barriers as

well as preferences for a particular technology that are built in to

some incentive programs can have the effect of limiting the growth

in renewable energy generation.

We support U.S. efforts to eliminate tariffs worldwide for cleaner

energy equipment. In summary, there is strong demand, global demand for renewable energy technology. Approximately 38 countries

have renewable energy targets and various programs in place to

foster further investments in renewable energy. We believe the
10

U.S. renewable energy production tax credit is a cost-effective approach that should be maintained and extended to stimulate the

use of renewable energy in our country.

An extension of the PTC combined with State and potential Federal renewable portfolio standards are appropriate tools to foster a

sustainable business environment for renewables.

Thank you again for the opportunity to testify. I would be

pleased to answer any questions.

[The prepared statement of Mr. Krenicki appears in the appendix.]

Senator BINGAMAN. Well, thank you very much. Thank you all

for your good testimony.

We will do 5-minute rounds of questions, and let me start. I will

ask you, Mr. Boortz, to just give me your thoughts about—I know

that your main point, as I understood it, was that we need to stimulate demand for photovoltaic cells for solar power in this country.

And that, that will cause production of that technology and production of those items to be centered here to a fairly substantial extent. I think that was your main point.

Mr. BOORTZ. Yes, sir. That is a point I would like to make. That

I think demand incentives, particularly in this area, will create a

very large demand and response. Very, very large markets that will

need to be satisfied. Initially, a lot of the production will come from

overseas. We simply do not have enough in the United States to

meet that demand. But the domestic demand will spur domestic

supply. And the larger the supply base becomes, the larger the

economies of scale, the lower the cost, the higher the demand, the

greater the supply, and the system works as we know it will.

The United States is not a leader in terms of consumption or production of photovoltaic power. It is far and away the largest electric

consumer in the world, and all of the drivers that are driving the

rest of the world are pertinent to the United States. I think the

empircial evidence is clear, and I think we would benefit by following some sort of demand-side program as we have seen in Germany and Japan with great success. I think we could look forward

to the same success here.

Very quickly, Japan and Germany have become the leaders in

this industry. Far and away, the leaders in terms of production, in

terms of equipment—I don’t want to say in terms of laboratories

and research, but certainly they have distinguished themselves in

that category as well.

We need to catch up. The industry is scaling so rapidly. I am concerned that we may look at it 5 or 10 years from now and it will

not be as easy to get onboard, with most of our products coming

from overseas. I do believe the first step is building that demand

base. I think we are very, very close. We have seen success in the

markets.

Senator BINGAMAN. Let me just make a comment and then get

your reaction to it. I don’t disagree with you that maybe the first

step should be to increase demand. But, a parallel step, it seems

to me, should be to do something to stimulate production in this

country, other than just increasing demand.

I look at your chart that you have up there and see the increase

in production of photovoltaics in China. I am not persuaded, in my
11

own mind, that because demand increases substantially in this

country for photovoltaic cells, we are necessarily going to wind up

producing them here. We may well wind up buying more and more

from China. We have done that, virtually, in every field of electronics. They have been very much quicker to pursue some of these

new technologies from a manufacturing and production perspective

than we have. I feel that, without some kind of stimulus by tax

code or elsewhere, we are likely to see the same thing in this area.

Mr. BOORTZ. Right, Mr. Chairman. I absolutely agree with you

on focusing on demand, based on the empirical evidence we have

seen in these other markets. But, if you look at the top 15, 10 or

15 or 20 photovoltaic cell producers in the world, you will be hard

pressed to find anybody from the United States. That is not exactly

true. BP solar is based here, but they have production all over the

world. If you look at the companies that are leaders in this industry, you will see that they are from Eastern Europe, they are from

China, and they are from Japan. All of those regions or all of these

companies have benefitted significantly from economic development

grants and government programs. And, I am speaking to production now and not supply.

Conergy, a very, very fine company in Germany, a subsystems

integrator for all sorts of renewable energies, including wind and

solar, just announced a 250-million Euro plant to be built in Germany. And 2 or 3 days later, there was a press release talking

about a 76-million Euro grant from the EU. Not a loan guarantee,

not a tax credit, but a grant.

In China—I have been over there and visited some of these companies, and they introduce themselves as being public/private enterprises. And in huge industrial parks, with 8-lane corridors with

employee housing under construction on the same campus, they are

given significant government aid, as we know. And they are getting

to approach the 50-percent mark in this industry.

On a production basis, our competitors are getting a huge

amount of government support. The quid pro quo is jobs; they are

producing jobs. And that is what they need in Eastern Europe;

that’s what they need in China. In the United States, I think some

sort of investment tax credit for producing photovoltaic cells domestically, or any kind of equipment, however broad we wanted to

make this relating to renewable or alternative energies, would be

good.

Also, government loan guarantees would be something else, underwritten on a conventional stringent manner, but just a way to

attract capital to this industry. We do not want to be here asking

for so much, but I think we need to make a decision whether the

United States wants to participate in the production of equipment

and cells and modules in this industry or not.

When I was in China last fall, we had an opportunity to visit

Suntech, which is a remarkably successful public company. They

said their number-one target was the United States when they saw

this market opening up. So your points are very well taken.

Senator BINGAMAN. Thank you very much. Senator Thomas?

Senator THOMAS. Thank you. Mr. Boortz, we have had incentives

in place for solar for a number of years. Why do you think the existing tax credit has not worked as intended in the market?
12

Mr. BOORTZ. Well, I will just go back to the Energy Policy Act,

I think of 2005, and the incentive there that was created on a 2-

year basis. At least for the residential market it was a 30-percent

investment tax credit, but limited to $2,000. I would say that there

are probably a couple of things wrong.

One, the time frame is much too small. Industry cannot respond

in 2 years to that, in terms of providing supply. And I think that,

even from a consumer’s point of view, if it is a program that is put

in place for 2 years, there is a little uncertainty about, do I want

to be the first to step out, is this really valid technology, why would

it only be for 2 years?

Honestly, solar for a period, I think, of decades has been an industry that has not enjoyed any government benefits that I am

aware of in terms of stimulating demand. Other than what happened in 2005.

Senator THOMAS. You have been given tax credits, but as far as

stimulating demand, you have not.

Mr. BOORTZ. Well, the tax credits came with the bill of 2005?

Senator THOMAS. Yes.

Mr. BOORTZ. Prior to that, I think you would have to go back decades to find any kind of government stimulus for consumer consumption in the photovoltaic industry.

Senator THOMAS. Okay. Mr. Johns, are these solar things basically for each house, or each building? They are not an electric generation system, are they?

Mr. JOHNS. There are two or three types of technology. First of

all there is solar thermal, second solar PV. I talked about the democratization of power, where individuals wish to participate in

the climate change debate. People and corporates can install their

own facilities.

Senator THOMAS. That’s basically where we are here.

Mr. JOHNS. And really, California is being very effective in encouraging that. And that is one of the reasons why the U.S. scores

highly in our ranking for the U.S. because of the California program.

Japan and Germany have multiple, thousands and thousands of

home programs to actually put solar panels, you might almost say,

everywhere in Germany. As a consequence, this has stimulated

there own domestic industry.

Senator THOMAS. Centralized with transmission to the user or

not?

Mr. JOHNS. There are then collecting solar devices and concentrating devices which can actually trade as power stations in their

own right. Power stations have been erected, as I understand, in

the U.S. as well. So you can transmit power from solar, from solar

facilities. They have usually been subsidized by the types of infrastructure grants the previous speaker was referring to.

Senator THOMAS. You both mentioned California. California is

going to have to do something rather quickly if they don’t like energy developed by coal, or they are going to have the lights out.

Mr. BOORTZ. Yes.

Senator THOMAS. There is a great demand there. So what percent of the market is in solar use?

Mr. BOORTZ. The percent of the consumption market?
13

Senator THOMAS. The consumption market, the electric market.

Not your sales, but the electric market.

Mr. BOORTZ. It is inconceivably small, the present market for

photovoltaic electricity. Again, there are a number of analysts and

futurists, if I may say, who see solar playing a larger and larger

role.

Senator THOMAS. What is it now?

Mr. BOORTZ. In the electric grid, it would be well, well under 1

percent, probably 1⁄2 of 1 percent.

Senator THOMAS. Right. Mr. Krenicki, GE sells enhancifiers for

Integrated Gasification Combined Cycle (IGCC) plants, I think.

Mr. KRENICKI. Yes, sir.

Senator THOMAS. I am curious to know whether markets provided the demand or do you attribute that to incentives or mandates?

Mr. KRENICKI. Okay. We are in the solar business as well. I

think in some respects, the gasification challenge is similar to solar

in that we need some investment support to lower the initial capital outlays to build some scale. And, if I could just illustrate the

solar challenge and then relate it to wind and coal.

You know what? To build a coal plant today would have a cost

of electricity of roughly 6 cents per kilowatt hour. Wind would be

8 cents. And that has dropped about 80 percent in the last 15 to

20 years. And solar would be a multiple of wind—4 or 5 times.

What solar requires is material science breakthrough to lower

the cost. So that is why we support investment credits and research. But, how do you go from 40 cents to 8 cents? It requires

technological breakthroughs. And, they are absolutely the right

thing to do.

On clean coal, and wind power, it is largely scaling to get lower

costs. So if we have some wind at 8 cents, if we could grow even

faster, the cost would drop even more. So how do we deploy faster?

And, in the case of wind, there is a zero CO2 option. But that is

how we see it, Senator.

Senator THOMAS. Well, I appreciate that. In fact, I think I said,

and I will say it again, I think we need to look at where we are

going to be as these things become more effective, and we know

how to do something with coal now in terms of the volume.

The volume of solar is relatively small. We heard about California. And you have all mentioned California, and they are going

to turn the lights off if they intend on going in solar. They have

to do something in the interim. So, anyway, thank you sir.

Senator BINGAMAN. Going by this early bird rule that we supposedly use in this committee, Senator Crapo is next and Senator

Cantwell, then Senator Kerry, then Senator Salazar.

Senator CRAPO. Thank you, Mr. Chairman. Mr. Boortz, in your

testimony you talked about Japan’s rebate program, and all the

witnesses have talked about the United States’ approach using tax

incentives for homeowners who purchase solar panels. How do you

feel about the use of rebates and how it compares to our system

in the United States of tax incentives? Would one approach be

more or less effective than the other?

Mr. BOORTZ. What they have in common is providing cash up

front to the purchaser with solar. And, as you know, you are mak-
14

ing your entire capital investment on the front end. So any help

you can get in lowering that capital cost is very effective. If I were to get a $3 per watt, say rebate, by putting solar on my rooftop in California, that would be very, very similar to a $3

investment tax credit that I might have through the Federal investment tax credit.

Senator CRAPO. So they both work in about the same——

Mr. BOORTZ. I would say they would both have pretty much the

same effect. And, for solar, where you have individuals, homeowners, consumers making this investment, that kind of savings on

the front end is very effective, I believe.

Senator CRAPO. Mr. Krenicki, did you want to comment?

Mr. KRENICKI. Our view is, mostly, feed-in tariffs outside the

United States tend to be more expensive than production tax credits. So those costs are born directly by the users, by the consumers.

So, based on our analysis, we think that PTCs are a pretty economic option for rapid deployment of wind technology. In the case

of solar, we encourage more investment tax credits to really address the engineering challenges.

Senator CRAPO. That was going to be my next question. How important is the investment tax credit to the commericalization of

solar?

Mr. KRENICKI. My view is, it is absolutely critical. You know, the

demand for solar is out there. One of the advantages of solar is

that it generates power when you need it. You know, peak consumption is during the day. So, there would be a lot more rapid

deployment of solar if it was just lower cost.

Senator CRAPO. And to any of the panelists, what about the accelerated depreciation of solar properties and investment? Is that

the same answer, Mr. Krenicki, you would give on that?

Mr. KRENICKI. What would—I would say the answer would be

different. I would say the direct investment tax credit——

Senator CRAPO. Is much better?

Mr. KRENICKI. Is much better in the case of solar than accelerated depreciation.

Senator CRAPO. Anybody else want to jump in on this general

issue? Mr. Johns?

Mr. JOHNS. I just want to join the debate a little bit and remind

about solar thermal, because solar thermal is much more cost-effective, and I mentioned the issue of heat. If you are out for saving

emissions, that is an area where you can get a lot of value for the

money for your incentives.

Senator CRAPO. Thank you. Would all of you agree that the production tax credit is working as well as the FITs are in the other

parts of the world?

Mr. KRENICKI. I would agree that it is working better.

Senator CRAPO. Working better?

Mr. KRENICKI. At the moment. In terms of cost-effectiveness, and

if you look at where manufacturers are allocating units today, the

U.S. is probably the fastest-growing market in the world.

Senator CRAPO. Mr. Boortz?

Mr. BOORTZ. I would just make the point, with solar a production

tax credit is a little more cumbersome. If I am a homeowner who

has invested $12,000 to put 2,000 watts on my rooftop—or 1,500—
15

what I want and what I need is assistance with that initial capital

outlay. And to be able to measure the number of kilowatt hours

that I am producing and try to get some sort of rebate from some

source is cumbersome.

We have 50 State jurisdictions and, I think, over 3,000 utilities

in this country, and the nice thing about the investment tax credit

in the Federal tax code is it is treated the same by everybody and

the benefits are predictable and they are immediate. Just the administration of the program for small-scale solar is not nearly as

cumbersome, and I think it would work very well. For wind, I can

see, with a large CapEx investment, and large corporate owners,

many already in the utility business, how effective the production

tax credit is. So I think there are two different incentives for two

different markets.

Senator CRAPO. Mr. Johns, did you want to elaborate?

Mr. JOHNS. Yes. I made the point that you need to decide whether it is a matter of policy and choice, whether you have different

mechanisms for emerging technologies compared to conventional

technologies. The truth is that mechanisms which focus on the path

of grant aid tend to be better for actually emerging technologies.

Whereas, mechanisms that focus on production tend to be better

for mature technologies.

Senator CRAPO. Thank you. I assume my time is up.

Senator BINGAMAN. Just to clarify that, you would suggest, Mr.

Johns, that if, and I guess the rest of you would agree that, in the

case of solar thermal, since that is a developed technology, we

would be better off there with a production tax credit even though

an investment tax credit makes more sense with photovoltaics?

Mr. JOHNS. I think I would distinguish one point, which is the

bigger user community of domestic users for solar thermal, and actually the main point is the ease of administration for them. They

don’t really want to be collecting credits every year. They would

rather collect money for investment up front. So maybe there is a

tactical reason to keep the investment tax credit to encourage rapid

deployment.

Senator BINGAMAN. Thank you very much. Senator Cantwell?

Senator CANTWELL. Thank you, Mr. Chairman, and thanks for

your leadership on this committee and on the Energy Committee

overall. I am pleased that the Finance Committee has created this

subcommittee. I think it can play a very important role in our Nation’s energy policy by getting the predictability on tax incentives

right for a clean energy technology. So, I want to thank our panelists for shedding light on that today as well.

If I could, Mr. Chairman, I’d like to enter a longer statement in

the record about my thoughts on what some of those priorities

should be and how I think we ought to be aggressive in not only

making sure we capture this market opportunity for the United

States, but that the United States also be an energy leader in exporting our technology into developing markets as well.

If I could, with the panelists, talk in a general sense about the

lengths of tax credits in general. I know it is not a science—it is

more of an art. But, what do you think, from the perspective of

stimulating investment and leveling the playing field against fossil

fuels, that we ought to be looking at from a time horizon?
16

Our challenge here is, obviously, we are in tight fiscal times. We

would all like to say we are going to have a 10-year horizon on

something. But let us be realistic. What do we get for looking at

longer horizons, and do you think that there is a sweet spot on this

particular issue? You know, 5 versus 7, versus 10, and what we

ought to be looking at. And, when I say that as a tax point, I am

talking about a broad clean energy incentive that is agnostic to a

particular technology but a broad policy.

Mr. JOHNS. I think if I could comment on that. In the UK, we

did some work for the UK government when the non-fossil fuel obligation—a different mechanism—was in place. It was initially

launched for 7 years and did not have much of a take-up for individual projects. We did a study, we did some careful analysis,

which shows for capital investments of this nature, the investment

benefit needs to last for the particular project for its capital life,

which it turns out is often 15 years.

So from the project perspective, the benefit needs to be there for

that period of time. In relation to the actual framework itself, there

is a lot of evidence to say that a consistent policy framework should

be adopted for a long period of time—and I use the word ‘‘framework’’ deliberately—it does not mean to say you are tying yourself

into huge amounts of spending for that period of time.

But a consistent policy framework for a long period of time, I am

afraid, again, is, you know, 10 years, I would say 5 to 10 years is

the minimum period for that. This has a very significant effect on

inward inflows. It has a particularly significant effect on the siting

of manufacturing plants. When the PTC was not renewed, a number of plant openings in the wind turbine industry were cancelled

in the U.S., and now you are importing those turbines from Europe.

Mr. KRENICKI. I would just add kind of an overlying statement,

which is the overall subject of climate change. Legislation and

where the country is going to go will impact this policy in many

ways. So that is an open question, but I think the country needs

to have a diversified approach. Renewables are certainly key, nuclear, clean coal, and different medicine in different cases. But, I

think in the case of renewables, specific for today——

Senator CANTWELL. Let me make sure I am clarifying that. No

one thinks you are getting predictability with 2 years?

Mr. KRENICKI. No.

Senator CANTWELL. Okay. Everybody thinks that 5 years is the

starting point.

Mr. KRENICKI. I think it is longer. I agree with my fellow panelists here that, if you just look at Europe as an example, how long

did it take to get wind off the ground? It took 10–15 years. I think

we are at a point now where we have moved the cost curve on some

of these technologies where we could extend maybe up to 5 years

and then look at some sort of transition to RPS standards at the

State and perhaps Federal level. So I think at different points in

the maturation cycle, the medicine will be different. But, I would

also add a key thing on climate change. You know, what is our approach going to be on nuclear?
17

Mr. BOORTZ. If I may just add very, very quickly, if I am thinking in terms of the sweet spot, I would probably be thinking 10 to

12 years. But I think about, for the photovoltaics and the solar——

Senator CANTWELL. Obviously you are not thinking about our

budget. [Laughter.]

Mr. BOORTZ. Well——

Senator CANTWELL. So you are thinking about the energy for the

private sector——

Mr. BOORTZ. Right. I am thinking energy security and a lot a

things that do pertain to the budget in an indirect way. But I

would like to make a point for a potential market that is as deep

as this one. There are supplier issues. In our industry right now,

we have issues with polysilicon and silicon wafers. We have issues

with installers. We have issues with machine makers. If we want

to order a piece of equipment, it will take 12 months for it to come.

We have capital issues. So the shorter that time frame is, and particularly when you are accelerating the very, very deep market, you

have to have some time. We don’t want to make a push, be ready

to go in 6 years and have the incentive go away 2 years later. So

there are some start-up issues to consider as well.

Senator CANTWELL. Thank you.

[The prepared statement of Senator Cantwell appears in the appendix.]

Senator BINGAMAN. Senator Kerry?

Senator KERRY. Thank you very much, Mr. Chairman, and I enjoyed listening to the testimony, and I thank you for moving the

committee in this direction and engaging us.

Mr. Krenicki, thank you for mentioning global climate change.

The thing that bothered me in this whole discussion up until

then—I know one of you mentioned it in your testimony—is that

we are talking about incentives for the marketplace, but the marketplace is behaving, the marketplace role is a reflection of an attitude about demand, about behavior.

And right now we are operating in a marketplace that is frankly

way behind the curve in the United States with respect to climate

change. It is not the marketplace we would like to see. So as we

think about these questions of incentives, to put an incentive in

place that does not address the larger policy issue does not make

sense.

So if we are talking about incentives based on the market now,

and you say, well, we are going to try to get solar down from 35

or 40 cents a kilowatt hour and make it competitive, etc., etc., that

is on a different demand curve of what many of us hope we are

going to have and ought to have.

So let me just ask you a couple of questions. I know Jeff Immelt

and GE have done a terrific job in the ‘‘ecomagination’’ products,

we are well aware of that. We are aware of your investment and

what you are doing. I gather you have about $17 billion of additional revenue booked based on these green products you are now

producing or something to that effect.

Mr. KRENICKI. Not quite. But I think that is a longer-term goal.

Senator KERRY. Longer-term?

Mr. KRENICKI. Our revenues in wind this year will be in the

$4-billion range.
18

Senator KERRY. I’m not just talking about wind. But, you have

also produced other lines, I mean the whole energy lines, including

light bulbs and other things.

Mr. KRENICKI. Right, right.

Senator KERRY. I think you have had, if I recall, I think you had

about $10 billion of additional revenue in the first few years.

Mr. KRENICKI. I think that is accurate.

Senator KERRY. So the point I am making is that, it is big business here. That is the bottom line. There is a lot of money to be

made if we change attitude. Is there anybody here who disagrees

with the science of global climate change? Do all of you accept that

we have Jim Hansen’s frame of about a 10-year window to get it

right? To sort of begin to move with the right choices we have to

make. Anybody argue with that? You all agree?

Mr. JOHNS. I am 10 years or less.

Senator KERRY. Ten years or less?

Mr. JOHNS. I agree with all of that.

Mr. KRENICKI. I agree too.

Senator KERRY. I think it is 10 years or less based on the data

coming in today. So, if that is true, let us sort of get to the issue

of the choices that we get to make. You have a 10-year window,

and you have to get carbon-neutral. The scientists are telling us

today, we have to reduce our carbon level per million parts, from

where it is today, down to—the most we can allow it to go up to

is about 450 parts per million and have an equilibrium and not

raise the temperature more than 2 degrees centigrade. If that is

true, then whatever incentives we are going to consider here have

to be enormous. My question leading up to it is, do you not need

to price carbon and have a cap that is economy-wide in order to

change the fundamental behavior and then gear your other tax incentives, grants, subsidies, to what that new marketplace is going

to be with that pricing? Because anything less than that, we are

not going to meet the scientifically arrived-at goal. Is that correct,

Mr. Krenicki?

Mr. KRENICKI. As you know, we are part of this U.S. cap initiative, and we believe that there should be value associated with carbon. The only thing that I would add is—I think that many of the

things that——

Senator KERRY. Let me just, for the record, so the record is

clear—the U.S. cap represents some of the largest corporations in

the country including Dupont, GM, Dow Chemical, GE, others, all

of whom say we have to get a pricing on carbon.

Mr. KRENICKI. Not a pricing on carbon. I think we need a price

signal in terms of driving investments.

Senator KERRY. Once that has happened, the marketplace—and

leave our incentives aside—the marketplace is going to begin, because you have, automatically, the capital issues that you have,

Mr. Boortz, and these others are going to be affected. Are they not?

Mr. BOORTZ. Right.

Senator KERRY. So don’t we have to think about incentives in

that context and not just the marketplace we have today?

Mr. KRENICKI. I absolutely agree that it has to be taken into account, because these are long-term decisions. But many of these
19

things that have already been done—the production tax credit for

wind is zero CO2, so it is supportive of the climate change.

So I would say what has already been put in the ground has

been good work and consistent with that objective.

Senator KERRY. Could you foresee that, if we had an economywide cap pricing of carbon that that solar ratio is going to begin

to change?

Mr. KRENICKI. From 40 cents to 8 cents is a lot. A long way to

cover.

Senator KERRY. But there is about $1.5 billion, I think it is, that

has moved in venture capital into those investments.

Mr. KRENICKI. Yes. I, I——

Senator KERRY. Wouldn’t a lot more be drawn in to it by that,

and then you have that infrastructure breakthrough you talk

about?

Mr. KRENICKI. We would certainly push it forward. My prediction

is, if there was an economy-wide value associated with carbon, nuclear would be on the table in a much bigger way.

Senator KERRY. I think it would be. I agree with that. It is going

to be part of, no matter how you like it, or don’t like it—I don’t

think it is a long-term vision, but in the short term it is going to

be part of that mix. Yes, Mr. Boortz.

Mr. BOORTZ. I would just say I believe a carbon pricing mechanism would also draw the utilities in to the small-scale photovolatic

industry. They would become more of a player, more of a participant. Again with PV we are often times talking about homeowners,

we are talking about small consumers, and I would make the case

that, if I am paying higher rates and I am paying 29 or 30 cents

a kilowatt hour, that I am getting very, very close to PV being economic.

I don’t agree that it is 5 or 10 or 15 years out. I think we need

a market, we need a market response, we need scale, and I think

we are very close.

The American Appraisal Institute says that, if you put PV on

your house, you will add to the value of your house 20 times the

first-year savings in electricity. That does not show up anywhere

in 40 cents. We are not talking about throwing money away. We

are talking making an investment in an income-generating asset

and putting it on your property. We are much closer with PV being

economic than people realize. We need a bully pulpit, we need people talking about it, we need incentives, and this industry will take

off. It is not that far away.

Senator KERRY. My time is up. Could I just summarize one

thought? In 1979, after the first oil crisis, President Carter committed us and the country to this effort, and we started a lab out

in Colorado. We had a lot of tenured professors who left their jobs

around the country to go out there to do research.

The Reagan administration came in, pulled the guts out from

under the subsidy structure and the incentives you are talking

about today. We were doing this in 1980. It went away, and the

technology we had developed in the United States, in our laboratories—it never went to an American shelf—it went to Japan and

Germany—and they now, as one of you in your testimony said,

they have the lead today.
20

When the former Soviet Union folded in the 1990s and they suddenly looked at the devastation of those Communist power plants

and so forth and said, what are we going to do about this, they

went to those companies in Japan and Germany to look for the remediation and clean-up of the Danube and so on and so on. We

lost, on estimate, over 200,000 jobs as a consequence of our lack of

that sustained commitment. So I hope we are going to do this one

right and make that kind of commitment. I think on the long-term

basis—every venture capitalist I have talked to, every major businessman, says you can’t make a business plan. You cannot deal

with capital without seeing it go out into the out years. We need

to get it right.

Senator BINGAMAN. Thank you very much. Senator Salazar?

Senator SALAZAR. Thank you very much, Senator Bingaman and

Ranking Member Thomas. Senator Kerry, I appreciate the comments you made about the National Renewable Energy Lab and its

founding back in the 1970s and what happened in that robust area

of investment in research and development and how, in fact, we

have been disadvantaged because we have not paid enough attention to this issue in the last 25 years.

I do think that when you look at some of the charts that you produced, Mr. Boortz, that show what is happening in Japan and Germany and China, that much of what we developed here, through

our investments in the 1970s, really has been taken by other countries. So I very much agree with the points that Senator Kerry

made.

Senator Bingaman, I have a longer statement for the record that

I will just submit for the record. I want to just make a comment.

I think that what you will find probably, at least among most of

us who sit on this committee, is an agreement with the point that

you made in your written testimony, that what we need to do is

to have a longer-term horizon with respect to the production tax

credit in order for us to be able to stimulate the same kind a revolution we have seen in Europe and other places with respect to

solar and renewable energies.

Senator Smith, myself, and others have introduced legislation

that would take us at least to an 8-year window, and I hear you

talking about the sweet spot perhaps being around 10 to 12. Those

are issues that obviously have budgetary implications. But I do

think that we have to make the commitment for a sustained effort

here. That it does have to be something that we do for much longer

than just 1 or 2 years. In that regard, I hope that we in the Finance Committee and working in the Congress can find that

longer-term horizon. Let me ask you this question, with respect to

some of the policies that some of you talked about in your testimony regarding a renewable portfolio standard, which has driven

much of this and many of the European countries. In my State of

Colorado just a few years ago, we passed a renewable portfolio

standard that said we were going to get to 10 percent by the year

2015 of our electrical generation coming from renewables. We have

done so well because of the investments in wind and other things

that we have actually now doubled the amount. The industry, in

fact, Xcel has been one of the leaders in promoting the doubling of

the RPS.
21

Senator Bingaman, last year, I joined him in an effort to try to

get an RPS established for our country in the National Energy Policy Act of ’05. We were not successful in doing that. My question

to you is, if we were able to come up with a national RPS, be that

10, be that 20, whatever that might be—what would that do in

terms of spurring forward the kind of investment with respect to

renewable energies? So why do we just take that, take a minute

of the time and we will go across the table.

Mr. BOORTZ. Thank you. I will be brief. I think the RPS would

be a very valuable thing. Again, the prospect of photovoltaics and

relatively small consumers, I think it would have the impact of getting the utilities involved, as they should be, in our industry, and

playing a larger role.

PV works because of the grid. The utilities own the grid. If the

renewable energy portfolio standards are out there, they will pay

attention to that. The other thing I would like to say—one of the

things I have noticed about the portfolio standards is that, if you

do not say that a certain percentage of it needs to be distributive,

then the standards are met the day they are enacted by the wind

industry.

I like wind. I am for portfolio solutions. I do not think solar can

go it alone. But with the RPSes, I would really like to see the

States and the governing jurisdictions say, we want at least 10 percent of this to be distributive. In other words, fuel cells, solar,

things of that nature. It should not all be met by the same technology.

Senator SALAZAR. Mr. Johns?

Mr. JOHNS. My observation is that resources vary by location and

that, if you have a national policy, that would help a lot of people

on the investment front, because it would make life easier in terms

of understanding the regulations. It is very important that it is tailored at a State level or at least at a regional level based on the

resources. My comment would be that I think that you are underexploiting the valuable resources that you have in the U.S. which

would help you in the carbon area. The area of biomass is one area,

and in relation to certain waste materials as well, you could actually get a little more bang for your buck, as it were. So I think it

is very important that it is calibrated if you have a national standard for the resources in each territory. Because you want to use the

appropriate resources in those territories and for those territories

to contribute on an approximately similar basis to the solution.

Senator SALAZAR. Thank you. Mr. Krenicki?

Mr. KRENICKI. I agree with Mr. Johns. State-by-State resources

do differ—that needs to be taken into account—but I also think

there is an opportunity using transmission and distribution to

move renewable power from the energy-rich States in the Midwest,

Texas, around the Nation, and something that needs to be taken

into account is T&D—transmission and distribution. How do you

effectively move this resource?

Senator SALAZAR. I appreciate that. Mr. Chairman, the only comment that I would make is that I think that, perhaps, it will be

in our other committee, the Energy Committee, that as we look at

the energy future, we look at the RPS. I think it has worked for

many States that have adopted it. It certainly is working very well
22

in my State of Colorado. I think half the States in the country have

an RPS. It might be a useful thing for us to look at an RPS in a

manner that is a national standard that has some flexibility in

terms of State implementation. Much in the same way as we do

with respect to our environmental laws where we allow the States

to take the lead, but have a national standard. Thank all of you.

I did read your testimony, and it was very enlightening. Thank you

very much.

[The prepared statement of Senator Salazar appears in the appendix.]

Senator BINGAMAN. Let me just ask on one other issue here.

When you were here before, Mr. Krenicki, we talked a little about

it. In the case of the investment tax credit that we have in place

for solar, it is easy enough to figure out, okay, should that be 5,

should we extend that for 5 years or for 10 years, or 15. In the case

of the production tax credit for wind, for example, we do have a little bit of a box we have gotten ourselves into, because the way that

works is, we have said—we have extended it for 2 years, we enacted it for 2 years, and then we said, if you get your wind farm

in operation by a certain date, you then have the production tax

credit for a 10-year period.

Now, how do we structure the extension of the production tax

credit? I think one of the concerns, Mr. Krenicki, as I understood

your comments when you testified before, was that if you say, okay,

you have 5 years in which to get something in place and then you

have a 10-year period, you might, in fact, cause a reduction in investment for a couple of years—2 or 3 years—because people would

figure there is no reason to rush. We’ve got plenty of time here.

How do we fix that structural problem in the design of the production tax credit? I sort of asked you that when you were here before, and I am still a little at sea as to how we solve that problem.

Mr. KRENICKI. I will take one more shot at it.

Senator BINGAMAN. You can take another shot, and then if either

of the other witnesses would like to give their views.

Mr. KRENICKI. It is still something that we are thinking through,

but one point I would make is, the back end of the tax credit—the

10 years—I would not disturb.

Senator BINGAMAN. So once you’ve got it, you’ve got it for 10

years? I think we should ensure that. Then the question is, how

long can——

Mr. KRENICKI. What is too long?

Senator BINGAMAN [continuing]. Can you take advantage of this

10-year window?

Mr. KRENICKI. And that is something that—how do you incur a

level-loaded production ramp-up in deployment, because that is

what the country needs is to get the capacity out. So I’ve asked my

team to work on appropriate language and talk to other customers

of ours about what would be most effective. It really comes down

to what is too long. How could we describe the ideal implementation scenario that is good for the country? Again, I think it is something we could submit to the committee.

Senator BINGAMAN. Any other thoughts you have on it, I would

be anxious to hear. Mr. Johns, did you have any thoughts?
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Mr. JOHNS. Well, the type of regulatory frameworks, I think I

used the word framework. What the industry needs is a framework

so it knows rules will be in place for a long period of time. In relation to budgetary control, I think it is the right of government to

take the gas pedal up and down in relation to the amount of spending it is going to incur.

The suggestion that I would have is that you would actually set

a budget for how many credits you want to issue over a 5- or 10-

year period that you would actually annually announce the amount

that is the target, but that you would basically be able to borrow

from 1 year to another and transfer from 1 year to another. That

would encourage rapid deployment, because people would try to get

as much in as possible in the early years.

You could set a limit to how much you are going to borrow from

the next year, if you will. But at least you would have set a slug

of money that you are going to use over a period of time and not

be subject to having—I think the concern is—an unlimited expenditure requirement 7 or 8 years out because lots of people have put

on wind farms in that initial 5-year period.

That, I think, would actually provide the framework. It would

allow you to adjust the pace of development according to your policy frameworks. I have to say the conversations are always predicated on wind and solar, and there are these other technologies

that can help.

I think you really should look at energy efficiency. I think you

should look at, as I said, biomass. You also have co-firing incentive

which needs thinking about. And if you are going to solve the problem, then you do need to calibrate, unfortunately, by technology because they have different investment paradigms.

Senator BINGAMAN. Mr. Boortz, did you have any thoughts on

this?

Mr. BOORTZ. The only thing I would mention, I think a number

of the feed-in tariff programs in Europe do, in fact, provide a higher incentive for people who access the programs early on. They may

have 20 years of a tariff, but if they do it in year one, that tariff

is greater than if they do it in year two or three. So it does create

an incentive not to stand on the sideline and wait, but to access

the program early on to get the maximum benefit.

Senator BINGAMAN. I also just wanted to see if either Mr. Johns

or Mr. Krenicki had any thoughts as to the suggestion Mr. Boortz

had that we specify in a renewable portfolio standard that at least

10 percent of the renewable energy that they are getting credit for

be produced from distributive sources. That is the way I understood

is your suggestion.

Mr. BOORTZ. That’s correct.

Senator BINGAMAN. Do either of you have thoughts as to whether

that is a problem, or it does not make sense, or what?

Mr. KRENICKI. What we argue is, we should not be specific. Because, based on where we are in terms of the cost of that technology, being specific on the amount is going to drive costs to the

consumer.

Senator BINGAMAN. But you would also agree, I think, Mr.

Boortz’s point is that a renewable portfolio standard that doesn’t do

that, does not wind up doing anything for solar——
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Mr. KRENICKI. That is why we are championing a higher investment tax credit for solar, because we feel that it just needs different medicine at this point in the technology cycle.

Senator BINGAMAN. Mr. Johns, did you have any thoughts on

this?

Mr. JOHNS. I think I agree with Mr. Krenicki in relation to the

solar issue. The issue that I would raise is high intensity carbon

users who have energy requirements. A good policy measure would

be to encourage combined heat and power at their manufacturing

locations. That is the initiative that is taking place throughout Europe, and it is having quite a big effect. It would have the advantage, in some cases, of preserving jobs. We have been doing work

for a very substantial energy user in the UK where their business

is threatened by rising energy prices. We have helped them come

up with a solution where they are putting up a combined heat and

power plant on their plant location. It was a consequence of that,

that they are keeping the jobs in the UK.

Senator BINGAMAN. Well, thank you very much. I think it has

been useful testimony, and we will probably continue to be in touch

with you as we try to develop legislation in this area.

Thank you.

[Whereupon, at 3:33 p.m., the hearing was concluded.]
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