Industry Market Trends

Cleantech Manufacturers: New DOE Tax Credit is Good, but Not Enough

Feb 11, 2013

Credit: Tax Credits Photos. Credit: Tax Credits Photos.

During his inaugural address last month, President Barack Obama declared that addressing the issue of climate change and sustainability were moral imperatives that require immediate action. As part of that action, the Department of Energy (DOE) announced on Thursday the availability of additional funds for cleantech manufacturers under the Advanced Energy Manufacturing Tax Credit program. Manufacturers in the cleantech industry responded to the announcement with minimal enthusiasm.

In a statement released last week, Energy Secretary Steven Chu said, "Since 2009, the Advanced Energy Manufacturing Tax Credit program has supported innovative American manufacturers that boost our nation's competitiveness in the global race for clean energy. These new investments will continue that momentum, supporting the President's commitment to American-made energy, increasing energy security, and creating jobs."

It turns out, though, that the "new investments" aren't new at all. As we reported last week, the $150 million being made available represents unused funds from the original $2.3 billion in credits allocated for renewable energy projects as part of the American Recovery and Reinvestment Act of 2009. More than 180 clean energy projects received tax credits as part of the Act. According to Niketa Kumar, a DOE public affairs specialist, the funds being made available today went unused "due to projects that did not go forward or changed scope." They represent 6.5 percent of the total money originally earmarked for cleantech manufacturing.

The tax credits apply to commercial projects and not research, Kumar said. In addition, she added, "The project must be placed in service within three years of being certified for the credit, otherwise the credit will be forfeited. The credit is claimed in the taxable year the project is placed in service." There is no limit on the number of companies that can apply for the credit. Each project has a $30 million credit cap.

The announcement was met with only mild enthusiasm among manufacturers of clean energy technologies. In an interview with IMT Green & Clean Journal, Gregg Semler, president and CEO of Lucid Energy, a manufacturer of hydrokinetic turbines, said, "Investments in the U.S. are increasing, but they don't compare to the need." He added, "I would like to see this tax credit spur growth in the manufacturing sector where we can develop know-how here in the U.S., increase our competitiveness and create new clean energy job opportunities."

Samuel S. Di Renzo, director of renewable energy for SKF felt similarly. SKF manufactures an array of products that are used in clean energy technologies, including actuators for solar hubs; seals and bearings for ocean energy; and bearings, lubrication, and gearboxes for wind turbines. He told me, "We feel that a longer term plan and stable tax or alternative energy subsidy policy is needed for the industry to expand.  These steady volumes would support the type of investments that capital-intensive industries like [ours] require to add domestic production capacity."

A new report from Bloomberg New Energy Finance finds renewable-energy capacity in the U.S. almost doubled between 2009 and 2012. Today in Energy notes that of the 12,620 MW capacity installed in 2012, 40 percent (5,253 MW) came online in December in order to qualify for the wind production tax credit, which many were expecting to expire at the end of the year.

This proves that tax incentives work to stimulate manufacturing. That's one bit of good news for cleantech companies. More good news comes from GlobalData, a U.K.-based research and consulting firm, which predicts that worldwide solar capacity will triple by 2020, and offshore wind projects will increase 10-fold in the same timeframe.

The bad news, however, is the reports state that the U.K. will lead the offshore wind market, and China will remain the No. 1 producer of photovoltaic cells for solar panels. Their positions are the direct result of government subsidies and investments like the DOE's tax credit.

As we reported earlier, China invests more than 10 times the amount the U.S. does in clean energy projects, thus putting us far behind in research, production, and installation. So while a $150 million tax credit is certainly meaningful, it's hardly the shot in the arm the industry needs to get up to speed with the rest of the world. If President Obama means what he said during his inaugural address, he's going to need to dig up far more money than that.

Di Renzo of SKF put it best when he said, "Our experience says that you can't bank on good intentions."