[ February 2010 ]

Stimulus' Impact on the U.S. Renewable Energy Sector

Greenbacks for green fuels

The American Recovery and Reinvestment Act (ARRA), signed by President Obama on February 17, provides $42 billion in spending and more than $21 billion in tax incentives for energy programs, primarily for energy efficiency and renewable energy. Appropriations include $11 billion for modernizing the U.S. electricity grid and more than $6 billion for state and local efforts to boost energy efficiency. The bill provides $2.5 billion for energy and other R&D programs, and roughly two-thirds of the tax incentives go towards wind, solar, and other renewable energy initiatives. Given the increased attention to clean energy, Ergo asked four experts to discuss the impact of the stimulus package on the renewable energy sector.

  • Expert 1: Vice President at a U.S.-based solar manufacturing company

    "People are underestimating the loan component. It’s a massive program. There are loan guarantees of $6 billion, but this can be leveraged towards $60 billion in loans. The government is planning to give this out at a 3-4% interest. This would primarily go toward renewable energy projects."

  • Expert 2: Department head at a major U.S. environmental action organization who has extensively studied the stimulus’ impact on renewable energy

    "[The ARRA] is going to reduce the costs of projects in general because of the cash grant. They will have a lower cost of capital. If you’ve got a guaranteed government grant plus a loan guarantee, the cost of the project will be a lot lower than if you were in the private sector. So it makes a lot of projects more economically viable. This could have a pretty significant impact on renewable energy industry and the investable industry; it’s just got to happen."

  • Expert 3: Owner of a leading U.S. environmental services and investment firm

    "[The ARRA] is going to provide impetus for small project developers in general and small municipalities and rural governments in particular to take advantage of projects that may have otherwise been beyond their reach. A lot of R&D money, particularly in the northwest, is going to geothermal and algae."

  • Expert 4: Director of the Energy Security Program at a renowned U.S. policy think tank

    "The stimulus is potentially transformative in that, if you take all provisions for renewable energy and also energy efficiency, you’re looking at close to $80 billion in various incentives for the industry. There is one drawback that hasn’t gotten enough attention. Developing renewable energy the way the president would like can’t happen until we rebuild the national electricity grid. [Former] Chairman [of the Federal Energy Regulatory Commission] Joseph Kelliher commissioned a study that said we need $220-250 billion to fix the grid over the next ten years, for which there is no money currently allocated."

Ergo's House View

Having conducted extensive research on renewable energy in the past several years, including projects on biofuels, thin-film solar, and carbon markets, Ergo has deep expertise in the renewables space. We firmly believe renewable energy in the United States has great potential for expansion, particularly as investment from the private and public sectors increase and as policymakers seek reforms designed to stimulate growth. The impact is likely to be significant when the stimulus money is ultimately distributed, perhaps by early to mid-2010 – but the financial crisis has made it difficult to raise capital, and so far, stimulus money has been slow to reach developers.

Prior to the ARRA, a key challenge had been to ensure small and medium-sized enterprises could take advantage of fiscal subsidies in the form of production and investment tax credits (PTCs and ITCs) without sufficient taxable profits. The ARRA has helped overcome this hurdle by replacing these credits with treasury grants and by extending the PTC for three years. As a result of increased capital availability for small-scale projects, SMEs are able to pursue opportunities that were previously untenable. Moreover, major climate legislation making its way through Congress now would increase demand for energy alternatives and research toward renewable energy initiatives.