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Renewable energy attractiveness indices - August 2012 - United States - EY - Global

Renewable energy attractiveness indices: August 2012

United States

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Pending government elections and ongoing trade wars with China make it unlikely that a cohesive long-term renewable energy strategy will emerge out of the US any time soon.

Policy

The pending November elections and ongoing trade wars with China make it increasingly unlikely that a cohesive long-term renewable energy strategy will emerge out of the US any time soon. The extension of key stimulus programs remains uncertain and political wrangling will almost certainly delay any silver linings that do appear.

Finance

Two US senators have introduced legislation that would allow renewable energy projects to benefit from tax incentives currently available only to fossil fuel projects. The proposed act would amend the federal tax code to allow wind and solar schemes to fall under the attractive Master Limited Partnerships business structure and thereby be taxed as a partnership with access to capital at a lower cost. It is perhaps unlikely that such a bill will be passed so late in an election year, but it may herald a new vision of renewables financing in the US.


RES policy uncertainty lingers on


Ranking Issue 34 Issue 33
All renewables index 2 2
Wind Index 3 3
Solar Index 1 1

Source: EY analysis

Wind

The imposition of duties of 73% and 60% on wind towers imported from China and Vietnam, respectively, may provide some relief to US wind manufacturers in the short-term. However, it is likely to bring few benefits in the long term, should Congress fail to extend the PTC for wind projects, due to expire at the end of this year. While activity in the sector has been strong in the year to date, as developers scramble to finish projects before

December, with an estimated 2GW of projects financed in Q2 alone, BNEF predicts that 2013 will see new build capacity of only 1GW–2GW compared with around 11GW this year. This figure could increase to 4GW–6GW should Congress extend the PTC beyond the end of this year, even if this decision comes at the eleventh hour after the November 2012 elections.

However, last minute decisions will do little to ease wind sector tensions and the inability of investors to make long-term plans. Corporate giants Microsoft and Sprint are the latest to join the battle over the PTC, claiming that failure to extend the tax credit would tax corporate’s that purchase significant amounts of renewable energy and damage financial performance during a period of economic turmoil.

Solar

US solar manufacturers may also receive some respite as a result of the anti-subsidy and anti-dumping tariffs imposed on Chinese solar imports, although the impact of China’s own investigation into US practices is yet to be assessed. The US may find itself facing unintended consequences, given that China imports a large amount of raw materials and equipment from the US to produce its solar panels.

The US solar sector is also currently at the center of a debate over the Department of Energy’s (DoE) loan guarantee program. A Republican-led bill that proposes more transparency on loans for renewable energy projects and proposes the phase-out of the program, has passed through the House Energy and Commerce Committee’s energy and power sub-committee and now proceeds to the Senate. Dubbed the “No More Solyndras” bill, the legislation action was sparked by the collapse of Solyndra two years after receiving a US$535m (€431m) loan guarantee.

While not expected by some to pass through the Senate, the recently announced bankruptcy of Abound Solar, a US manufacturer awarded a US$400m (€322m) loan guarantee (against which US$70m (€56m) was borrowed), does little to weaken the Republicans’ case. Should the bill be successful, it could bar the DoE from granting loan guarantees to any company that filed its application after 31 December 2011 for part of its remaining US$34b (€27b) loan budget.

Signs of woe in the solar sector continued as the slide in solar panel prices forced General Electric to announce in July that it would suspend construction of its solar panel manufacturing plant in Colorado by at least 18 months. The thin film factory was slated to be the biggest in the country.

More positive solar news came in the form of an announcement by the US Interior Department that it has identified 17 solar deployment zones across six states, which will be regarded as “priority areas” for solar projects and will benefit from faster permitting procedures. It is estimated that the sites may eventually be used to support 23.7GW of generating capacity.

Q2 also saw the 100MW milestone being reached by the Aqua Caliente project in Arizona. Once complete, the 290MW project will be the largest solar PV power plant in the world.

Geothermal

EnergySource recently commissioned its 49.9MW power plant in California’s Salton Sea geothermal field. It comes at a time when many are reconsidering the role geothermal plays in the national energy mix, considering its reliable and consistent output, relatively low cost and significant resource.

Although the PTC’s fate is still uncertain and currently is set to expire at the end of 2013 for geothermal plants, leaving a less substantial 10% ITC, in the short term, the industry appears poised for rapid expansion. The Geothermal Energy Association recently announced that 2GW of geothermal capacity is currently under development nationwide, of which 950MW is in advanced stages. This could have quite an impact, given that technology currently accounts for only 3.1GW of domestic output.



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