Hidden in the fine print of the massive Wall Street Bailout bill that was signed into law last week was a tax credit extension that had alternative energy companies, especially makers of home solar systems, dancing with joy.  Instead of losing the federal tax credit at the end of the year, which seemed likely until Wall Street forced Congress to stay in session longer, consumers who install photovoltaic systems will now receive far greater tax savings than they currently enjoy.  To put it bluntly, the federal government is willing to pay 30% of your cost to go solar.  For a description of the roller-coaster ride that these tax credits have taken over the last few months, read my post from last week, Senate Bailout Plan Could be Boon for Alternative Energies, Home Solar.

Now that the bill has become law, it’s time to reassess the overall costs and return on investment for a home photovoltaic system. Because of their up-front expense, Photovoltaic systems are often viewed as a luxury for the wealthy.  And with the down economy it is possible that even these impressive tax credits won’t cause a spike in the purchase of photovoltaic systems.  Convincing someone to invest tens of thousands of dollars in something that may take a decade to pay itself off is a hard sell.  Let the hard sell begin:

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This Saturday, October 4th, in Atlanta the Georgia Solar Energy Association is sponsoring the 2008 Georgia Solar Tour. The event features tours of local buildings that have successfully implemented solar power in an effort to raise awareness about alternative energy. They also want to educate folks about the Georgia Clean Energy Property Tax Credit.

Several Atlanta residences are participating in the event, showing off how their solar setups, energy efficiency, and other sustainable technologies are helping them reduce their monthly utility bills and tackle climate change. Here are just a few of the 26 sites the tour is hitting up!

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The tax package will provide $17 billion in renewable energy tax breaks. It will also adjust the alternative minimum tax, extend tax credits for children and create several business tax cuts. It will also set aside $7 billion in tax relief for those affected by recent floods and hurricanes. The bill extends the solar and wind investment tax credit for eight years, and the production tax credit for biomass and hydropower for up to two years.

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The Gang-of-20 bill severely limits offshore drilling to a handful of Southeastern states that must opt in to allow increased drilling, and moves the drilling boundary to 100 miles offshore (from its current 200 miles) “with states given the option to set it at 50 miles.”

Some oil industry representatives question the effect of the proposals, citing federal studies that show that more than 80% of known oil reserves are inside the 50-mile limit and therefore unavailable. Very little is known about oil reserves beyond 100 miles. Waters off almost the entire Pacific coast — where all three governors oppose drilling at the 50-mile barrier — is considered too deep for drilling 100 miles offshore.

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Are biofuel mandates and tax credits such a good idea? It may be wise to learn from the EU’s experience…

After passage of the new Renewable Fuel Standard (RFS) late last year (see earlier post), which mandates production of 15 billion gallons of corn-grain ethanol by by 2015, many of us are left contemplating the vast implications for US industry, not to mention commodity prices, auto manufacturing, and the greater course of biofuel research and development.

Rewind to 2003, when the European Union (EU) passed a biofuel directive requiring 5.75% of transport energy to come from biofuels by 2010, increasing to 20% by 2020. When paired with tax credits for biodiesel production, business boomed, at least for a while:

Mirroring the U.S. experience with ethanol, European companies rushed to make biodiesel out of a range of things, including rapeseed crops and used McDonald’s frying oil. Low raw-material costs and generous tax breaks meant margins were high. By last year, Europe’s annual capacity to make the fuel had climbed to 10 million metric tons from two million tons in 2003.

As with ethanol in the U.S., though, Europe now has a glut of biodiesel. The world consumed only nine million tons of biodiesel last year. Europe’s producers found buyers for just five million tons. The industry is in trouble, under pressure from soaring costs, disappearing tax breaks, less-costly imports and waning public support.

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The federal solar tax credit is set to expire at the end of 2008, slowing the solar energy growth that the US market has seen recently.

On a recent trip to Greece, I was struck by the prevalence of solar hot water heaters that dotted nearly every rooftop in sight in many villages. I learned from locals that it is done mostly to save money. I dream of the United States following suit, but relatively low energy costs among other factors make such technology less profitable. The federal government does currently offer a tax credit for solar hot water and solar electric (pv) systems, but this tax credit is due to expire at the end of 2008. Currently homeowners and businesses can benefit from this credit and save up to 30% on a solar system.

The credits are “absolutely critical for making a market in the United States,” said Rhone Resch, President of the Solar Energy Industries Association. “What will happen is you will see solar installations start to drop off in the second quarter of 2008 if they are not extended.”

The solar electric market in the United States is expected to increase by over 60% according to Resch. If these incentives expire, it is likely to have a ripple effect throughout the entire solar industry, including solar investments and manufacturing.

An energy bill recently passed the Senate that had three major items stripped from it, including an extending and enhancing the solar tax credit. The $22 billion package would have boosted renewable energy, while cutting tax breaks to oil companies. The White House said it would veto the energy bill if it contained this item and the version of the energy bill that passed the Senate only has items benefiting energy efficiency.

The federal tax credit is the only solar incentive that is currently available to in many states, while some states have their own incentive programs. It is likely that the solar industry will become far more developed in states with strong incentive program, while it may decline in states that only benefit from federal incentives if they do in fact expire at the end of 2008.

Photo credit: Solar Service Inc.