"Bail Out" Bill's Energy Tax Credits: Boon for KY Renewables?

by kespeland on October 13, 2008


Lawmakers tacked on several, unrelated extras to the bill.  Among those are extensions of tax incentives for renewable energy projects.  Some are for renewable energy producers – like electric utilities or wind farms.  Others are for individual projects, such as households that install solar panels.  David Brown Kinloch runs a small hydroelectric generation station near Harrodsberg, on the Kentucky River.  He says the passage of the bill means that he’ll finally be able to take advantage of those incentives.

“For years and years, hydro, which is a real big deal in Kentucky, did not qualify.  Well in the last couple years, both hydro and biomass have been put into the production tax credits,” says Kinloch. A 1920s-era generator at Kinloch's hydroelectric station.

Kinloch says that renewable energy projects can require significant investments.  And up until now, they haven’t looked as cost effective as fossil fuel generation.

“Being able to get the production tax credit is that one little boost that gets a lot of these projects over the top,” Kinloch says.

But Kinloch says lawmakers fell short when they extended those credits for hydro power by just two years.  He says it could discourage investors.
“It’s very difficult to make decisions not knowing if in two years when you actually get that plant on line whether that production tax credit is going to be there or not,” says Kinloch.

Solar power fared a little better.  Andrew Macdonald heads the Kentucky Solar Partnership. He says the solar industry would have fallen behind without the added incentives.

“Now that the tax credits have been extended, and not just for another year but for eight years, it’s going to allow the whole industry to make investments in manufacturing, in training,” says Macdonald.

Macdonald says the bill also removed a $2000 dollar cap on solar credits, which could be helpful to homeowners shelling out the $15 to $20 thousand dollars it takes to install a typical home system. What’s more, he expects utilities to start investing in large generation projects because they can get tax credits too.  And once the industry has a firmer foothold, Macdonald says those tax incentives will no longer be necessary.  University of Louisville Professor Emeritus an independent economic development consultant Dr. Peter Meyer agrees the incentives could help the renewables industry take off.

“The reason that some of these things make sense, in a macro, in an aggregate sense, is because they contribute to increasing the total demand for solar systems, wind systems, and so on,” Meyer says.

But Meyer says the development of this industry could bypass the poor. He says they’ll need renewable energy solutions more than anyone because fossil fuel energy costs are rising.

“In the Kentucky case, what we’re looking at is we’re looking at a situation in which we’re committing a lot in the way of tax incentives on the assumption that people have got the money, when in fact it is not at all clear that they do,” says Meyer.

Meyer points out that despite abundant coal resources, many Kentuckians struggle to afford energy bills.  And the cost of coal has nearly doubled in the past year.  Still, it’s unclear how energy prices would be affected if large utilities brought more renewable energy projects into the mix.

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