It's Easy Being Green (and Profitable Too!)
Kermit The Frog once said that it is not easy being green. Until relatively recently, Kermit’s observation had been true for the clean technology industry as abundant and inexpensive traditional energy sources offered little incentive for investment in the development of viable alternative sources of energy. However, as a result of sharp increases in demand for resources by developing countries over the past several years, traditional energy has become much more expensive. And, at the same time, there has been a marked increase in public sensitivity to protecting and maintaining the environment. Thus, the products and services offered by Clean Tech firms have become more attractive to businesses and investors alike.
Today’s economy faces extraordinary challenges from the worst world wide financial crisis since the Great Depression to persistent and growing resource shortages and rising energy costs to long term climate changes. Considering all of these stresses, Clean Tech is in a unique position to become a leading driver of economic growth in the United States and elsewhere. Many experts believe that Clean Tech is and will be for the foreseeable future the single largest opportunity for job and wealth creation throughout North America, Europe, Israel, China and India, and predict that the global market for Clean Tech will reach $1.3 trillion within the decade.2 Private capital is betting on Clean Tech, as investment in Clean Tech has in, recent years, reached unprecedented levels. Last year, venture capital firms invested approximately $8.4 billion in Clean Tech firms.3 Although private investment has dipped in the first half of 2009 due to the current economic conditions, many believe that a rebound in investment is imminent, particularly as new federal and state mandates for renewable energy are announced. Additionally, the U.S. Government views Clean Tech as a good short term opportunity and long term investment. Indeed, the American Recovery and Reinvestment Act of 2009 (the Stimulus) contains substantial appropriations and other economic incentives for Clean Tech. The influx of capital from both private investment and the U.S. Government should result in significant job and wealth creation.
Clean Tech and the Stimulus
The Obama Administration has made it clear that energy independence, national security and job creation are three of its top initiatives, and believes that advancement of Clean Tech can help further all of these initiatives. Therefore, it is no surprise that approximately $65 billion of the $787 billion4 from the Stimulus is being allocated to energy related programs through tax incentives, loan guarantees and direct spending programs for the purpose of creating green jobs, increasing energy efficiency and cutting America’s dependence on foreign oil. The funds are being distributed to both federal and state agencies who then apportion the funds to various programs.
Nine billion dollars of the Stimulus has been allocated to the U.S. Department of Energy (DOE) to implement various programs and distribute the funds for such programs. One of the DOE’s upcoming programs is the so called “cash for appliances” program which follows up on the recent success of the DOE’s “cash for clunkers” program. Under this appliances program, the DOE will distribute $300 million in the form of rebates of between $50-$200 to consumers who replace energy hogging refrigerators and freezers with more energy efficient appliances.5 Another DOE program, the Energy Efficiency and Conservation Block Grant program (EECBG), has been established to award Stimulus grants to energy efficiency and conservation projects in various state communities. For example, at the Clean Energy Economy Forum held a few weeks ago, the U.S. Energy Secretary announced that the DOE has awarded approximately $36 million to Pennsylvania’s State Energy Office and local cities and counties in Pennsylvania to help lower energy use, reduce carbon pollution and create green jobs.6 $23.5 million of the grant is to be used by Pennsylvania’s State Energy Office to establish the PA Conservation Works! Program which will award grants to local government and non-profits that have “shovel-ready” projects that will yield energy efficiency improvements of at least 25 percent. The balance of the grant will go to municipalities for things such as installing more efficient street lighting and lowering energy consumption in municipal buildings.
Other DOE Stimulus programs include:
- investment of $5 million in Stimulus money ($11.8 million total) for five projects designed to advance the development of solar energy grid integration systems that will improve quality and reliability of the U.S. electrical grid,
- approximately $30 billion in loan guarantees for renewable energy projects and modernization of the nation’s energy transmission system (funded partly by Stimulus money and partly through 2009 appropriations), and
- distribution of $3 billion in funds (in lieu of tax credits) to companies that create and place in service renewable energy facilities.7
Many local companies have already taken advantage of these DOE programs. For example, Crayola, the iconic manufacturer of crayons, located in Easton, Pennsylvania received a grant of $1.5 million in Stimulus money for use in the implementation of solar panels to power its crayon factory. And, Sysco Food Systems was granted $840,000 in funding to make its distribution facility located in Philadelphia more energy efficient. Most recently, two Pennsylvania wind farms, Locust Ridge II located in Schuylkill County and Highland Wind Farm located in Cambria County, were among 12 clean energy companies across the country who were awarded a total of $101.4 million in Stimulus funds to construct wind power facilities, which are estimated to produce enough electricity to power 59,000 homes in Pennsylvania. Other programs are in development and are being announced regularly.8
The Stimulus also provides for numerous tax incentives and financing options to businesses and individuals who implement Clean Tech solutions (to replace conventional technology or for expansion). In particular, the Stimulus
- extends the Production Tax Credit, making it available for wind facilities placed in service before the end of 2012 and for closed loop and open loop biomass, geothermal energy, solid waste, marine and hydrokinetic facilities placed in service before the end of 2013;
- temporarily allows businesses who place in service facilities that produce electricity from wind and some other renewable sources after December 31, 2008 to elect either the energy investment tax credit (a 30 percent tax credit for investments in energy projects) or the production tax credit (up to a 2.1 cents per kilowatt-hour credit for electricity produced from renewable sources);
- repeals the $4,000 limit on the 30 percent tax credit for small wind energy property and the limitation on property financed by subsidized energy financing for property placed in service after December 31, 2008;
- allows businesses to apply for a grant (instead of claiming the energy investment tax credit or the production tax credit) for certain property placed in service in 2009 or 2010 – this is especially helpful since current economic conditions have severely undermined the effectiveness of the credits; and
- modifies the tax credit rate and limit amounts with respect to the credit for alternative fuel vehicle refueling for property placed in service in 2009 and 2010 (qualified property is eligible for a 50 percent credit and the per-location limit increases to $50,000 for business property).
In addition, individual homeowners who implement certain Clean Tech improvements such as solar hot water heaters, geothermal heat pumps and wind turbines in their homes are eligible to receive a tax credit equal to 30 percent of the cost.9
Clean Tech –Beyond the Stimulus
In addition to the Stimulus funding, Clean Energy Works, an environmental grassroots coalition, has been lobbying Congress to pass the American Clean Energy and Security Act. The coalition predicts that this bill will generate 72,000 new jobs in Pennsylvania and 1.7 million new jobs throughout the United States. On June 26, 2009, this bill was passed in the House of Representatives and is currently awaiting a vote in the Senate, which is likely to occur before the end of the year.
Pennsylvania, New Jersey and New York – Leading the Way
Pennsylvania, New Jersey and New York are at the forefront of Clean Tech and have been recognized as three of the top ten Clean Tech states of 2009.10 Pennsylvania has established a
$650 million energy fund to spur the development of alternative and renewable energy, support early stage research for the development and implementation of energy efficient technology, build “green” buildings, and provide loans, grants and rebates to residential consumers and small businesses who implement energy efficient technologies. New Jersey is leading the way in the solar energy arena with the establishment of the Solar Renewable Energy Certificate program (SREC) which is intended make it easier for individuals and businesses to finance and invest in clean, emission free solar power. Under this program, each time a solar electric system generates 1000kWh of electricity, a SREC certificate is issued to the owner of the system and this certificate can be sold or traded (separately from the power) to electric suppliers (who are required to participate in the SREC program).11 The current market price for a SREC certificate is approximately $650 per certificate. And, New York is implementing initiatives to lower the state’s carbon footprint and establish education-related and start up cluster programs around the Clean Tech sector.
Clean Tech is now taking its place in the (energy efficient) spotlight. Although an abundance of government funding alone does not portend success for an industry, the significant private capital also flowing into Clean Tech has led many to conclude that, contrary to Kermit’s statement, it is easy being green. Firms who are developing, utilizing or implementing Clean Tech are benefiting greatly from the influx of private capital, the Stimulus and other governmental funding and support.
If you are involved in Clean Tech or thinking about getting involved in Clean Tech, White and Williams LLP can help you develop, commercialize, implement, finance or invest in Clean Tech.
1 The clean technology industry or “Clean Tech”, as it is commonly referred, includes a diverse offering of products and services that focus on the creation, development and improvement of renewable energy sources including wind power, solar power, biofuels, water purification, smart grid development and green buildings, that provide enhanced performance at lower costs and emit significantly less waste than their conventional counterparts.
2 Catherine S. Renault, Clean Tech: An Opportunity for Technology-based Economic Development in Maine, A White Paper (2009), available at http://www.maineinnovation.com/newsroom/pdfs/CleanTech_White_Paper_FINAL_Jan_2009.pdf
3 Clean Tech Group LLC, Clean technology venture investment reaches record $8.4 billion in 2008 despite credit crisis and broadening recession at http://cleantech.com/about/pressreleases/010609.cfm.
4 Where Is Your Money Going?, available at http://www.recovery.gov/?q=content/investments
5 USA Today, Appliances get their own recycled clunkers programs (August 25, 2009), available at http://www.usatoday.com/money/industries/environment/2009-08-25-appliances-cash-for-clunkers_N.htm
6 U.S. Department of Energy, Obama Administration Delivers More than $36 Million to Pennsylvania Communities for Energy Efficiency Projects (September 17, 2009), available at http://www.energy.gov/news2009/8021.htm
7 U.S. Department of Energy, DOE Announces Awards for up to $11 Million for New Solar Energy Grid Integration Systems (July 29, 2009), available at http://www.energy.gov/news2009/print2009/7720.htm; U.S. Department of Energy, Obama Administration Announces Billions in Lending Authority for Renewable Energy Projects and to Modernize the Grid (July 29, 2009), available at http://www.energy.gov/news2009/print2009/7722.htm; U.S. Department of Energy, Energy, Treasury Now Accepting Applications for Funding For Renewable Energy Projects (July 31, 2009), available at http://www.energy.gov/news2009/print2009/7726.htm;
8 U.S. Department of Energy, available at www.energy.gov
9 United States Department of Treasury, Internal Revenue Service, Energy Incentives for Businesses in the American Recovery and Reinvestment Act, available at http://www.irs.gov/newsroom/article/0,,id=209564,00.html
10 Shawn Lesser, The top 10 U.S. states for cleantech in 2009, available at http://cleantech.com/news/4845/top-10-us-states-cleantech-2009
11 SREC Registration Program, available at http://www.njcleanenergy.com/renewable-energy/programs/solar-renewable-energy-certificates-srec/new-jersey-solar-renewable-energy; Solar Renewable Energy Certificates, available at http://www.njsolarconnections.com/SREC_Credits.html