Reuters Insight - US Energy Bill to Have Positive Effect on Solar Sector
Date: 05-Dec-07
Country: SINGAPORE
Author: Jennifer Tan
This conference call is part of a continuing series of calls that Reuters Insight, a Reuters business that tracks industry trends for institutional investors, hosts between its clients and various industry experts.
Recent worries on the possibility that solar tax credits could be removed from the energy bill have raised questions over the high valuations of solar firms like Akeena Solar Inc, First Solar Inc., Suntech Power Holdings Co. Ltd., China-based Yingli Green Energy Holding Co. Ltd. and SunPower Corp.
Solar company stocks that started trading in the last two years have scaled lofty heights this year, riding on the bright prospects forecast for the renewable energy sector.
"Renewed tax credits are key to maintaining investment momentum in these companies," said David Eller, Principal with Reuters Insight.
Sklar, who has nearly 30 years of experience in the energy industry and is one of the leading lobbyists involved in the energy bill, said the cap for tax incentives offered to residents to install solar power in their homes would likely be raised to $4000 from $2000, increasing the total dollar benefit to consumers.
The tax credit can also be applied to the Alternative Minimum Tax, which is expected to impact a greater percentage of middle and upper middle-income families - about 24 million households in 2007. The AMT, part of the federal income tax system in the US, is an extra tax citizens have to pay on top of their regular income tax.
These incentives have a high likelihood of being passed by the Senate in the third week of December, with 58 of the 60 necessary votes in verbal agreement, said Sklar, who is also the founder of strategic marketing and policy firm the Stella Group.
"I tend to think that it will close before year-end, and they will do it before they leave for the holidays," he added.
However, one negative is that the current energy bill is expected to extend the tax credits by only two years, down substantially from the five years included in the bill a week ago, which may not be long enough for multi-megawatt projects - which require long lead times for feasibility studies - to take place.
"Two years is not enough. The big projects in wind, concentrated solar power, geothermal and even some biomass are going to be threatened if we can't get a minimum of five, and preferably, eight, so there's a lot of hard ball playing at this very moment on that particular issue," Sklar said.
But the residential market would be a key beneficiary, he added. "I think it will be absolutely beneficial to the residential side of the market - two years for the residential side still drives the market pretty profoundly."
The net effect on the industry will likely be mixed, said Eller of Reuters Insight. "It's clearly a positive development for the industry, but doesn't fully open the doors to widespread corporate expansion."