[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
     TAX CREDITS FOR ELECTRICITY PRODUCTION FROM RENEWABLE SOURCES

=======================================================================

                                HEARING

                               before the

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 24, 2005

                               __________

                           Serial No. 109-47

                               __________

         Printed for the use of the Committee on Ways and Means











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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
PAUL RYAN, Wisconsin                 JOHN B. LARSON, Connecticut
ERIC CANTOR, Virginia                RAHM EMANUEL, Illinois
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff
                  Janice Mays, Minority Chief Counsel

                                 ______

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                     DAVE CAMP, Michigan, Chairman

JERRY WELLER, Illinois               MICHAEL R. MCNULTY, New York
MARK FOLEY, Florida                  LLOYD DOGGETT, Texas
THOMAS M. REYNOLDS, New York         STEPHANIE TUBBS JONES, Ohio
ERIC CANTOR, Virginia                MIKE THOMPSON, California
JOHN LINDER, Georgia                 JOHN B. LARSON, Connecticut
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.



















                            C O N T E N T S

                               __________

                                                                   Page

Advisory announcing the hearing..................................     2

                               WITNESSES

U.S. Department of Energy, Energy Information Administration, 
  Howard Gruenspecht, Deputy Administrator.......................     5

                                 ______

CalEnergy Operating Corporation, Vince Signorotti................    42
Carlson Small Power Consultants, William Carlson.................    32
DTE Biomass Energy, Inc. and the Solid Waste Association of North 
  America, Curtis T. Ranger......................................    35
FPL Energy, Dean Gosselin........................................    24
Integrated Waste Services Association, and American Ref-Fuel 
  Company, Michael Norris........................................    39
Sharp Electronics, and Solar Energy Industries Association, Chris 
  O'Brien........................................................    47

                       SUBMISSIONS FOR THE RECORD

Brairton, Michael, American Public Power Association, statement..    60
Davey, Christopher, Solar Mission Technologies, Inc., Missoula, 
  MT, letter.....................................................    63
Edison Electric Institute, statement.............................    64
Elefant, Carolyn, Ocean Renewable Energy Coalition, Potomac, MD, 
  statement......................................................    65
English, Glenn, National Rural Electric Cooperative Association, 
  Arlington, VA, statement.......................................    67
Geothermal Energy Association, statement.........................    69
Independent Wind Power Association, statement....................    74
Koenig, David, American Forest & Paper Association, statement....    75
Kolodziej, Richard, American Biogas Alliance, statement..........    76
Kunz, Daniel and Douglas Glaspey, U S Geothermal Inc, Boise, ID, 
  joint letter...................................................    79
Long, Gary, Public Service of New Hampshire, Manchester, NH, 
  letter.........................................................    80
Market Street Energy Company, Llc, Saint Paul, MN, statement.....    81
Meyer, Richard, Ocean Energy Council, Inc., Royal Palm Beach, FL, 
  statement......................................................    82
Pomeroy, Hon. Earl, a Representative in Congress from the State 
  of North Dakota, statement.....................................    83
Rosenberg, David, Technology Transfer Partners, Chicago, IL, 
  letter.........................................................    84
Smith, Ronald, Verdant Power Llc, Arlington, VA, letter..........    84
Stover, Mark R., statement.......................................    85
Wolff, Pat, American Farm Bureau Federation, statement...........    87

















     TAX CREDITS FOR ELECTRICITY PRODUCTION FROM RENEWABLE SOURCES

                              ----------                              


                         TUESDAY, MAY 24, 2005

             U.S. House of Representatives,
                       Committee on Ways and Means,
                   Subcommittee on Select Revenue Measures,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:03 p.m., in 
room 1100, Longworth House Office Building, Hon. Dave Camp 
(Chairman of the Subcommittee), presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                SUBCOMMITTEE ON SELECT REVENUE MEASURES

                                                CONTACT: (202) 226-5911
FOR IMMEDIATE RELEASE
May 16, 2005
No. SRM-2

                       Camp Announces Hearing on

                 Tax Credits for Electricity Production

                         from Renewable Sources

    Congressman Dave Camp (R-MI), Chairman, Subcommittee on Select 
Revenue Measures of the Committee on Ways and Means, today announced 
that the Subcommittee will hold a hearing on Federal tax credits for 
electricity production from renewable sources. The hearing will take 
place on Tuesday, May 24, 2005, in the main Committee hearing room, 
1100 Longworth House Office Building, beginning at 2:00 p.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Subcommittee and 
for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    In 1992, Congress passed the Energy Policy Act of 1992 (P.L. 102-
486) which established an inflation-adjusted tax credit (Section 45 of 
the Internal Revenue Code) of 1.5 cents per kWh for electricity 
produced from certain renewable sources, specifically qualified wind 
and closed-loop biomass plants. This provision has been extended and 
modified several times. Most recently in the American Jobs Creation Act 
of 2004 (P.L. 108-357), the credit was expanded to include electricity 
produced from open-loop biomass, geothermal, solar, small irrigation 
and municipal solid waste. The credit will not, without extension of 
current law, be available for output from qualified facilities placed 
in service after 2005.
      
    In announcing the hearing, Chairman Camp stated, ``This hearing 
will provide us with the opportunity to examine Section 45 of the 
Internal Revenue Code and the impact tax credits have had on the 
production of energy from renewable sources.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the history of the renewable production 
tax credit and its effects on the retail electricity market. The 
Subcommittee will assess the economic efficiency of current tax policy 
for renewable energy production and its efficacy in promoting 
economically viable new energy technology.
      

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    Chairman CAMP. The hearing will come to order. I ask our 
guests to please find seats. The Subcommittee on Select Revenue 
Measures hearing will begin, and the purpose of today's hearing 
is to examine the Production Tax Credit, commonly known as the 
PTC, or the section 45 credit, based on the section of the 
Internal Revenue Code in which it is found.
    Congress enacted the PTC in 1992 to provide an incentive 
for producing electricity from certain renewable sources. The 
PTC originally provided 1.5 cents per kilowatt hour of 
electricity produced from certain renewable sources, 
specifically qualified wind and closed-loop biomass plants. 
Over the years, Congress has expanded the variety of renewable 
energy sources eligible for the PTC. Currently, several new 
renewables, such as solar, geothermal, and open-loop biomass, 
have been included in the credit.
    Other potential sources of power have sought inclusion or 
higher credit amounts. In fact, the trend appears to be that 
energy sources previously covered by other tax incentives, such 
as investment credits, are now seeking to be included in the 
PTC. Congress needs to periodically assess the current 
economics of renewables production and the efficacy of the PTC 
in promoting both the use of renewables and the development of 
new technologies. Today's hearing will be part of the 
Subcommittee's examination of these issues.
    The Subcommittee will first hear from Dr. Howard 
Gruenspecht, representing the Department of Energy's Energy 
Information Administration. He will discuss the competitiveness 
of renewables eligible for the PTC and perspectives on how the 
structure of the credit may affect adoption of these new 
technologies.
    The Subcommittee will then hear from representatives of the 
renewables industries currently covered by section 45.
    The goal of this hearing is to determine what the PTC has 
accomplished or might accomplish. We need to understand the 
economics of renewable energy sources and the prospects for 
expanding their market share. With the PTC scheduled to expire 
at the end of this year, I look forward to hearing our 
witnesses discuss just how effective this tax incentive is in 
promoting renewable power.
    I yield to the ranking Member of the Subcommittee, 
Congressman McNulty, for an opening statement.
    Mr. MCNULTY. Thank you, Mr. Chairman. I am happy to be here 
with you, Mr. Gruenspecht, and the others who will testify 
later.
    Mr. Chairman, if I could ask consent to place in the record 
an opening statement by a Member of the full Committee who is 
not a Member of the Social Security, Earl Pomeroy. I would 
appreciate that.
    Chairman CAMP. Without objection.
    Mr. MCNULTY. I would like to ask for permission for all 
Members to submit statements for the record.
    Chairman CAMP. Without objection.
    Mr. MCNULTY. Thank you, Mr. Chairman. I look forward to 
today's hearing on the effectiveness of Tax Code section 45 in 
the production of electricity from renewable sources.
    It is timely that the Select Revenue Measures Subcommittee 
consider this issue given that the tax credit for renewable 
resources expires at the end of 2005. It is my hope that the 
Subcommittee will find time to consider other critically 
important tax provisions which expire at the end of this year, 
for example, individual Alternative Minimum Tax Relief and the 
Welfare to Work and Work Opportunity tax credit.
    The production of electricity through renewable energy 
sources, such as biomass, solar, wind, and geothermal, 
continues to involve cutting-edge industries with creative 
technologies. It is important that our tax system support 
efficient energy production systems and long-range energy 
conservation measures. Renewable energy sources provide an 
opportunity for investing in new technologies and a better 
energy future for our children.
    Mr. Chairman, I commend you for holding this hearing. I 
thank all of the witnesses for your valuable insights and I 
look forward to working with all of you on these issues in the 
future. Thank you.
    Chairman CAMP. Thank you very much.
    Now, Dr. Gruenspecht, you have 5 minutes to summarize your 
statement. We have received your written testimony, but you may 
begin at any time. Thank you for being here.

 STATEMENT OF HOWARD GRUENSPECHT, DEPUTY ADMINISTRATOR, ENERGY 
     INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF ENERGY

    Dr. GRUENSPECHT. Thank you, Chairman Camp and Members of 
the Subcommittee. I appreciate the opportunity to appear before 
you today to discuss the economics of renewable energy 
electricity generating technologies that are eligible for the 
section 45 Production Tax Credit.
    The Energy Information Administration is a statistical and 
analytical agency within the U.S. Department of Energy. We 
don't take positions on policy issues, but we do produce data, 
analyses, and forecasts that are meant to assist policy makers 
in their deliberations. Because we have an element of statutory 
independence, EIA's views should not be construed as 
representing those of the Department of Energy or the 
Administration.
    The information I am providing today is based on our 
outlook for domestic energy consumption, supply, and prices 
through 2025. These projections are meant to represent likely 
futures, not exact predictions. Projections of energy markets 
are highly uncertain, as we have all seen recently, and are 
subject to many random events that cannot be foreseen. In 
addition, long-term trends in technology, economic growth, and 
energy resources may evolve along unanticipated paths. We do 
examine a number of alternative cases to address some of these 
uncertainties.
    In 2003, renewable energy generation altogether accounted 
for 9.4 percent of total electricity generation. Over three-
quarters of that amount was conventional hydroelectric power, 
which is not eligible for the PTC. The technologies currently 
eligible for the PTC accounted for 2.2 percent of total 
electricity generation, as illustrated in Figure 1 of my 
written testimony. While the combined generation of these 
technologies is projected to more than double by 2025, their 
share of total generation is projected to remain relatively 
small, at 3.2 percent.
    One way that we often compare generating technologies is to 
estimate their levelized cost, which represents the discounted 
per kilowatt hour cost of building and operating a plant. Table 
1 in my written testimony compares the projected levelized 
costs in 2010 for various generating technologies. A glossary 
attached to my testimony explains some of the terms I am using.
    As shown in the table, pulverized coal, geothermal, and 
natural gas combined cycle plants have the lowest projected 
levelized cost. Solar, thermal, and photovoltaic technologies 
have much higher levelized costs. Wind and open-loop biomass 
fall in the middle.
    Levelized costs alone do not determine market outcomes, and 
let me briefly touch on some of the issues that most affect the 
potential use of renewable generation.
    Resource limitations are one issue. For example, while the 
table shows that levelized costs of geothermal are competitive 
with new coal plants, there are very few geothermal sites with 
costs as attractive as those in the table and they tend to be 
located in remote areas. Remaining sites are more expensive.
    Again, for wind, there is a lot of resource, but the 
quality and location are important considerations. Some of the 
best resources are located in areas that are relatively remote 
or hard to develop.
    A fuel availability is another issue, especially for 
biomass. The supply of low-cost biomass fuel is limited, and 
because biomass fuel has a lower energy content per unit of 
volume than coal, transportation costs generally rule out 
moving biomass over long distances.
    Wind and solar are intermittent energy sources. When the 
wind is not blowing or the sun is not shining, they can't 
generate electricity. When these technologies are developed, 
additional capacity may have to be added to back them up, 
adding system costs that are not reflected in the levelized 
cost table.
    Transmission cost and availability also varies by 
technology. All technologies require some investment to 
interconnect with the transmission grid, but these costs can be 
higher for some renewables because of their relatively remote 
locations and small plant sizes, and it is especially true for 
intermittent technologies because of their low utilization 
rates.
    Now let me offer some observations on the impact of the PTC 
itself. There is no question that the availability of the PTC 
increases the economic attractiveness of eligible technologies. 
Its primary impact to date has been to stimulate wind. For 
solar, the benefit provided by the PTC is not large enough to 
result in its significant expected market penetration. In fact, 
because of high capital costs and low capacity factors, the PTC 
is less valuable to solar technologies than the Investment Tax 
Credit, which they can take instead.
    We have done some sensitivity analysis that looks at the 
impact of a long-term extension of the PTC. That is not meant 
to represent any expectation about future policy decisions. 
Wind power shows the largest projected gain, followed by 
geothermal, landfill gas and biomass.
    We also ran a test case in which all the eligible 
renewables were given the same PTC as wind for an extended 
period. As you know, some of the others receive less. In that 
case, wind and biomass were still the major beneficiaries.
    Let me close by citing some other factors that influence 
the penetration of renewable technology. It is not just the PTC 
that matters, it is other market or policy developments. We 
looked at a scenario that significantly raised projected 
natural gas prices and total additions of renewable capacity 
nearly doubled and their share of total generation in 2025 
increased by a third. Biomass and wind were the big gainers.
    We ran some scenarios that incorporate recent rules or 
legislative proposals to regulate emissions of sulfur dioxide, 
nitrogen oxides, and mercury. Those policies did not appear to 
have a major impact on the penetration of renewables. However, 
as discussed in my written testimony, we did find that 
significant restrictions on emissions of greenhouse gasses 
would result in much greater use of PTC-eligible technologies.
    There is also an interaction between the PTC and State 
programs to stimulate renewables. We found that many States 
have included provisions in their State programs, Renewable 
Portfolio Standards, mandates that limit the funding levels or 
the costs they are willing to impose. That means since the PTC 
lowers funding levels or costs, it reduces the likelihood that 
those provisions get triggered.
    Finally, we have also, in response to a request from 
Congress, looked at analyses of proposals for national 
Renewable Portfolio Standards. Again, these analyses suggest 
that a Federal RPS could stimulate the development of new 
renewable capacity. However, the stated percentage targets in 
those programs are often not achieved because of a similar cap 
provision that limits the price of renewable tradable credits. 
If the PTC and RPS programs were both in effect, the credit 
price caps are less likely to limit the deployment of renewable 
technologies.
    That concludes my testimony, Mr. Chairman, and I would be 
glad to answer any questions that you or other Members of the 
Subcommittee might have. Thank you.
    [The prepared statement of Mr. Gruenspecht follows:]
     Statement of Howard Gruenspecht, Deputy Administrator, Energy 
         Information Administration, U.S. Department of Energy
    Mr. Chairman and members of the Subcommittee, I appreciate the 
opportunity to appear before you today to discuss the economics of 
renewable energy electricity generating technologies that are eligible 
for the Section 45 production tax credit (PTC).
    The Energy Information Administration (EIA) is a statistical and 
analytical agency within the U.S. Department of Energy. We are charged 
with providing objective, timely, and relevant data, analyses, and 
projections for the use of the Congress, the Administration, and the 
public. We do not take positions on policy issues, but we do produce 
data, analysis, and forecasts that are meant to assist policy makers in 
their deliberations. Because we have an element of statutory 
independence with respect to our data, analyses, and forecasting, our 
views are strictly those of EIA and should not be construed as 
representing those of the Department of Energy or the Administration. 
However, EIA's baseline projections on energy trends are widely used by 
government agencies, the private sector, and academia for their own 
energy analyses.
    Much of the information I am providing today comes from our Annual 
Energy Outlook 2005 (AEO2005) which provides projections and analysis 
of domestic energy consumption, supply, and prices through 2025. The 
AEO2005 is based on Federal and State laws and regulations in effect as 
of late 2004. With respect to electricity generated from renewable 
energy, AEO2005 includes the extension and broadening of the PTC 
through December 31, 2005, that was included in the Working Families 
Tax Relief Act of 2004 (P.L. 108-311) and the American Jobs Creation 
Act of 2004 (P.L. 108-357).
    The projections in the AEO2005 are not meant to be exact 
predictions of the future but represent likely energy futures, given 
technological and demographic trends, current laws and regulations, and 
consumer behavior as derived from known data. EIA recognizes that 
projections of energy markets are highly uncertain and subject to many 
random events that cannot be foreseen, such as weather, political 
disruptions, and technological breakthroughs. In addition to these 
phenomena, long-term trends in technology development, economic growth, 
and energy resources may evolve along a different path than expected in 
the projections. The AEO2005 includes several alternative cases 
intended to examine some of these uncertainties.
Renewable Generation Today
    In today's market, renewable generation accounts for 9.4 percent of 
total generation; over three-quarters of it comes from hydroelectric 
facilities (Figure 1). The technologies currently eligible for the PTC 
account for a small share of total electricity generation. In 2003, the 
combined generation of geothermal, photovoltaic (see attached 
Glossary), solar thermal, biomass, municipal solid waste, and wind 
plants accounted for 2.2 percent of total U.S. electricity generation. 
Among these renewable sources, biomass generation, mainly from 
industrial facilities, accounts for over 44 percent of the total, 
followed by municipal solid waste (26 percent), geothermal (16 
percent), wind (13 percent), and the grid-connected solar technologies 
(1 percent). While their combined generation is projected to more than 
double by 2025, their share of total generation will remain small, at 
3.2 percent.

[GRAPHIC[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


Economics of Renewable Generating Technologies
    Many factors affect the relative economics of various electricity 
generating technologies. Such factors include the costs of licensing, 
permitting, and constructing each plant (often referred to as the 
overnight construction costs), the time required to build each plant, 
the costs of financing the construction, the projected cost of the fuel 
(if any) needed to operate the plant, and other operations and 
maintenance costs associated with running the plant once it is built. 
Because the contribution of each of these cost components differs from 
technology to technology, it is difficult to look at any one factor to 
determine which technology is best for a given set of circumstances.
    One approach that is often used to compare disparate technologies 
is to estimate their levelized costs. Levelized costs represent the 
discounted per-kilowatthour costs of building and operating a plant at 
its typical operating rate (i.e., capacity factor). Table 1 compares 
the projected levelized costs to develop the next plant in 2010 for 
various grid-connected utility-scale renewable technologies to those 
for pulverized coal, natural gas combined-cycle, and nuclear plants. 
The values in the table represent the discounted costs of building and 
operating each technology for 20 years. They include the costs of 
building the plant, staffing and maintaining the plant, and purchasing 
the needed fuel each year for 20 years. As shown, pulverized coal 
plants have the lowest projected levelized costs, followed by 
geothermal and then natural gas combined-cycle plants. Solar thermal 
and photovoltaic technologies tend to be much more expensive than other 
options, while wind and open-loop biomass are in the middle.

 Table 1. National Average Levelized Generation Costs for New Plants in
                                  2010
------------------------------------------------------------------------
                                                             Levelized
                                                            Costs (2003
                        Technology                           cents per
                                                           kilowatthour)
------------------------------------------------------------------------
Pulverized Coal                                                  4.3
------------------------------------------------------------------------
Geothermal                                                       4.4
------------------------------------------------------------------------
Natural Gas Combined-Cycle                                       4.7
------------------------------------------------------------------------
Wind                                                             4.8
------------------------------------------------------------------------
Open-Loop Biomass                                                5.1
------------------------------------------------------------------------
Nuclear*                                                         6.0
------------------------------------------------------------------------
Solar Thermal                                                   12.6
------------------------------------------------------------------------
Photovoltaic                                                    21.0
------------------------------------------------------------------------
*The time required to license, permit, and construct a new nuclear plant
  makes it impossible to bring one on line by 2010. The costs shown are
  for a plant beginning operation in 2013.
Excludes transmission costs and impact of PTC.
Source: National Energy Modeling System run, aeo2005.d102004a.

    When reviewing this table, one might ask why the costs are so 
different and why we are not seeing greater penetration of geothermal 
plants. Furthermore, given the costs shown, why has so much natural gas 
capacity been added in recent years? While pulverized coal plants are 
expensive to build--typically twice as costly as a natural gas 
combined-cycle plant--there is an ample supply of fairly low-cost coal 
and the plants can operate nearly around the clock with annual capacity 
factors exceeding 80 percent. Because they can be operated so 
intensively, the recovery of their high construction costs can be 
spread over a large amount of electricity production, making their per-
kilowatthour levelized costs relatively low. In contrast, photovoltaic 
and solar thermal plants, which are even more expensive to build than 
coal plants on a per-kilowatt of capacity basis, cannot be operated 
very intensively. Their potential utilization is limited by the 
availability of the sun and their annual capacity factors are generally 
between 25 and 33 percent. Unlike coal plants, the levelized costs for 
natural gas combined-cycle plants are driven by their fuel costs, 
rather than their construction costs. If a plant is to be operated 
intensively--what is referred to as baseload operation--the higher fuel 
costs for natural gas plants tend to make them less economical than 
coal plants. On the other hand, if a plant will be operated only 
occasionally (i.e., peaking operation) or moderately, such as on hot 
summer days when electricity usage is high, the very low construction 
costs of natural gas plants make them an attractive option.
    For nuclear plants, relatively high construction costs, high 
operation and maintenance costs, and long planning and construction 
periods all contribute to their higher levelized costs. For geothermal 
plants, high construction costs and the site-specific characteristics 
of the geothermal resource are the key drivers of their levelized 
costs. At the best sites, their levelized costs can be competitive with 
new coal plants, but there are only a few sites with costs as 
attractive as those in Table 1, and they tend to be located in remote 
areas in the far western region of the country. Once those low cost 
sites are developed, the remaining sites are much more expensive. The 
levelized costs for open-loop biomass technologies are most influenced 
by their high capital costs and the availability of low-cost fuel. When 
low-cost fuels are available, they can be reasonably competitive, but 
the supply of such fuels is limited. Because biomass is dispersed and 
has a much lower energy density per unit of volume than coal, 
transportation costs generally rule out moving biomass over long 
distances. The size of plants using biomass can be limited by amount of 
biomass that can be produced at nearby locations.
    For wind, the key levelized cost drivers are the construction costs 
of the plants and the quality of the wind resource. The wind resource 
in the country is quite large, but some of the best resources are 
located in areas where their development is restricted or in relatively 
remote areas where significant transmission upgrades would be needed to 
access them.
    Two further cautions should be raised about comparing the levelized 
costs of wind and solar plants to other technologies. Wind and solar 
technologies are often referred to as intermittent technologies. Unlike 
the other technologies in the table, their generation is only available 
when their resources are available. They can not be called upon 
whenever needed. When the wind is not blowing or the sun is not 
shining, they cannot generate electricity. As a result, when these 
technologies are developed, additional capacity may have to be added to 
back them up and ensure that consumers' electricity needs can be met at 
all times. The need to add backup capacity for intermittent resources 
adds system costs that are not reflected in their levelized costs. The 
levelized costs shown in the table also do not include the costs of 
transmission investments needed to support the capacity additions. All 
technologies require some investment to interconnect to the 
transmission grid, but these costs can be higher for some renewables 
because of their relatively remote locations and, for the intermittent 
technologies, the per-kilowatthour transmission costs can be high 
because of their lower generation.
Impact on the PTC
    The availability of the PTC through December 31, 2005, makes the 
eligible renewable technologies more economically attractive than shown 
in Table 1. For example, the full 10-year PTC available for wind plants 
lowers their projected levelized costs by about 2 cents per 
kilowatthour. The levelized value of the PTC is larger than the nominal 
value of the PTC because it is an after-tax credit.
    For solar technologies, the benefit provided by the PTC does not 
appear to be large enough to cause a significant change in market 
penetration. In fact, because their annual output is so limited, the 
PTC is less valuable to them than the 10-percent investment tax credit 
for which they are also eligible. For geothermal and biomass 
technologies, planning and construction periods are so long that it 
would be impossible for a new plant to be developed in time to take 
advantage of the current credit. Even for wind technology, only those 
plants that are well along in their development cycle will be able to 
enter service in time to qualify for the credit. Short-term extensions 
of the PTC are likely to have limited impact on qualifying technologies 
like biomass and geothermal, which have relatively long development 
periods, even if the credit were large enough to make them economical. 
Throughout the history of the PTC, its primary impact has been to 
stimulate the development of wind plants, albeit with the limitations 
mentioned above.
    As stated previously, the AEO2005 reference case assumes the PTC 
will expire in December 2005, as provided for in current law. In the 
AEO2005, EIA also has examined the potential impact of a longer-term 
extension of the current PTC. The only qualifying technology not 
represented in the extension case was closed-loop biomass. Because of 
the long establishment times and relative expense of energy crops, it 
was assumed that no dedicated, closed-loop biomass would be able to 
take advantage of the extended credit. The PTC extension case is not 
meant to represent any expectation about future policy decisions 
regarding the PTC.
    In the AEO2005 PTC extension case, wind power continues to show the 
largest projected gains, although landfill gas, geothermal, and biomass 
are also projected to experience some capacity expansion. Installed 
wind capacity in 2015 is almost 63 gigawatts in the PTC extension case, 
compared to 9.3 gigawatts in the reference case. In 2015, geothermal 
capacity in the PTC extension case is 3.2 gigawatts, compared to 2.7 
gigawatts in the reference case. Biomass capacity in 2015 is 3.4 
gigawatts in the PTC extension case, compared to 2.1 gigawatts in the 
reference case. In a test case where it is assumed that all of the 
eligible renewables were given the PTC now available to new wind plants 
for an extended period, wind and biomass technologies showed the 
largest growth.
Other Factors Influencing Renewables
    Other important factors that could impact the future of PTC-
eligible renewable technologies include changes in fossil fuel prices, 
particularly for natural gas, changes in environmental policies, and 
changes in other Federal or State policies. The AEO2005 includes a case 
where it is assumed that natural gas supply options are more restricted 
than in the reference case. The key impact of these supply restrictions 
is higher natural gas prices, making other generating options, 
including renewables, more economically attractive. In the restricted 
natural gas supply case, the wellhead price of natural gas in 2025 
reaches $6.29 per thousand cubic feet (2003 dollars), 31 percent higher 
than the $4.79 per thousand cubic feet price in the reference case. 
These higher natural gas prices cause a shift to increased use of coal 
and renewables for electricity generation, while natural gas generation 
is lower. Total additions of renewable capacity in the restricted 
natural gas supply case are nearly double the level seen in the 
reference case, and the share of generation accounted for by the 
renewable technologies eligible for the PTC increases to 4.1 percent, 
nearly one-third higher than the 3.2-percent share in the reference 
case. Biomass, wind, and to a lesser degree, geothermal show the 
greatest increases in response to the higher natural gas prices.
    The AEO2005 also included a case examining the impact of the 
Environmental Protection Agency's (EPA) proposed Clean Air Interstate 
Rule (CAIR) which has now been finalized. The CAIR calls for the power 
sector to significantly reduce its emissions of sulfur dioxide (SO2) 
and nitrogen oxides (NOx). In the AEO2005 alternative case, 
the CAIR was found to have insignificant impacts on renewable 
generation. Similarly, in a recent analysis prepared in response to a 
request from Senators James Inhofe and George Voinovich, the potential 
impact of EPA's proposed Clean Air Mercury Rule (CAMR) together with 
CAIR was examined. Again, it was found to have only small impacts on 
renewable generation.
    In contrast to these findings, several EIA analyses have shown that 
renewable generation could be strongly impacted by environmental 
legislation calling for significant reductions in greenhouse gas 
emissions. For example, in June 2003, at the request of Senators 
Inhofe, McCain, and Lieberman, an analysis of S. 139, the Climate 
Stewardship Act of 2003, was prepared. S. 139 called for a two-phase 
reduction in greenhouse gas emissions for most sectors of the U.S. 
economy. The first phase called for reductions to the 2000 greenhouse 
gas emissions level, while the second phase called for reductions to 
the 1990 greenhouse gas emissions level. In our analysis, the 
greenhouse gas cap and trade program called for in S. 139 significantly 
increases the cost of using fossil fuel technologies that emit 
greenhouse gases, which encourages increased use of renewables, 
nuclear, and carbon capture and sequestration technologies. In that 
analysis, total additions of renewable capacity were more than 10 times 
the level seen in the AEO2005 reference case, and the share of 
generation accounted for by the renewable technologies eligible for the 
PTC increased to 16.8 percent, more than 5 times the level seen in the 
reference case. Again, biomass, wind, and geothermal showed the 
greatest increases in response to the greenhouse gas cap and trade 
program.
    State programs to stimulate renewables, such as power generation 
standards or mandates, could also influence the impact of Federal PTC 
changes. In a review of State programs through December 31, 2003, EIA 
found that the Federal PTC and State renewable programs tend to 
complement one another. Many of the States have provisions in their 
renewable programs that limit their funding or the costs they are 
willing to impose. As a result, the impacts of the State programs 
likely would be lower without the Federal PTC to reduce the costs of 
renewables.
    Discussions surrounding Federal energy legislation have included 
proposals for the implementation of a national renewable portfolio 
standard (RPS) requiring that a certain percentage of all electricity 
generation or sales come from designated renewable energy sources. EIA 
has no position on these proposals, but we have prepared several 
analyses of RPS proposals in recent years in response to requests from 
Congress. These analyses suggest that such an RPS could stimulate the 
development of new renewable generating capacity. However, the stated 
percentage targets in these proposals are often not achieved because 
provisions that cap the price of tradable renewable credits are 
triggered. If the PTC and RPS programs were both in effect, such 
provisions are less likely to come into play as a factor would limit 
the development of new renewable generating capacity.
    This concludes my testimony, Mr. Chairman. I would be glad to 
answer any questions you and the other Members may have.

                                Glossary

    Closed-loop biomass. A closed-loop process is defined as a process 
in which power is generated using feedstocks that are grown 
specifically for the purpose of energy production. Many varieties of 
energy crops are being considered including hybrid willow, switchgrass, 
and hybrid poplar.
    Combined-cycle. An electric generating technology in which 
electricity is produced from otherwise lost waste heat exiting from one 
or more natural gas (combustion) turbines. The exiting heat is routed 
to a conventional boiler or to a heat recovery steam generator for 
utilization by a steam turbine in the production of electricity. This 
process increases the efficiency of the electric generating unit.
    Gigawatt. 1,000,000 kilowatts or 1,000 megawatts.
    Kilowatt. A unit of electricity generating capacity equal to 1000 
watts.
    Kilowatthour. The amount of electricity generated by operating a 1-
kilowatt generator at full load for 1 hour.
    Megawatt. 1,000 kilowatts.
    Open-loop biomass. An open-loop process is defined as a process in 
which power is generated using feedstocks that are a waste stream. 
Examples of such feedstocks include: agricultural residues (corn 
stover, wheat straw), forestry residues (logging residues, dead wood), 
and urban wood waste/mill residues (pallets, construction waste).
    Photovoltaic. Direct conversion of sunlight to electricity through 
use of photo-conversion cells, typically using conducting layers of 
crystalline silicon cells.
    Solar thermal. Conversion of sunlight to electricity by 
concentrating sunlight to heat water or other medium (like molten salt) 
for use as a preheater for the boiler fluid of a steam turbine. 
Sunlight may be concentrated on tubes (trough thermal), points (dish), 
or tower focal points.

                                 

    Chairman CAMP. Thank you, Dr. Gruenspecht, for that 
testimony. I have a couple of questions I would like to start 
off with. Some have suggested that increasing the amount of 
renewables-generated power will help reduce America's 
dependence on foreign oil. Is that true, and what is your 
opinion on that?
    Dr. GRUENSPECHT. Well----
    Chairman CAMP. Then, second, how will an increase in 
renewables affect dependence in America on natural gas?
    Dr. GRUENSPECHT. In 2003, I think oil-fired generation was 
only about three percent of total generation and it is not 
expected to be an important source of generation in the future. 
Only about 3 percent of our total petroleum is used for 
electric generation. This is a big change from the 1970s, when 
about 10 percent of our total petroleum use was used for 
electric generation. So, there is probably not that large a 
relationship between using more of any particular fuel and 
backing out oil.
    Natural gas is somewhat different. Natural gas is a growing 
source of generation, and as you know, many new plants have 
been constructed that burn natural gas. In several analyses, we 
found that programs to stimulate renewable electricity 
generation could reduce natural gas use. When we did that 
analysis I mentioned about the Federal Renewable Portfolio 
Standard, we found that natural gas generation in 2025 would be 
3.6 percent lower than it would be in our base case, and 
natural gas wellhead prices were reduced somewhat. So, I would 
say more of an effect on natural gas, less of an effect on oil 
would be the short answer.
    Chairman CAMP. At least 19 States and the District of 
Columbia have implemented Renewable Portfolio Standards, and 
these standards generally require a certain percentage of power 
sold within the State be derived from renewable sources. Does 
it make sense to have a tax credit and a mandate for production 
at the same time? Does it make sense to subsidize activities 
that are mandated?
    Dr. GRUENSPECHT. Tough question. I guess as I mentioned in 
my testimony, there are many variations in the general program 
design and specific program details across the States that have 
programs, and I mentioned the fact that some of the States have 
cost caps, and clearly the cost caps are less likely to come 
into play if the Federal PTC is available.
    So, there is something to be--I guess I would not say that 
because there are State programs, the PTC would have no impact. 
Whether it makes sense or not is really a policy matter to be 
addressed as to who should bear the costs, the consumer, as a 
consumer of electricity, the consumer as a taxpayer or the 
State.
    Chairman CAMP. Well, I guess my question is does the tax 
credit distort choices among renewables in those States that 
have the Renewable Portfolio Standards?
    Dr. GRUENSPECHT. It probably does have an effect. I mean, 
in our levelized cost numbers, the value of the full credit 
that wind and closed-loop biomass gets, the 10 years, the full 
amount of the credit, compared to some of the other 
technologies get a half-value full-life credit that is worth 
half as much, and some of them get a half-value half-life 
credit, which is worth 30 percent as much. So, there is no 
question that those differences can affect the choices among 
the technologies.
    That said, wind is the technology that has been most 
prominent, and wind, even in our table, happens to be among the 
lowest-cost renewable technologies. So, I say there is some 
potential for distortion in the mix of technologies, but wind 
would do well under any circumstances, as it is doing now.
    Chairman CAMP. Lastly, with regard to natural gas, what is 
the potential contribution to the overall U.S. energy supply by 
landfill gas?
    Dr. GRUENSPECHT. I do not have that off the top of my head. 
Can I get back to you on the record for that?
    Chairman CAMP. Yes. If you could submit that later in 
writing, that would be helpful.
    Dr. GRUENSPECHT. Thank you.
    Chairman CAMP. I just wonder, I mean, maybe this is 
something you want to follow up on, but how the PTC affects the 
creation of new landfill facilities in terms of the number and 
economics of those projects. If you could give the Committee 
that information, that would be helpful, as well.
    Dr. GRUENSPECHT. Okay. I know that, initially, some of the 
landfill gas facilities were responding to EPA requirements and 
it is really only later, I think, with the extension and the 
expansion of the PTC that that has become an issue. But I will 
get back to you.
    Chairman CAMP. Any significant barriers to entry for those 
facilities that you know of, if you could include that in your 
comments.
    Dr. GRUENSPECHT. Okay. Thank you.
    Chairman CAMP. Thank you. Thank you very much.
    Mr. McNulty may inquire.
    Mr. MCNULTY. Mr. Chairman, Congresswoman Tubbs Jones is a 
Member of the Social Security Subcommittee, as well. They are 
meeting right now. With your permission, I am going to allow 
her to go first on our side.
    Chairman CAMP. No objection. Ms. Tubbs Jones may be 
recognized for 5 minutes.
    Ms. TUBBS JONES. Thank you, Mr. Chairman, and to my second 
fairy godfather on this Committee, thank you, Mike McNulty, for 
yielding to me.
    I wanted to take this opportunity to express on the record 
my support for the extension of this credit, and I wonder, Mr. 
Gruenspecht, have we put a dollar number on this credit, and if 
we have, specifically what it is, what the dollar value of 
these tax credits are. If, in fact, we have, are you able to 
say to the American public, they are getting on top of that 
credit this value for it?
    Dr. GRUENSPECHT. I would not venture into revenue 
estimation matters which are in the purview of the Committee.
    Ms. TUBBS JONES. Okay.
    Dr. GRUENSPECHT. In terms of the levelized cost of 
renewables, which I discussed in my testimony, the credit does 
make a big difference. For wind, for example, it makes about a 
two cent per kilowatt hour difference in the levelized cost of 
technology, lowering it from 4.8 or so down to the neighborhood 
of three cents per kilowatt hour. So, that makes a substantial 
difference.
    Ms. TUBBS JONES. I am not trying to give you our job of 
revenue. I was just curious----
    Dr. GRUENSPECHT. Okay. Yes.
    Ms. TUBBS JONES. I think it is a great selling point for 
the credit to be able to discuss that, but let me go on and ask 
you something else. The credit previously has been extended for 
1 year. Now, it is asked for 2 years. Do you believe that we 
would get a greater bang for our buck if, in fact, the credit 
was extended for a longer period of time or not?
    Dr. GRUENSPECHT. I think short-term extensions make it hard 
for certain technologies to benefit from the credit because the 
project development cycle for those technologies is long 
relative to the period of extension. So, if the credit is 
extended for a short period of time, it is very hard to get the 
project in and get it in service.
    Ms. TUBBS JONES. So, your answer is yes?
    Dr. GRUENSPECHT. Well, my answer is it is a policy call, 
but clearly, certain technologies have a hard time making use 
of the short-term extension. The other side of it is obviously 
the revenue costs and the fact that market conditions can 
change over time.
    Ms. TUBBS JONES. What would you suggest would be a 
reasonable period of time for the extension, then? Come on, you 
can answer. We won't hurt you.
    Dr. GRUENSPECHT. No, no, I know you won't hurt me--
[Laughter.]--but it is really not the role of the Energy 
Information Administration to take a position on that.
    Ms. TUBBS JONES. You are a great employee of the Federal 
Government.
    Dr. GRUENSPECHT. I am a bureaucrat when it comes to these 
types of issues, but again, it is really a trade-off between 
what the different technologies can use, on the one hand, and I 
guess you guys have to worry about the revenue costs and you 
need to worry about possible changes in market conditions.
    When we looked at long-term extensions, we did see, for 
instance, more biomass coming in. Again, we did that as a 
sensitivity analysis. Biomass has a harder time coming in with 
short-term extensions because you can't get the projects done.
    Ms. TUBBS JONES. Got you. So, in other words, in some 
instances, if we have a longer credit involved, we might have 
greater return on some of the research or work that has been 
done.
    Dr. GRUENSPECHT. You could certainly get more types of 
projects in.
    Ms. TUBBS JONES. Mr. Chairman, I thank you and the 
Committee for allowing me to speak up, and to the second panel, 
please know that it is not that I don't want to hear you, but I 
have got to work on Social Security for the people in my 
Congressional district.
    I yield back my time. Thank you, Chairman Camp and Mike.
    Chairman CAMP. Thank you very much.
    Mr. Foley may inquire.
    Mr. FOLEY. Thank you, Mr. Chairman. I was interested in 
listening to your description of the various sources of energy, 
and I recognized in all of them there are some variables, some 
vulnerabilities, reliabilities, possibly. But at the end of the 
day, following up on what Mr. Camp mentioned, it is trying to 
free ourselves from being held hostage by what I believe are 
other nations, whether it is the Saudi Arabian royalty or 
Chavez in Venezuela. We seem to have a thirst, an unquenchable 
thirst for crude oil, and these technologies, in my view, seem 
to be the only way to ratchet backward.
    Yesterday, General Electric had a two-page ad in USA Today 
and it basically illuminated the fact that one wind energy unit 
can supply the energy electricity for 440 households. Now, 
obviously that is probably under optimum circumstances and a 
number of other things, but I don't think General Electric 
would spend that kind of money just touting fantasy.
    My hope is that we can use the constructive dialog of the 
tax element, Tax Code. It may not be the most perfect way in 
which to enhance or create development, but it seems to be one 
of the only ways for companies, like Florida Power and Light in 
my district, to venture out and embark on this opportunity. I 
think with a combination of those features, certainly there is 
inherent in these products diversity.
    Landfills, we are finding ourselves at capacity in so many 
places, and to take that excess capacity and to make it 
something else seems to be on the cutting edge, methane, 
whether it is sugar cane in my case in the Glades with biomass. 
It is getting rid of a product we have no other places for.
    So, when you do the analysis, not just counting dollars and 
tax credits, isn't it a way with the multitude of platforms we 
are approaching to reduce significantly our dependency?
    Dr. GRUENSPECHT. Again, it is--we don't use that much oil 
for electric power generation. We do use natural gas, and 
natural gas, we would be increasingly reliant on imports over 
time.
    I think you are correct in noting that there is a wide 
variety of resources and that different areas of the country 
have different resources. So, the top wind areas for generation 
right now would be California, Texas, Iowa, Minnesota. North 
Dakota, South Dakota have resources there. For biomass, you 
have the Midwest that has a lot of agricultural residue. The 
West and the Northeast and the Southeast have forestry 
resources that can be used for biomass. Landfill gas, which you 
mentioned, a lot of urban areas with landfills have significant 
landfill gas resources. Geothermal is located mostly in the 
West.
    So, with the variety of renewable resources, you do have 
different parts of the country that have each one. I left out 
solar. Solar is obviously most attractive in the Southwest, 
where you have clear skies and good insulation.
    So, I guess the variety of renewable resources are 
available throughout the country. It is hard to back out oil, 
because not much oil is used. There is more opportunity to back 
out natural gas.
    Mr. FOLEY. Why has solar energy failed, really, in consumer 
demand?
    Dr. GRUENSPECHT. Well, our analysis shows that it is pretty 
expensive. The Production Tax Credit is simply not enough to 
bring solar in, whereas some of the other technologies that are 
closer to conventional technologies and costs can be stimulated 
by policies like the Production Tax Credit. So, I would say 
with solar, it has been mostly a cost issue, although there are 
attractive applications for solar in certain niches--remote 
power, the highway signs you see.
    So, again, there is an opportunity for some niche power, 
but in terms of connecting to the electric grid, I think the 
costs right now are too high. Those costs might be brought down 
in the future, but for the foreseeable future, solar is much 
more expensive per kilowatt hour than the other resources we 
are talking about here.
    Mr. FOLEY. Have you looked at the hydrogen fuel cell 
technology for houses?
    Dr. GRUENSPECHT. I have not.
    Mr. FOLEY. Have you all analyzed them for vehicles?
    Dr. GRUENSPECHT. We do look at them for vehicles. We don't 
see a lot of market-driven penetration of those technologies. 
The penetration of those technologies in our outlooks is driven 
mostly by the mandates that exist in various parts of the 
country, for example, California, for those technologies. On a 
cost basis, those are not competitive.
    Remember, hydrogen has to come from somewhere. Hydrogen is 
an energy carrier. It is not a fuel. It is not a primary fuel. 
Hydrogen is like electricity. So, taking account of the need to 
create the hydrogen and then to transport it, which has some 
challenges, and the cost of the fuel cell, we don't see the 
economics as being that attractive right now.
    Mr. FOLEY. Thank you.
    Chairman CAMP. Thank you very much.
    The gentleman from California, Mr. Herger, is a Member of 
the full Committee and would like to make a brief statement.
    Mr. HERGER. Thank you very much, Mr. Chairman. I thank you 
and our Ranking Member, Mr. McNulty, for allowing me to sit in 
on this Subcommittee and be able to make a statement.
    I requested to attend today's hearing because renewable 
energy generation is such an important industry in my Northern 
California congressional district. In particular, my district 
contains more biomass power facilities than any other district 
in the United States Over the last two decades, biomass plants 
have made remarkable progress in how we handle our wastewood 
materials.
    To that end, I would like to welcome a member of the next 
panel, Mr. Bill Carlson, a constituent of mine, an expert on 
open-loop biomass.
    Much of the agricultural burning in the Sacramento and San 
Joaquin Valleys has been eliminated, with the materials sent 
for clean-up disposal in biomass plants. Perhaps most 
importantly, biomass plants are an integral part of proper 
forest management in our forested communities.
    I personally have a long interest in opening up the section 
45 wind and closed-loop biomass tax credit to open-loop biomass 
dating back to the introduction of H.R. 1731 in the 106th 
Congress. I was very pleased that we were able to incorporate 
many of these important changes in last year's jobs bill, but 
the job of creating equity for the various renewables within 
section 45 is not yet complete.
    Again, Mr. Chairman, I thank you and I yield back the 
remainder of my time.
    Chairman CAMP. Thank you very much.
    Mr. McNulty?
    Mr. MCNULTY. Thank you, Mr. Gruenspecht. You an expert on 
these issues and I am going to ask you a more generic question. 
Just about every member who has spoken so far has talked about 
the need to reduce our dependence on foreign oil. I just want 
to get your feeling about whether we as a government are doing 
enough in that regard, and I don't think you should feel 
constrained as a bureaucrat in answering that question, because 
as you should well know, the President has made a point of this 
in his last two State of the Union Addresses and has said we 
need to do a lot more in this area. He has particularly 
mentioned wind and some of the other renewables.
    Certainly, we are not going to do anything visionary today. 
We are talking about renewing something that already exists. I 
think we have to go beyond that and talk about other things 
that we should be doing in order to promote the production of 
renewables.
    So, I am not putting you on the spot as far as an 
Administration representative is concerned. The President is on 
the record in two State of the Union Addresses. I want to know 
if you think Congress is doing enough in responding to that 
call from the President to do more in this area, and if we are 
not, what else should we be doing?
    Dr. GRUENSPECHT. I guess I would say that the challenge is 
weighing the goal of reducing reliance on conventional sources 
of energy against the costs of alternative sources of energy. 
For the most part, conventional sources of energy have some 
significant economic advantages. They also raise some 
significant concerns, the ones you mentioned. The real----
    Mr. MCNULTY. Cost concerns.
    Dr. GRUENSPECHT. Potentially, cost concerns, security 
concerns. But generally, they are still economically attractive 
relative to the alternatives. So, there may be a cost to be 
borne in moving away from conventional sources of energy and 
how much cost we are willing to bear to move how far is really 
a political choice.
    Mr. MCNULTY. That is why we have experts like you here, to 
give us guidance on that. What do you think about that? Do you 
think we are doing enough?
    Dr. GRUENSPECHT. Well, I think there are policies we could 
look at, both from the--on the demand side and on the supply 
side that would reduce our reliance on conventional energy----
    Mr. MCNULTY. Could you expand on that a little bit more?
    Dr. GRUENSPECHT. I think there are some efforts to promote 
greater efficiency, perhaps some efforts to increase the use of 
renewable resources, and again, not just in electricity 
generation, in other uses, as well. But again, there are some 
costs associated with those and how much cost we are willing to 
bear is, I think, an important question.
    Mr. MCNULTY. Doctor, I don't know if you could answer this 
now or give us the information later, but could you maybe 
describe to us in general terms, and then maybe you can give us 
some more specific information later on, about how the various 
renewables break down by State or geographic areas?
    Dr. GRUENSPECHT. Sure. I would be glad to do a little bit, 
and I can add to it later. In terms of the available resource 
or in terms of how much is generated right now, because you can 
look at it both ways. In terms of right----
    Mr. MCNULTY. I would like to get information on both.
    Dr. GRUENSPECHT. Both? Okay. In terms of right now, I think 
the leading wind States would be California, Texas, Iowa, 
Minnesota--I am trying to look quickly down a list here--
Washington, Wyoming, Kansas, Oregon.
    For wood and wood waste, you find that in a lot of places 
that have pulp and paper industries, which use a lot of 
biomass. That would be Georgia, Maine, California, Alabama, 
Kentucky.
    For municipal solid waste and landfill gas, which, again, 
under the present provisions are counted as eligible for at 
least reduced credit, Florida, New York, Pennsylvania, 
Massachusetts, Connecticut.
    So, again, as I described in response to an earlier answer, 
different regions of the country tend to have different 
resources that qualify for this. Again, there are some States 
that don't have much right now from the wind, say South Dakota, 
North Dakota that have very good wind potential. But again, 
some of that potential is very far away from markets. So, there 
is a trade-off there.
    But I think that is a pretty good description, and I could 
certainly provide you a lot more detail for the record.
    Mr. MCNULTY. We would appreciate that. Thank you, Doctor.
    Chairman CAMP. Thank you very much.
    Mr. Thompson from California may inquire.
    Mr. THOMPSON. Thank you very much, Mr. Chairman.
    I would like to get you to talk a little bit about the PTC, 
the Production Tax Credit, and specifically how it relates to 
geothermal. I am told by the geothermal producers that a big 
part of their problem are the up-front costs that are 
associated with the development of geothermal energy, and that 
also that PTC gives them the ability to leverage funding in 
order to help meet these up-front costs.
    I want to know why we can't or shouldn't restructure the 
PTC to provide some long-term benefits to geothermal. In your 
testimony, you talk about the inability to do that in the short 
run, and I know the Administration has left that out of their 
proposal. Why couldn't we and why shouldn't we design it so we 
could continue to rely on geothermal and help them get to where 
they need to be?
    Dr. GRUENSPECHT. As I understand it, geothermal gets the 
full value of the credit, but only gets it for half the period 
of time. They get it for 5 years rather than 10 years. So, 
clearly, if they got more of a credit, it would be more 
advantageous to them.
    I think, though, for geothermal, and we discussed, I think, 
in response to one of the earlier questions the question of how 
long the extension is and how that affects different 
technologies. In addition to having a significant up-front 
cost, geothermal also takes a significant period of time to 
develop. So, the very short-term extensions that have become 
the norm in recent years may not provide a lot of opportunity 
for a technology like geothermal because you have got the 
extension, you add geothermal, you would think about starting 
your project, but you wouldn't be able to get your project into 
service in time. So, geothermal, biomass, those type of 
technologies, they are affected by the short extension and put 
at a disadvantage relative to something that can be developed 
more rapidly, like wind.
    Mr. THOMPSON. So, how long would we have to extend it in 
order to allow geothermal to benefit--or not just geothermal, 
but the consumers? I think it is about 5 percent of the energy 
that is developed in California comes from geothermal, so it is 
more than just the industries. It is the consumers and the 
ratepayers. So, how long would it have to be extended in order 
to allow full benefit to accrue?
    Dr. GRUENSPECHT. I need to go back and check on what we 
built into our framework for the standard time it takes to 
develop a geothermal project. But another thing to keep in mind 
is that we don't think that there is a whole lot of geothermal 
resource to be added, so a longer extension could bring some of 
that on. But unlike some of the other technologies that have 
what I will call flat supply curves, where you can maybe bring 
on a whole lot more, geothermal, you will be limited by the 
availability of the geothermal sites.
    In terms of the specific length of time that it takes to 
develop a geothermal project, I would like to go back and 
answer that for the record.
    Mr. THOMPSON. You can get us that information?
    Dr. GRUENSPECHT. I think we can get you our generic 
assumption. No two plants are alike, but there is no question 
that the period of development for geothermal projects is 
longer than a year or a year and a half, and that is typically 
what the extensions have been.
    Mr. THOMPSON. Thank you. Mr. Chairman, I yield back.
    Chairman CAMP. Thank you.
    The gentleman from Georgia, Mr. Linder, may inquire.
    Mr. LINDER. Thank you, Mr. Chairman.
    Dr. Gruenspecht, would any of these renewable sources of 
energy be available if we did not subsidize them?
    Dr. GRUENSPECHT. If you did not subsidize, it is a tricky 
question. I mean, we could ask more narrowly, if you do not 
have the PTC. There is a history of a variety of provisions in 
this country, going back, I guess, to 1978, the Public Utility 
Regulatory Policies Act, that had a policy that encouraged the 
interconnection of renewables, and in some States, those 
renewables were paid and avoided cost that was calculated in a 
pretty generous way, and that encouraged those technologies. 
So, some renewable capacity was brought on in response to those 
incentives.
    There are some Investment Tax Credits. There is also the 
PTC. I mean, to date, the PTC has really brought on wind in a 
big way. A significant fraction, you could say well over half 
of the wind generation that we have could arguably be said to 
have been brought on by the PTC.
    Wind generation in 2003, I think was maybe between 11 and 
12 billion kilowatt hours out of a total of 87 billion kilowatt 
hours of generation of these non-hydro renewables. So, you had 
landfill gas. You had municipal solid waste. You have the 
industrial use of biomass in the pulp and paper industry, and 
they generate a significant amount of electricity. So, those 
technologies, I think it was not the PTC that brought those 
into being, but some of those may have been brought into being 
by some of the other incentives that we have.
    So, I am reluctant to say that absent all subsidies, you 
would be seeing all that renewable, non-hydro renewable 
generation in place. I imagine some of it would come in without 
any subsidy at all, but it is very hard to calculate that exact 
amount.
    Mr. LINDER. The non-hydro renewables is about 2 percent of 
our generation.
    Dr. GRUENSPECHT. About 2 percent of overall generation.
    Mr. LINDER. How much do we spend on all varying kinds of 
credits per year to generate two percent of our energy?
    Dr. GRUENSPECHT. I am not sure. I don't have those figures, 
but I can get them for you and get them for the record.
    Mr. LINDER. Do we subsidize any tax credit or tax angle, 
anything to do with storage, to make it more efficient to store 
in battery systems, or to make it less costly on the power 
lines, where we lose about 20 percent of our electricity over 
lines? Are we doing anything on superconductivity?
    Dr. GRUENSPECHT. I think the Department of Energy has 
significant research activities in the area of 
superconductivity. I know they are working with several labs, 
universities, all working on reducing line losses.
    Just to give you some context, I think the difference 
between total generation and total consumption of electricity 
is about five or six percent, and that reflects line losses. 
Some of that is in transmission, the long-distance movement of 
high-voltage power. A lot of it is in distribution, the local 
movement of power. But there is no question that there is a 
significant line loss associated with moving power from the 
point of generation to the point of consumption and that 
superconductivity is one of the avenues that is being explored 
to deal with that.
    In terms of storage, I think there may also be some 
research activities there, but I am not aware of any tax 
subsidies for storage.
    Mr. LINDER. Thank you. Thank you, Mr. Chairman.
    Chairman CAMP. Thank you.
    The gentleman from Connecticut, Mr. Larson, may inquire.
    Mr. LARSON. Thank you, Chairman Camp and Ranking Member 
McNulty, for convening this conference. Dr. Gruenspecht, thank 
you for your service to the country.
    I just have a few questions here. First, could you clarify 
for me, what is the goal from--I know you collect data and 
statistics. What is the goal behind providing a tax credit? Is 
it primarily to create a cleaner environment or to provide a 
cheaper form of fuel?
    Dr. GRUENSPECHT. Again, it is hard for me to go back into 
the minds of the folks, and I guess this was from the Energy 
Policy Act 1992, but I think there was some desire to encourage 
particular technologies and I think there is a belief that some 
of these technologies would get down the learning curve, if you 
will, as more units were deployed. The cost would be reduced.
    I think there had been some--this is really getting before 
my time, but there had been some bad experience with some 
investment credits for certain technologies where you received 
the credit for making the investment and how well the unit 
actually ran once it was put in place was of less concern.
    Mr. LARSON. But the public policy argument in order for 
government to become involved would either have to be a cheaper 
form of energy that would provide us or a more abundant source 
of energy that would wean us off of dependency on foreign 
sources, and a public policy objective of a cleaner environment 
by virtue of greenhouse gasses that are emitted.
    Dr. GRUENSPECHT. I think those are all motivations.
    Mr. LARSON. How much money do we spend in terms of tax 
incentives on an annual basis?
    Dr. GRUENSPECHT. I would have to get that for you for the 
record.
    Mr. LARSON. How much money do we spend in terms of R&D in 
that area?
    Dr. GRUENSPECHT. I would need to get that for you for the 
record, as well.
    Mr. LARSON. Would it surprise you that if we look at what 
we imported in oil alone last year, we spent more than $165 
billion, and with the price now at about $50 on average, we are 
going to be over $200 billion in terms of oil? If you add to 
that the cost of the war in Iraq, that is upward to $400 
billion in those areas alone.
    My question, I wanted to piggyback along the lines of the 
questions that were posed earlier by Mr. Foley with regard to 
hydrogen fuel cells. I understand that that is not a renewable, 
but what I don't understand in terms of its meeting an 
objective policy goal, why that wouldn't be also subject to 
receiving a tax incentive.
    Dr. GRUENSPECHT. Again, my sense is that the cost of 
hydrogen fuel cells is such that even if they were to be 
eligible for the PTC, it is my understanding that the PTC 
itself----
    Mr. LARSON. Here we have the dog chasing its tail.
    Dr. GRUENSPECHT. I hear you.
    Mr. LARSON. So, we are going in this spiral where the cost 
of importing oil increases annually in a dramatic fashion, and 
yet we are diminishing ourselves in terms of the amount of 
money that we are willing to put into investment so that we can 
find a source, and we are targeting the most abundant source in 
the universe in hydrogen and we are not putting the money 
forward that is needed to bring these to fruition.
    I mean, we could put a man on the moon in 10 years, but we 
can't figure out how to harness hydrogen? You have the Governor 
of California that has proposed an energy highway from British 
Columbia to Baja, California, and the Federal Government sits 
by here, the dog chasing its proverbial tail. Why is this so? 
With all the data and information that we have collected, the 
best thing that we can come up with is this incremental death 
by a thousand slashes, that we get nowhere and we are not 
putting nearly enough money into any form of incentive that is 
going to make a major breakthrough. Where is our investment in 
our infrastructure in that case?
    Dr. GRUENSPECHT. Well, again, I think the impact that the 
PTC would have for hydrogen would be very limited. It is also 
my understanding that the Federal Government effort in the 
hydrogen area is mostly through the R&D programs of the 
Department rather than through tax policy and tax incentives. 
So, the focus on hydrogen is on R&D. I believe the 
Administration is very committed to hydrogen R&D, particularly 
as it relates to vehicles. So, fuel cells obviously have 
stationary applications as well as vehicle applications, but 
there is tremendous amount of work underway.
    Mr. LARSON. There is no sense of urgency and it is 
extraordinarily frustrating to a number of Members of Congress, 
and I assure you my constituents in the Northeast, as we look 
out and we see spiraling costs and a government that is chasing 
its tail in Washington, D.C.
    Chairman CAMP. Thank you very much.
    The gentleman from Indiana, Mr. Chocola, may inquire.
    Mr. CHOCOLA. Thank you, Mr. Chairman. Dr. Gruenspecht, 
thanks for being here today.
    Just following up a little bit on Mr. Linder's questions, I 
think you testified that about 2.2 percent of electric 
generation comes from renewable energy sources----
    Dr. GRUENSPECHT. From the non-hydro renewable. The hydro is 
another seven percent or so, the large dams, but those are not 
eligible for the PTC.
    Mr. CHOCOLA. But those sources eligible for the PTC is 
about 2.2----
    Dr. GRUENSPECHT. About 2.2 percent now.
    Mr. CHOCOLA. It has been in place since 1992-1993?
    Dr. GRUENSPECHT. The PTC has been in place since--I think 
it was put in by the Energy Policy Act 1992, but it only 
applied to wind and closed-loop biomass. Over time, it has been 
expanded to many of these other sources.
    Mr. CHOCOLA. Have you or the Administration done any 
analysis of what the potential is of energy sources that 
qualify for the PTC if it is made permanently extended? Do you 
have any idea how much----
    Dr. GRUENSPECHT. We have done, as I mentioned in my 
testimony, we have done the long-term sensitivity analyses of 
suppose you extended the PTC for a long period of time. What 
would it do? It does have a large impact on the amount of wind 
that gets added and it also has an impact on the amount of 
biomass that gets added. So, the wind and biomass are the big 
gainers. But again, it still remains a relatively small 
fraction of overall power generation.
    Mr. CHOCOLA. So, what percentage do you think it has the 
potential to get to?
    Dr. GRUENSPECHT. Well, the potential is high. I mean, it is 
just how far the PTC would get it. Let me cite the highest one 
that I am familiar with. In looking at some policies to control 
greenhouse gas emissions--I think it was a bill proposed by 
Senators McCain and Lieberman--we had these renewables that 
qualify for the PTC growing to over 16 percent of total 
electricity generation in 2025. In our base case, it grows from 
2.2 percent to 3.2 percent. So, there are definitely scenarios 
of the world where you can get a much larger proportion of 
overall generation to come from these non-hydro renewables.
    But it isn't just the PTC that does that. It is some other 
policies, as well. We also looked at a scenario with higher 
natural gas prices, and again, that increased the generation of 
these technologies significantly. So, it is really the size of 
the incentive that matters, it is the market environment that 
matters in terms of the price of natural gas, and it is the 
policy environment that matters. I guess it is all three of 
those together. But there certainly is some significant 
potential if those stars would all align in a certain way.
    Mr. CHOCOLA. Obviously, at least in part, the purpose of 
this hearing is to determine the effectiveness of the PTC. Have 
you or the Administration kind of outlined any criteria on how 
Congress should judge the effectiveness of it?
    Dr. GRUENSPECHT. We have not outlined those criteria. I 
think we have worked with some of the staff on the Joint Tax 
Committee who have asked us to look at certain things, do some 
analyses for them. But we have not independently outlined those 
criteria.
    Mr. CHOCOLA. Would you have any suggestions today on what 
we should consider?
    Dr. GRUENSPECHT. I think it is probably the standard issues 
that you look at for tax policy. You want to look at are there 
people who qualify for the credit who are getting paid for what 
they would do anyway? Is the program effective in its goals? I 
guess one has to decide what the goals are, and I think one of 
the other questioners listed a whole set of different goals, 
being emissions reduction, being technology cost reduction, 
being displacement of imported fuels. Depending, again, on what 
mix of goals you would have, we would be able to calculate 
impacts as to how those goals were affected.
    Mr. CHOCOLA. Thank you. Thank you, Mr. Chairman. I yield 
back.
    Chairman CAMP. Thank you very much.
    Thank you, Dr. Gruenspecht, for your testimony. This will 
conclude the first panel and we will begin the second panel. I 
appreciate very much your being here today.
    Dr. GRUENSPECHT. Thank you very much, Mr. Chairman.
    Chairman CAMP. The second panel today will include Mr. Dean 
Gosselin, Mr. William Carlson, Mr. Curtis Ranger, Mr. Michael 
Norris, Mr. Vince Signorotti, and Mr. Christopher O'Brien.
    Thank you all very much for being here. Before we begin, 
each of you will have 5 minutes. Your written statements, we 
have and will be part of the record. We would ask you to 
summarize your testimony in 5 minutes.
    Before we begin, Mr. Foley from Florida would like to make 
an introduction.
    Mr. FOLEY. Thank you, Mr. Chairman, and I would be 
delighted to introduce Dean Gosselin, who is the Vice President 
of Business Development for Florida-based FPL Energy, a 
subsidiary, along with Florida Power and Light, of the FPL 
Group.
    FPL Energy is a significant player in the development and 
use of alternative energy. It is among the Nation's leading 
generators and producers of electricity from clean and 
renewable sources, such as natural gas, wind, solar, 
hydroelectric, and nuclear. In the wind energy generation in 
particular, FPL Energy produces more energy from wind than any 
other company in the United States. With 44 wind farms in 15 
States--California, Iowa, Minnesota, Pennsylvania, Texas, 
Washington, Kansas, New Mexico, North and South Dakota, 
Oklahoma, Oregon, Wisconsin, West Virginia, and Wyoming--its 
wind power portfolio consists of more than 2,700 net megawatts, 
making FPL Energy accountable for nearly 40 percent of the 
total wind energy generated in the United States in 2004.
    It is my pleasure to introduce Mr. Gosselin.

     STATEMENT OF DEAN GOSSELIN, VICE PRESIDENT, BUSINESS 
       DEVELOPMENT, FPL ENERGY, LLC, JUNO BEACH, FLORIDA

    Mr. GOSSELIN. Thank you for the opportunity to address this 
House Ways and Means Subcommittee. My name is Dean Gosselin and 
I am Vice President of Business Development for Wind Power at 
FPL Energy. Thank you, Chairman Camp and Ranking Member 
McNulty, for the opportunity to speak with you today. Also, I 
would like to thank Mr. Foley, who has always been a supporter 
of the wind industry and under whom FPL is a constituent.
    FPL Energy is the largest owner and operator of wind energy 
facilities in the world, with more than 3,000 megawatts of wind 
turbines in operation and under construction in 15 States. FPL 
Energy is a subsidiary of the FPL Group, which is also the 
parent of Florida Power and Light Company, an investor-owned 
electric utility that serves approximately 4.1 million 
customers in Florida.
    FPL Energy is committed to clean energy sources and 
strongly believes that among all of the renewable energy 
technologies, wind energy is the most economically viable and 
has the greatest potential to add significant new clean 
electric power across a broad range of geographic regions in 
the United States.
    We ask that the House of Representatives take swift action 
to extend the Production Tax Credit for a long term. Without an 
extension of the Production Tax Credit, only a very 
insignificant amount of utility-scale wind power will be 
developed.
    For wind energy, the PTC currently provides an inflation-
adjusted 1.9 cents per kilowatt hour tax credit for electricity 
produced by the wind for the first 10 years of a project's 
life. The PTC stimulates new wind development by helping to 
drive down costs to consumers, making wind energy an economical 
and viable source of clean, renewable energy.
    The current cost of wind energy production varies between 
5.5 cents per kilowatt hour and 9.5 cents, prior to factoring 
in the PTC. The significant range in price exists because the 
cost depends on a number of independent variables: Location, 
turbine costs, access to transmission, labor costs, 
construction costs, and wind resource. Moreover, and most 
importantly, the on and off nature of the PTC has prevented the 
industry from realizing the manufacturing efficiencies that we 
would have expected would otherwise allow production costs for 
wind energy to continue to fall.
    Currently, inefficient peak production demands are being 
forced upon manufacturers during PTC extension periods, with 
subsequent cutbacks during PTC expiration periods. The entire 
supply chain is being whipsawed, adding significant costs due 
to inefficient planning, procurement, and supply deployment 
that would be eliminated if a long-term PTC extension was in 
effect.
    The most significant factor contributing to the remarkable 
reduction in U.S. wind energy production costs over the last 
two decades has been the dramatic improvement in turbine 
efficiency. With the support of the PTC, we anticipate that 
research and development will continue to drive down wind 
energy costs. Future generations of wind turbines are just one 
part of the solution.
    The industry also requires improved efficiencies in 
manufacturing. Approximately three-fourths of the capital costs 
of a wind project is represented in the cost of the turbine and 
the tower. Turbine and tower costs are substantially a function 
of the costs of their material, labor, and transportation 
component. The cost of steel is a major determinant of 
installed costs. If you would refer to Attachment 3 of my 
written comments, steel prices, you will see that steel prices 
have increased by more than 120 percent since early 2003.
    Additionally, because Europe continues as a predominant 
source of turbine components, the decline in the value of the 
dollar relative to the Euro is also a significant factor in 
increased installed costs. Since January 2002, the U.S. dollar 
has lost more than 30 percent against the Euro, and in 
Attachment 4 of my written testimony, you will see a graph on 
that, as well.
    The industry has predicted that the PTC would lead to 
increased manufacturing efficiencies as more of the European 
component supply shifts to manufacturing in the U.S. However, 
the on and off nature of the PTC has precluded any significant 
shift in the supply to the U.S. The last 4 years illustrate the 
problem that the wind industry faces as a result of this on and 
off nature of the credit. Again, Attachment 2 of my written 
testimony has a graph, as well.
    In 2001, 1,696 megawatts of wind energy were installed. The 
credit expired at the end of 2001 and was not reinstated until 
late spring of 2002. Only 410 megawatts of wind energy were 
installed in 2002. In 2003, 1,687 megawatts of wind energy were 
installed. But in 2004, only 389 megawatts were installed after 
the credit lapsed at the end of 2003, not to be extended until 
much later in the year. We believe that this unpredictability 
leads to a 20 percent or greater inefficiency in energy 
production costs for the domestic wind energy market.
    The industry has often been asked, what will it take for 
the industry to survive on its own without the benefit of the 
Production Tax Credit? We are often reminded that at one time, 
the industry responded, give us 5 years and we will make it. 
Unfortunately, in this instance, two plus one plus one plus one 
does not necessarily equal five predictable years. Instead, it 
represents not the sum total of years the credit has been in 
place, but rather periods of uncertainty, when new wind 
construction stopped, jobs were eliminated, and costs were 
driven up. Business thrives on the known and fails on the 
unknown. The unpredictable nature of the credit has prevented 
the needed investment in U.S.-based facilities that will drive 
economies of scale and efficiencies.
    Since its inception in 1992, the PTC has proven itself to 
be an excellent investment. It has done what it was designed to 
do, serving as a catalyst that has stimulated significant 
development in investment across the United States of the most 
viable renewable energy source, wind power. But the starts and 
stops associated with the short-term extensions have inhibited 
the success and have forestalled the long-term viability of the 
wind industry to stand alone without the PTC.
    The wind industry cannot transition to PTC independence 
unless Congress enacts a long-term extension. United States 
energy companies, including FPL Energy, will then do their part 
and make the investments necessary to ensure the long-term 
growth of wind energy in our National energy mix. Thank you.
    [The prepared statement of Mr. Gosselin follows:]
  Statement of Dean Gosselin, Vice President, FPL Energy, Juno Beach, 
                                Florida
Introduction
    FPL Energy, LLC is the largest developer and operator of wind 
energy facilities in the nation with more than 3,000 megawatts of wind 
turbines in operation or under construction in fifteen states: 
California, Iowa, Kansas, Minnesota, New Mexico, North Dakota, 
Oklahoma, Oregon, Pennsylvania, South Dakota, Texas, Washington, West 
Virginia, Wisconsin and Wyoming. FPL Energy is a subsidiary of the FPL 
Group Inc., which is also the parent of Florida Power & Light Company, 
an investor-owned electric utility that serves approximately 4.1 
million customers in Florida.
    FPL Energy is committed to clean energy sources and strongly 
believes that, among all of the renewable energy technologies, wind 
energy is the most economically viable and has the greatest potential 
to add significant new, clean electrical power across a broad range of 
geographic regions in the United States.\1\
---------------------------------------------------------------------------
    \1\ See Attachment 1, ``The Benefits of Wind Energy.''
---------------------------------------------------------------------------
    Wind energy has long been both a bi-cameral and a bipartisan issue 
that has the broad support of both Republicans and Democrats in both 
the House and Senate. Further, the current Administration has included 
an extension of the PTC for wind in all of its budget proposals, and in 
its National Energy Policy.
    Despite this overwhelming support--as it has a number of times in 
the recent past--the PTC is again set to expire at the end of this 
year. As such, it is imperative that the House of Representatives takes 
not only swift action to extend the PTC, but also to extend it for a 
long term. Without an extension of the PTC, only a very insignificant 
amount of utility scale wind power will be developed in the United 
States after 2005.\2\
---------------------------------------------------------------------------
    \2\ See Attachment 2, ``Annual Wind Energy Capacity Additions,'' 
which demonstrates the boom/bust cycle of installed capacity that 
results from the expiration of the PTC.
---------------------------------------------------------------------------
Background on the Wind Energy PTC
    The wind energy PTC, enacted as part of the Energy Policy Act of 
1992, provides an inflation-adjusted 1.5 cents/kilowatt-hour (kWh) 
credit--now 1.9 cents--for electricity produced with wind equipment for 
the first ten years of a project's life. The credit is only available 
if the wind equipment is located in the United States and electricity 
is generated and sold to a third party. The credit applies to 
electricity produced by a qualified wind energy facility placed in 
service before January 1, 2006.
Why the PTC Is Imperative to the Continued Growth of the Wind Energy 
        Industry

        The Wind Energy PTC stimulates new wind development by helping 
        drive down costs, making wind energy an economical and viable 
        source of clean, renewable power

    The cost competitiveness of wind generated electric energy has 
increased dramatically since the inception of the industry in the early 
1980's. The wind turbine technology of the early 1980's was in its 
infancy and the cost of wind energy was extremely high. Since that 
time, driven by the PTC, the wind industry has succeeded in reducing 
its production costs by a remarkable amount. As a result, with PTC, the 
cost of wind energy is much more competitive with fossil fuel 
generating sources.
    In 2001, FPL Energy testified before this Subcommittee. At the 
time, industry production costs had been reduced to approximately 4.5 
cents/kWh prior to factoring in the PTC. With respect to the PTC and 
its effect on the industry, FPLE's testimony stated the following:

        With the continued support of the PTC, the wind industry 
        expects that its costs will continue to decline as wind turbine 
        technology continues to improve and the industry is able to 
        realize more efficient manufacturing economies of scale. 
        Through further turbine development and manufacturing 
        efficiencies, the wind energy industry anticipates that the 
        cost of wind energy will continue to be reduced until wind can 
        compete head-to-head with fossil fuels without the need for any 
        incentives.

    This generally accepted assumption was not entirely correct. 
Technology has, indeed, improved. However, the production costs have 
actually increased since 2001 due to, hopefully, temporary increases in 
material costs and the devaluation of the U.S. Dollar relative to the 
Euro.
    Consequently, the current cost of wind energy production is 
anywhere between 5.5 cents/kWh and 9.5 cents/kWh prior to factoring in 
the PTC. The significant range in price exists because the cost depends 
on a number of independent variables--location, wind capacity factors, 
turbine costs, access to transmission, labor costs, construction costs, 
etc. Moreover, and most importantly, the on and off nature of the PTC 
has prevented the industry from realizing the manufacturing 
efficiencies that we had expected would otherwise allow production 
costs to continue to fall.
    Today, the most important factors in the wind industry are: (1) the 
improvements in technology, (2) rising installed costs, (3) the 
continued need for manufacturing efficiencies, and (4) the effect of 
the PTC on each of the above.
Research & Development
    The most significant factor contributing to the remarkable 
reduction in U.S. wind energy production costs over the last two 
decades has been the dramatic improvement in turbine efficiency. Since 
the early 1980s, the industry has developed numerous generations of new 
and improved turbines, with each generation improving upon its 
predecessor. As a result, better blade designs, improved computer 
controls, and extended machine component lives have been achieved, 
which in turn have reduced the life-cycle costs of energy generated by 
wind turbines. Proven machine technology has evolved from the 50 
kilowatt machines of twenty years ago to the 3 megawatt machines of 
today that have the capacity to satisfy the energy demands of as many 
as 1000 homes.\3\ Moreover, new turbines in the range of 3 to 5 
megawatts are currently under testing and development; they are 
expected to further improve the technology's efficiency and reduce wind 
power costs.
---------------------------------------------------------------------------
    \3\ One megawatt (MW) (or 1,000 kw) of current technology installed 
wind capacity serves approximately 300 to 350 homes.
---------------------------------------------------------------------------
    With the support of the PTC, the wind industry anticipates that 
research and development will continue and wind energy costs will 
decline. These future generations of wind turbines are just one piece 
of the puzzle. Improved technology alone will not sufficiently lower 
costs to allow the industry to directly compete with fossil fuel 
generated power--the industry also requires improved efficiencies in 
manufacturing.
Installed Costs
    Installed costs include material (steel, copper, and fiberglass) 
costs, labor costs, currency exchange rates, and tax incentives. These 
costs have increased from below $1,000/kW to install in 1999 to $1,100/
kW in 2003, and up to $1,500/kW and higher in 2005. The cost will most 
likely continue to increase over the next few years. One should note 
that the majority of the demand on revenue of a wind project is 
associated with servicing the capital required to build a project. By 
comparison, gas-fired generation facilities require less than one 
quarter of revenues to service capital.
    Approximately three-fourths of the capital cost of a wind project 
is represented in the cost of the turbine and the tower. Turbine and 
tower costs are substantially a function of the costs of their 
material, labor, and transportation content. Thus, the cost of steel is 
a major determinant of installed costs. Steel prices have increased by 
more than 120% since March of 2003.\4\ Fiberglass (another key turbine 
component) costs have also risen dramatically with the increase of 
petroleum.
---------------------------------------------------------------------------
    \4\ See Attachment 3, a chart delineating steel prices.
---------------------------------------------------------------------------
    Additionally, because Europe is still the predominant source of 
turbine components--even the principal domestic producers rely to a 
large extent on imported components--the decline in the value of the 
Dollar relative to the Euro is also a significant factor in increased 
installed costs. Since January 2002, the U.S. Dollar has lost 32.5 
percent against the Euro.\5\
---------------------------------------------------------------------------
    \5\ See Attachment 4, accompanying chart showing the Dollar against 
the Euro.
---------------------------------------------------------------------------
    Another factor to explain the increased cost of production is the 
lapse of the bonus depreciation tax incentive. When in effect, bonus 
depreciation represented a value of approximately $3 per megawatt-hour 
(or 0.3 cents/kWh). Its lapse in January of 2004 (except for certain 
binding contracts) effectively increased installed costs facing 
developers today.
    In comparison to the wind energy production of 5.5 cents/kWh and 
9.5 cents/kWh, a modern gas fired combined cycle plant operating with a 
feedstock of $6.00/mmbtu natural gas at a 7500 mmbtu/MWh heat rate can 
produce a kilowatt-hour of electric energy for approximately 4.5 cents 
plus approximately 1.0 cent for capital cost recovery.
Manufacturing Efficiencies
    As I stated earlier, the industry predicted that the PTC would lead 
to increased manufacturing efficiencies as more and more of the 
European companies committed to manufacturing in the U.S. However, the 
on again off again nature of the PTC has precluded any significant 
manufacturing efficiencies.
    The last four years illustrate the problem that the wind energy 
industry faces as a result of the on again-off again nature of the 
credit. In 2001, 1,696 MW of wind energy were installed. The credit 
expired at the end of 2001 and was not reinstated until late spring of 
2002. Accordingly, only 410 MW of wind energy were installed in 2002. 
In 2003, 1,687 MW of wind energy were installed, but in 2004, only 389 
MW were installed after the credit lapsed at the end of 2003, not to be 
extended until much later in the year.
    Under these circumstances, it is difficult to persuade businesses 
to invest in the U.S.-based production capacity, the R&D programs, and 
even the management capability that will lead to persistent gains in 
productivity and increased efficiency in wind power energy production. 
Emblematic of this is that, at present, only GE and Mitsubishi 
currently price wind turbines in U.S. Dollars. Other major suppliers 
(e.g., Vestas, Siemens, Gamesa, Nordex, Enercon, and Suzlon) still 
predominantly price based on the Euro, indicating their inability to 
commit to U.S. manufacturing of equipment. While unfortunate, this is 
understandable, given the unpredictability of the credit. The current 
strength in the Euro versus the U.S. Dollar only amplifies the problems 
faced by domestic developers.
    We believe that this unpredictability leads to a 20% or greater 
inefficiency in energy production costs for the domestic wind energy 
market. These inefficiencies make the PTC an even more important 
revenue stream for wind developers: up to one third of a project's 
value comes from the PTC; another third from power sales, and a third 
from the five year MACRS depreciable period. Unless and until the 
domestic industry can attain a level of sustained predictability that 
can justify needed investments in U.S.-based manufacturing capacity, it 
will continue to be dependent on the PTC. It should be noted that the 
rates of return on wind projects, typically 9 to 12%, are very much in 
line with returns for conventional generating projects.
Transmission Complications
    A final concern specific to wind energy developers are transmission 
costs. Wind-rich areas are typically far from load centers, often 
requiring transmission payments to multiple utilities (``pancakes 
rates''). The more congested the grid becomes, the more transmission 
costs increase. The cost can be anywhere from 0.3 to 0.5 cents/kWh for 
each system crossed, sometimes totaling more than 1.0 cent/kWh to 
deliver power over the whole distance when transmission capacity is 
available. Obviously, when transmission is limited, wind developers can 
also encounter situations where there is zero available transmission 
capacity.
Conclusion
    The industry has often been asked, ``What will it take for the 
industry to survive on its own without the benefit of the PTC?'' We are 
often reminded that, at one time, the industry response was, ``Give us 
five years, and we will make it.''
    Unfortunately, in this instance 2 + 1 + 1 + 1 does not necessarily 
equal 5. Instead, it represents, not the sum total of years the credit 
has been in place, but rather the four periods of uncertainty when new 
wind construction all but stopped, jobs were terminated, and costs were 
exacerbated and subsequently remobilized. Business thrives on the known 
and fails on the unknown. The unpredictable nature of the credit has 
prevented the needed investment in the infrastructure that would 
facilitate economies of scale and efficiencies. In fact, the opposite 
effect occurs since businesses rush to complete projects and suppliers 
are forced to restart stopped manufacturing facilities and, thus, 
forced to recoup two years of costs in one year.
    Further, and just as important, the unpredictable nature of the 
world plays a dramatic role in all industries, but particularly in the 
energy industry. An increase in fossil fuel prices does not necessarily 
make wind energy more competitive, rather the increase leads to 
commensurate increases in materials, such as steel, fiberglass, oil, 
labor, and transport. Because there has been no long-term extension of 
the PTC, most of the technology and parts are imported from Europe. Of 
course, the U.S. Dollar's slide against the Euro exacerbates this 
already difficult situation. And, without such an extension, this 
vicious cycle will not only not end, but may actually worsen.
    Since its inception in 1992, the PTC has proven itself to be an 
excellent investment by the Congress. It has done what it was designed 
to do and has served as a catalyst that has stimulated significant 
development and investment across the United States of the most viable 
renewable source of energy: wind power. But, the stops and starts 
associated with the short-term extensions have somewhat abrogated the 
success and have forestalled the long-term independent viability of the 
wind industry. The wind industry cannot transition to PTC independence 
unless Congress enacts a long-term extension. U.S. energy companies, 
including FPL Energy, will then do their part and make the investments 
necessary to ensure the long-term role of wind energy in our national 
energy mix.
Benefits of Wind Energy

        Wind Power is Green Power That Can Contribute to the Reduction 
        of Greenhouse emissions

    Wind-generated electricity is an environmentally friendly form of 
renewable energy that produces no greenhouse gas emissions or ground 
water pollution. In fact, a single 750KW wind turbine can displace, by 
replacing the combustion of fossil fuels, up to 1,500 tons of CO2 
emissions per year.
    Significant reductions of greenhouse gas emissions in the United 
States can only be achieved through the combined use of many new, 
energy-efficient technologies, including those used for the production 
of renewable energy. The extension of the PTC will assure the continued 
availability of wind power as a clean, renewable energy source.

        Wind Power has Significant Economic Growth Potential

    Wind energy has the potential to play a meaningful role in meeting 
the growing electricity demand in the United States. Wind power 
projects currently operating across the country generate approximately 
7,000MW (0.5% of America's total generation) of electric power--enough 
energy to serve as many as 2.5 million homes. Wind will never--and 
probably should never--displace all other conventional generation 
sources, but it can--and should--be an essential component of a diverse 
generation portfolio, which will, of course, lessen our dependence on 
foreign oil and avoid harmful emissions. With an extension of the PTC 
and the appropriate commitment of resources to wind energy projects, 
the American Wind Energy Association estimates that wind energy could 
generate power to as many as 10 million homes by the end of the decade.

        Wind Power Projects Can Serve as a Valuable Source of 
        Supplemental Income for Farmers and ranchers and New Economic 
        Growth Opportunities for Rural Areas

    Some of America's most productive farming and ranching regions are 
also some of the most promising areas for wind development. Since wind 
projects and farming and ranching are fully compatible--wind plants can 
operate with little or no displacement of crops or livestock--lease 
payments made by wind developers can serve as a valuable source of 
stable, additional income for ranchers and farmers. In Iowa, for 
example, existing wind farms currently pay well over $1,000,000/year in 
rent.
    Also, importantly, wind projects bring valuable new economic 
opportunities to areas, often rural, where wind projects are located, 
including increased local tax bases, new manufacturing opportunities 
and construction and ongoing operational and maintenance jobs. A 100 MW 
project, for example, requires an investment typically amounting to 
nearly $150 million. In addition to the millions of dollars in revenue 
to the local economy, wind projects generally create an average of 150 
new construction jobs with a peak need of 350 workers. For ongoing 
long-term operations, wind projects provide 8 to 15 new full-time jobs 
and 4 to 7 new part-time jobs.

        Continued Growth of Domestic Wind Industry Will Provide 
        Economic Benefits to Other Sectors of the U.S. Economy

    In addition to the benefits cited above which wind plants provide 
for farmers, ranchers and the rural communities where wind farms are 
sited, the U.S. wind industry provides many economic benefits to other 
sectors of the U.S. economy. For example, FPL Energy had its steel wind 
towers manufactured in Texas, Louisiana, and North Dakota; wind 
turbines assembled in Florida, Illinois and California; transformers 
manufactured in Wisconsin and Pennsylvania; and wind turbine components 
manufactured in Georgia, Washington, Iowa and Colorado.

        International Growth Can Benefit the U.S.

    The global wind energy market has been growing at a remarkable rate 
over the last several years and is the world's fastest growing energy 
technology. The growth of the market offers significant export 
opportunities for United States wind turbine and component 
manufacturers. The World Energy Council has estimated that new wind 
capacity worldwide will amount to $150 to $400 billion worth of new 
business over the next twenty years. The current worldwide market for 
wind turbines is approximately $5 billion per annum, and growing 
rapidly. Unfortunately, most of this manufacturing capacity, and its 
attendant job creation, is currently located in Europe. Experts 
estimate that as many as 157,000 new jobs could be created if United 
States wind energy equipment manufacturers are able to capture just 25% 
of the global wind equipment market over the next ten years. Only by 
the continued support of its domestic wind energy production through 
the long-term extension of the wind energy PTC can the United States 
hope to develop the technology and capability to effectively compete in 
this growing international market.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


                                 

    Chairman CAMP. Thank you very much, Mr. Gosselin. I do want 
to mention that all of your complete statements will be in the 
record, and if you could summarize. Next, Mr. William Carlson, 
who is a principal in Carlson Small Power Consultants.

 STATEMENT OF WILLIAM CARLSON, PRINCIPAL, CARLSON SMALL POWER 
  CONSULTANTS, REDDING, CALIFORNIA, ON BEHALF OF USA BIOMASS 
                    POWER PRODUCERS ALLIANCE

    Mr. CARLSON. Thank you, Chairman Camp and Members of the 
Subcommittee We appreciate the opportunity to speak today and 
we thank you all for your leadership on this important topic.
    The USA Biomass Power Producers Alliance, who I represent, 
represents 65 of the Nation's approximately 100 open-loop 
biomass power facilities. Each of the renewable technologies 
represented here today is valuable and we applaud Congress for 
expanding the section 45 credit in H.R. 4520 to incorporate a 
broad portfolio of renewable energy technologies. I advocate 
here that any extension of the tax credit be coupled with 
changes that mirror the rates and durations of the section 45 
provisions included in last Congress's energy bill.
    The section 45 tax credit expansion for open-loop biomass 
has sparked an interest in biomass not seen since the mid-
1980s. Unfortunately, that interest is, as Mr. Greenspan would 
say, irrational exuberance. While the newly-enacted tax credit 
for open-loop biomass is very helpful to both new and existing 
plants, the current rate and duration of the credit will not 
fundamentally change biomass's prospects.
    In a typical competition among renewables for utility 
contracts, biomass loses and will continue to lose as things 
stand. Most solicitations are dominated by technologies which 
receive higher tax credit rates and durations. New biomass 
plants can compete only if placed on equal footing with respect 
to the tax credit.
    Unlike other renewable technologies, biomass has costs and 
benefits related to its fuel supply. We gather, process, and 
transport our wood fuel at a cost of nearly three cents per 
kilowatt hour. However, biomass provides the public with very 
significant environmental benefits not achieved by other types 
of renewables, with a value estimated by the DOE at over 11 
cents per kilowatt hour. We eliminate 96 percent of pollutants 
versus open-fuel burning, avoid landfill disposal, and aid in 
forest restoration and fire prevention.
    In other ways, we are typical of other renewables, with 
large capital and operating costs. Capital costs run up to 
$2,500 per kilowatt, or about 2.5 to three cents per kilowatt 
hour. Operating costs are 1.5 to 2.5 cents. Biomass has few 
economies of scale, since a large plant requires more fuel and 
thus a larger gathering area. It is a rare biomass plant 
producing power for less than seven cents, with most falling in 
the 7.5 to 8.5 cent range.
    In the current wholesale power market, rising natural gas 
prices have pushed prices to 4.5 to five cents per kilowatt 
hour in many areas of the country. Renewables are typically 
able to do slightly better, getting perhaps five to 5.5 cents. 
In New England, States have imposed aggressive Renewable 
Portfolio Standards, or RPSs, creating a market for renewable 
credits that give a higher premium over wholesale prices of 
three to five cents. This is why in Maine and New Hampshire, 
entrepreneurs are contemplating restarting several closed 
biomass plants. Elsewhere, there is interest in biomass, but 
few concrete proposals for new plants.
    There are only certain locales to sensibly site a plant, 
and then they must be spread so they don't compete for fuel. 
Also, virtually no plant can be up and running before the 
expiration of the placed-in-service date just 7 months from 
now.
    Some have overcome these challenges by utilizing the small 
pool of relocated existing equipment, obtaining a captive fuel 
supply, or by winning a biomass-only utility contract offering 
that addresses a serious local need, such as forest 
restoration.
    We forecast perhaps ten new biomass facilities over the 
next 5 years. Any greater expansion of the biomass industry 
must weight equity with other renewables in terms of the credit 
level, duration, and a placed-in-service date extension. These 
are fundamental requirements for biomass to successfully 
compete against other renewables for market share.
    Existing plants, 30 percent of which are now closed, 
utilize the current credit to keep from closing. These plants 
typically have their energy priced at the utility's avoided 
cost, which is a non-renewable lower-cost source, such as coal 
or natural gas. They face the end of their contracts and 
shortly having to bid into RPS auctions, but at the lowest 
credit level and with most having a current credit discounted 
by yet another 50 percent due to tax rules for facilities with 
past tax-exempt financing.
    We urge Congress to adopt a section 45 proposal like that 
offered by Chairman Thomas in last year's House version of H.R. 
6. There, existing open-loop plants receive two-thirds of the 
full credit for 5 years, while new plants receive the full 
credit for the full ten-year duration. That proposal would 
create a vibrant biomass industry. Absent such a proposal and a 
placed-in-service date extension, the biomass industry will 
continue to struggle.
    When I appeared before this Subcommittee 4 years ago, I 
operated five biomass plants. Two of those plants have closed, 
along with about eight others nationally.
    Again, thank you for the opportunity, for your leadership, 
and for expanding section 45, and we urge you to support 
legislative changes to allow biomass to successfully compete 
alongside other renewable technologies.
    Finally, we have been contacted by Congressional offices 
subsequent to the publication of the JCT pamphlet for this 
hearing, which adds a fuel source that is not described in the 
Code or in the conference report under the misapprehension that 
our group may be advocating a legislative correction to add 
this fuel, lignin, to the list of eligible fuel types. For the 
record, we are not aware of any open-loop biomass facility 
operators advocating such a change. Thank you.
    [The prepared statement of Mr. Carlson follows:]
      Statement of William Carlson, Chairman, Carlson Small Power 
                    Consultants, Redding, California
    Chairman Camp, Ranking Member McNulty, and Members of the 
Subcommittee:
    Thank you for the invitation to testify today, and thank you all 
for your leadership and interest in this important topic.
    I appear today on behalf of the USA Biomass Power Producers 
Alliance (USABPPA), a trade organization that represents 65 of the 
nationwide total of approximately 100 open-loop biomass power 
facilities in the United States. (We do not represent facilities 
engaged in producing electricity from closed loop biomass or animal 
waste nutrients). We believe in the value of each of the renewable 
technologies represented here today, and we applaud the Committee and 
the Congress for expanding the Section 45 credit in last year's 
American Jobs Creation Act to incorporate a broad and diversified 
portfolio of renewable energy industries. My purpose here is to 
advocate that any extension of the Section 45 tax credit be coupled 
with changes that mirror the rates and durations of the Section 45 
provisions included in last Congress's energy bill.
    Since its recent enactment, the Section 45 tax credit for 
electricity produced from open-loop biomass, combined with other 
renewable programs, has sparked a surge of interest in biomass not seen 
since the mid 1980's. Unfortunately, much of that interest might well 
be described, as Mr. Greenspan said of the stock market, as 
``irrational exuberance.'' While the newly enacted tax credit for 
electricity produced from open-loop biomass is very helpful to both new 
and existing plants, the rate of the credit, and the number of years 
that the credit is available to new facilities, will not fundamentally 
change the economics of biomass in the current energy markets.
    In a typical competition among renewables for contracts under a 
utility renewable Request for Proposal (RFP), open-loop biomass loses, 
and can be expected to continue to lose as things stand. Most RFP's are 
dominated by Section 45 technologies which receive higher tax credit 
rates. In open competitions such as these, which are growing in 
popularity among utilities, the only chance that new biomass plants 
have to compete effectively is if Congress places them on an equal 
footing with respect to the Section 45 tax credit.
    Please allow me to explain the economics of our industry. Unlike 
other renewable energy technologies, open-loop biomass has costs and 
benefits that relate to its fuel supply. We must pay to gather, then 
process and transport our wood fuel to the plant site at a substantial 
cost, typically totaling the equivalent of 2.5--3.0 cents/Kwh.  Our 
fuel is especially expensive to transport to the plant because its 
energy density during transport is only about \1/3\ that of coal. 
However, biomass provides the public with very significant 
environmental benefits that are not achieved by other types of 
renewable fuels. Combusting biomass fuel in a controlled setting 
eliminates 96 percent of pollutants versus open field burning, avoids 
landfill dumping, and aids in forest restoration and fire prevention.
    In other ways, biomass is typical of other renewables, having a 
large capital cost component and an ongoing operation and maintenance 
cost. In our case, capital costs run $2,000-2,500 per installed 
kilowatt, which equates to about 2.5-3 cents/Kwh over a 20-year 
contract at today's interest rates. Operating costs will run upwards of 
2.5 cents/Kwh for a small plant and as low as 1.5 cents/Kwh for a very 
large plant. This technology has few economies of scale, however, since 
building a large plant increases the amount of fuel required, quickly 
exhausting nearby fuel sources and requiring the operator to pay higher 
prices for fuel trucked from farther away. It is a rare biomass plant 
that can produce power for less than 7 cents/Kwh with purchased fuel, 
with most falling in the 7.5---8.5 cents/Kwh range.
    We must now relate these costs to the current electric power 
market, both for bulk wholesale power, and for renewables. Rising 
natural gas prices have raised the value of bulk power to the point 
where, in many areas of the country, the wholesale price is now 4.5-5 
cents/Kwh. Renewables are typically able to do better than this in the 
market, getting perhaps 5-5.5 cents/Kwh. In certain markets, 
particularly New England, the states have imposed aggressive Renewable 
Portfolio Standards (RPS), creating a market for Renewable Energy 
Credits (RECs) that give a premium over bulk power prices of 3-5 cents/
Kwh. This is why, in Maine and New Hampshire in particular, 
entrepreneurs are contemplating restarting a few closed biomass plants. 
The current Section 45 credit is also a factor in these restart 
decisions.
    Elsewhere in the country there is some interest in biomass, but 
very few concrete proposals to build new biomass plants. This is 
principally due to the fact that, unlike other technologies, there are 
only certain locales at which it makes sense to site an open-loop 
plant, and even there they must be spread out far enough that they 
don't compete with each other for the same fuel. Also, even in the 
relatively small number of situations where the circumstances would 
support building a new facility, almost no one will be able to get a 
facility up and running before the expiration of the tax credit's 
placed in service date at the end of this year. In a couple of 
instances, enterprising individuals have risen to these challenges by 
utilizing a small pool of existing equipment from closed plants that 
are being relocated, by obtaining a captive fuel supply for most of 
their needs, or by winning a ``biomass only'' utility contract offering 
designed to address a serious local need (forest restoration)--they are 
the exception, not the rule.
     Currently the industry forecasts the possible addition of a total 
of approximately 10 new biomass facilities over the next five years. 
Any greater expansion of the biomass industry to address the nation's 
energy and environmental problems under a new PURPA contract or in a 
state mandated RPS auction will not occur unless biomass achieves 
equity with other renewables in terms of the credit level and duration, 
and the Section 45 credit placed in service date is extended. These 
changes are fundamental requirements for biomass to have a chance to 
successfully compete against other renewables for a share of an RPS.
    Existing plants, which have seen an erosion of their number by over 
30 percent in the last 15 years, are utilizing the current credit to 
keep from closing. These plants typically have their energy priced at 
the utility's avoided cost, which is usually a non-renewable lower cost 
alternative source, such as a coal or natural gas unit. While under 
contract, they are prohibited from participating in developing REC 
markets, but instead receive an earned capacity payment. Many of them 
face the prospect of their contracts ending and shortly having to bid 
into RPS auctions, but at the lowest level Section 45 credit, with the 
loss of their current capacity payment, and with a majority of the 
industry having their current Section 45 credit discounted by yet 
another 50% due to tax rules applied to facilities with past tax-exempt 
financing.
    USABPPA urges Congress to adopt a Section 45 proposal like that 
offered by Chairman Thomas in last year's House version of H.R. 6, the 
energy bill. In that legislation, the existing open-loop plants 
received two-thirds of the full credit for 5 years, while new plants 
received the full credit for the full 10-year duration. This level and 
duration of tax credit would create the conditions for a vibrant 
biomass power industry, tackling and solving many of the nation's 
energy and environmental problems. Absent adoption of such a proposal, 
and without an extension of the placed in service date, the open-loop 
biomass industry will continue to struggle.
    When I last appeared before this subcommittee four years ago, I 
testified that I operated five biomass plants. Since that time, two of 
those plants have closed, along with approximately 8 others across the 
country. Again, I thank you for your leadership on this issue, I thank 
you for the recent expansion of Section 45 accomplished last year, and 
I urge you to support legislative changes that would allow open-loop 
biomass to successfully compete alongside other renewable technologies.

                                 

    Chairman CAMP. Thank you very much, Mr. Carlson. Now, Mr. 
Curtis Ranger, who is President of DTE Biomass Energy from 
Michigan. You have 5 minutes.

 STATEMENT OF CURTIS T. RANGER, PRESIDENT, DTE BIOMASS ENERGY, 
 ANN ARBOR, MICHIGAN, ON BEHALF OF THE SOLID WASTE ASSOCIATION 
                        OF NORTH AMERICA

    Mr. RANGER. Thank you, Mr. Chairman and Members of the 
Subcommittee. I am Curtis Ranger, President of DTE Biomass 
Energy of Ann Arbor, Michigan, and I appreciate your invitation 
to be here today on behalf of DTE. I am also representing the 
Solid Waste Association of North America, also known as SWANA. 
I have submitted a written statement on behalf of DTE and SWANA 
regarding the Federal tax credit support for electricity 
production from landfill gas and I would like to spend a few 
minutes elaborating on my written statement.
    We support the Administration's fiscal year 2006 budget 
proposal which recommends a continued investment in the 
development of renewable energy resources. Federal tax credits, 
both section 29 and 45, have spurred investments in projects 
that produce electricity from landfill gas.
    Congress has a history of supporting alternative energy 
resources. Through 1996, landfill gas was included as a fuel 
under section 29. These tax credits worked as Congress 
intended. According to the EPA, 380 landfill gas projects 
operate today. Most of these came to fruition under the section 
29 tax credit. These projects generate over nine billion 
kilowatt hours of electricity per year and deliver over 73 
billion cubic feet per year of landfill gas to direction use 
applications. This is equivalent to nearly 40 million barrels 
of oil.
    Many of these projects operate today without tax credit 
support. For example, DTE's first project in Riverview, 
Michigan, used innovative landfill gas combustion turbine 
technology in 1988. This project's tax credits expired in 2002, 
yet the facility continues to generate over 7,000 kilowatts of 
power daily. When the landfill closes in 2017, this facility 
will continue to supply the energy needs of nearly 5,000 
Michigan homes well beyond 2030.
    A medium-sized landfill typically generates about 1,500 
cubic feet per minute of methane gas. When collected and 
converted to electricity, that gas could supply 4,000 kilowatts 
of power and meet the electrical needs of over 3,000 American 
homes. Landfill gas projects use reciprocating engine 
generators or combustion turbines. Micro-turbine technologies 
are being used at smaller landfills in niche applications. 
Other technologies, like Sterling and Organic Rankine Cycle 
engines, and fuel cells are still in the development stage.
    A typically landfill gas-fired electric generating facility 
costs about $1,200 per kilowatt and has operating expenses of 
1.8 cents per kilowatt hour. As described in the Joint Tax 
Committee's report prepared for today's hearing, electricity 
rates vary by region. Assuming electricity can be sold for 3.7 
cents per kilowatt hour, an investor in such a facility might 
expect a 6.5 percent return on investment. With the current 
section 45 tax credit of 0.9 cents per kilowatt hour, that same 
facility might earn 10 percent. While interesting, that return 
is unlikely to spur many projects.
    On the other hand, if the rates were what the other 
renewables receive, for example, 1.8 cents per kilowatt hour, 
or if a ten-year credit period were provided, investors might 
expect returns between 12 and 15 percent. That would likely 
attract investments in new facilities with the fuel risk 
inherent to our landfill gas industry.
    Under the JOBS Act of 2004, Congress took another helpful 
step by recognizing landfill gas as a renewable energy 
resource. While we appreciate the continued tax credit support, 
the tight December 31, 2005 deadline will restrict many 
opportunities. Previously, Congress recognized the long 
gestation period required for landfill gas projects. For 
example, under section 29 projects, our industry had up to 18 
months to execute contracts and another 18 months to construct 
facilities. Currently, only well-advanced projects will meet 
the deadline. If Congress extends the deadline, more projects 
will come online.
    If landfill gas were afforded the same provisions as other 
renewable energy resources, such as a 5-year placed-in-service 
deadline and a ten-year tax credit period, Congress could help 
in the development of more projects.
    I want to thank the Chairman for his past support and I 
appreciate your Committee's time in working with Treasury to 
ensure there was an understanding of the application of the 
anti-double-dip rule between section 29 and section 45 tax 
credits for landfill gas projects. Clarity on this matter will 
support investments and avoid issues during future audits with 
the IRS.
    In the case of emerging technologies, like landfill gas-
fired micro-turbines, this tax credit support can be just the 
encouragement an investor needs. This tax incentive is not a 
windfall to landfill gas developers, but it would encourage us 
to make sizeable investments in certain areas of the country.
    Mr. Chairman, I appreciate this opportunity to present the 
views of DTE and SWANA. An extension of the deadline to 
construct new facilities is critical to ensure that Americans 
realize the energy and the environmental benefits available 
from landfill gas. Thank you.
    [The prepared statement of Mr. Ranger follows:]
Statement of Curtis T. Ranger, President, DTE Biomass Energy, Inc. and 
   the Solid Waste Association of North America, Ann Arbor, Michigan
    Mr. Chairman, and members of the subcommittee, I am Curtis Ranger, 
President of DTE Biomass Energy, Inc. (``DTE'') of Ann Arbor, Michigan. 
I appreciate your invitation to testify on behalf of DTE and the Solid 
Waste Association of North America (``SWANA'') regarding federal tax 
credit support of electricity production from landfill gas. I have been 
responsible for DTE's landfill gas-to-energy business for over two 
decades, and I have served as Chairman of SWANA's Advocacy Committee 
since 1999. SWANA is a national association of over 7,300 solid waste 
management professionals, companies and government agencies dedicated 
to advancing environmentally acceptable and economically sound 
municipal solid waste management practices. DTE is a member of SWANA 
and is a leading company in developing landfill gas-to-energy projects 
with 31 facilities in 14 states.
    We support the Administrations' Fiscal Year 2006 budget proposal, 
which recommended a continued investment in the development of 
renewable energy resources as a means of bolstering our nation's energy 
security. Federal tax credits, both Section 29 and Section 45, have 
spurred investments in projects that produce electricity from landfill 
gas, which is collected from decomposing organic waste in our nation's 
municipal landfills. We commend you for holding this hearing on 
renewable energy policy to help educate Congress about how renewable 
energy resources can support our nation's energy self-sufficiency goals 
and help achieve its important environmental goals.
    Congress has a long history of supporting the development of 
alternative energy resources. This support dates back to the non-
conventional fuel tax credits originally enacted in 1980. Through 1996, 
Congress saw fit to include landfill gas as a fuel under the Internal 
Revenue Service (``IRS'') Section 29 Code and enacted several 
extensions for constructing landfill gas-to-energy projects. I am very 
pleased and proud to report to you that these tax credits have worked 
as Congress intended. According to the Landfill Methane Outreach 
Program (``LMOP'') of the Environmental Protection Agency (``EPA'') 380 
landfill gas-to-energy projects operate today in an industry that was 
non-existent in the late 1970's. Most of these projects came to 
fruition primarily due to the Section 29 tax credits.
    Today, these projects generate over 9 billion kilowatt-hours of 
electricity per year and deliver over 200 million cubic feet per day of 
landfill gas to direct-use applications. This amount of energy is 
equivalent to nearly 40 million barrels of foreign oil.
    Even more encouraging is the news that many of these projects, 
which were developed with tax credit support, still operate today 
without tax credit support. For example, the first Michigan project to 
use landfill gas-fired combustion turbine technology was installed by 
DTE in 1988 at the City of Riverview landfill. While the Riverview 
Project's Section 29 tax credits expired in 2002, this facility 
continues to generate over 7,000 kilowatts of power daily, operating at 
a nearly 90% production capacity. When the landfill closes around 2017, 
this site will continue to supply the energy needs of nearly 5,000 
Michigan homes and businesses well beyond the year 2030.
    It all started largely because of the availability of landfill gas 
tax credits, which encouraged the project investors to take a chance on 
relatively unproven technology and uncertain fuel supplies. Similar 
stories have played out at many other landfill gas-to-energy projects 
in America.
    For example, a medium sized landfill typically generates over 1,200 
cubic feet per minute of methane gas. When collected and converted to 
electricity, that landfill gas could annually provide 3,000 kilowatts 
of power, supplying the electrical needs of nearly 3,000 American 
homes. This electricity can be generated for on-site use or sold into 
the electrical grid through a variety of technologies, such as 
reciprocating engine generators, combustion turbines, micro-turbines, 
Stirling engines (external combustion engine), Organic Rankine Cycle 
engines, and fuel cells. Most landfill gas fired electric projects use 
reciprocating engine generators or combustion turbines, but micro-
turbine technologies are being used at smaller landfills and in niche 
applications. Other technologies, like the Sterling and Organic Rankine 
Cycle engines and fuel cells are still in the development phase.
    A typical landfill gas-fired electric generating facility costs 
about $1,000,000 per megawatt to install with typical operations and 
maintenance (O&M) expenses averaging 1.8 cents per kilowatt-hour. As 
was described in the Joint Tax Committees report prepared for today's 
hearing, electricity rates vary by region. As a result, the existing 
landfill gas credit encourages an attractive rate of return in some 
parts of the country.
    Given that all landfills generate methane, it makes environmental 
sense to capture and use the gas to generate electricity rather than 
waste it into the atmosphere. According to EPA estimates, each ton of 
methane captured and used in a landfill gas-to-energy project is 
equivalent to capturing 21 tons of carbon dioxide. That means the 380 
existing landfill gas projects are reducing the nation's greenhouse gas 
emissions by the equivalent of about 60.7 million metric tons of carbon 
dioxideper year. The EPA equates the greenhouse gas reduction benefits 
of a typical 4 megawatt landfill gas project to the planting of over 
60,000 acres of forest per year, or the removal of the annual carbon 
dioxide emissions from over 45,000 cars.
    Under the American Jobs Creation Act of 2004, Congress took another 
helpful step by recognizing landfill gas as a renewable energy 
resource, eligible for IRS Section 45 tax credits. While we appreciate 
the continued support, this effort to spur more landfill gas-to-
electricity projects will fall short of its mark. The tight December 
31, 2005 deadline provided in the JOBS Act restricted many 
opportunities for negotiating and executing contracts, designing and 
permitting facilities and procuring and installing equipment. In the 
past, Congress recognized the long gestation period required of 
landfill gas-to-energy projects. For example, under Section 29 
projects, our industry was afforded up to 18 months to execute the 
necessary contracts and then another 18 months to construct the 
facilities. Congress understood that the construction season in many 
parts of the country is limited to a few months each year. This factor 
alone has inhibited many new projects from moving forward under the 
existing timetable established for the Section 45 tax credits.
    Currently, only well advanced projects will meet the deadline for 
Section 45 tax credits provided in the JOBS Act. If the rest of the 
industry behaves like DTE, I suspect that less than 20 new, Section 45 
tax credit eligible projects will be on-line by year-end. Simply put, 
many taxpayers are effectively precluded from pursuing landfill gas 
developments because they are unwilling to legally bind themselves to 
spending considerable resources on building new renewable energy 
projects with only a wing and a prayer's chance of realizing tax credit 
benefits.
    If Congress enacts an extension of the current December 31, 2005 
placed in service deadline many more projects could come on-line. Based 
upon the EPA estimates that over 500 landfill gas-to-energy projects 
can still be developed, and based upon DTE's experience, extension of 
the construction deadline by three years would enable the landfill gas 
industry to build up to 150 more projects. Furthermore, if the landfill 
gas industry was afforded the same provisions as other renewable energy 
resources, such as, a 5 year placed in service deadline and a 10-year 
tax credit period, Congress could enable the development of most of the 
EPA's 500 viable candidate sites.
    An extension of the construction period is extremely fair to all 
renewable energy project developers. The resulting new projects will 
not disrupt the retail electricity market due to their small, but still 
meaningful market shares. Congress would continue to demonstrate its 
support of sound public policy by encouraging the development of 
America's energy resources that deliver significant environment 
benefits. Good public policy should dictate that all renewable energy 
projects should be treated equitably, including the rate of return on 
investment.
    Furthermore, I want to thank the Chairman for his past support of 
including landfill gas-to-electricity projects as qualifying facilities 
under Section 45. I also want to express my appreciation for your 
committee's time in working with Treasury to ensure there was an 
understanding of the application of the anti-double dip rule between 
Section 29 and Section 45 tax credits for landfill gas-to-energy 
projects. Clarity on this matter will support investments and avoid 
issues during future audits with the IRS.
    DTE stands ready, willing and able to invest its fair share in new 
landfill gas-to-electricity projects. While I realize that Congress 
must balance the cost of its tax incentives, the value of the Section 
45 tax credit represents only 30% of the total project capital costs. 
In the case of emerging technologies like landfill gas-fired micro-
turbines, this tax credit support can be just the encouragement an 
investor needs. While this tax incentive is not a windfall to landfill 
gas project developers, it does encourage us to make sizeable 
investments in certain areas of the country. The potential 150 new 
projects represent over $450 million in new capital that would create 
construction and operating jobs throughout the United States. The 
relatively small federal tax share would be more than offset by the new 
taxes generated from these projects and by the environmental benefits 
America would realize in using its own internal resources.
    Mr. Chairman, I do appreciate this opportunity to present the views 
of DTE and SWANA regarding the need for federal tax credits to support 
renewable energy production from landfill gas. An extension of the 
placed in service deadline for constructing new facilities under the 
Section 45 tax credit is critical to ensuring that America can realize 
the benefits available through landfill gas-to-electricity projects. If 
Congress confirms its support of landfill gas as a renewable energy, 
many landfill gas development companies will deliver on a promise to 
build environmentally beneficial projects that will help improve 
America's reliance upon domestic energy resources.

                                 

    Chairman CAMP. Thank you very much, Mr. Ranger. Now, Mr. 
Michael Norris, who is Director of Business Development for 
American Ref-Fuel Company.

STATEMENT OF MICHAEL NORRIS, DIRECTOR OF BUSINESS DEVELOPMENT, 
 AMERICAN REF-FUEL COMPANY, MONTVALE, NEW JERSEY, ON BEHALF OF 
           THE INTEGRATED WASTE SERVICES ASSOCIATION

    Mr. NORRIS. Thank you, Mr. Chairman and Members of the 
Subcommittee. My name is Michael Norris and I serve as Business 
Development Manager for American Ref-Fuel. I am testifying 
today on behalf of the Integrated Waste Services Association, 
the national trade association for America's waste energy 
industry.
    The IWSA was pleased to have our trash combustion 
facilities included as a qualified facility for purposes of 
receiving the section 45 Production Tax Credit last year. 
Inclusion of waste-to-energy continues more than 20 years of 
recognition as a source of renewable energy under Federal law. 
The Federal Power Act, the Public Utility Regulatory Policies 
Act, the Federal Energy Regulatory Commission regulations, and 
the Biomass Research and Development Act of 2000 all recognize 
waste-to-energy power as renewable energy, as do 15 States, the 
U.S. Department of Energy, and the U.S. EPA.
    A tax credit for new waste-to-energy facilities or new 
generating units at existing facilities continues the Federal 
Government's policy to encourage clean, renewable electricity 
and promotes energy diversity while helping cities meet 
challenges of trash disposal.
    Waste-to-energy facilities generate clean, renewable energy 
through the combustion of municipal solid waste in specially-
designed power plants equipped with the most modern pollution 
control equipment in the power generation industry. Trash 
volume is reduced by 90 percent, therefore conserving landfill 
capacity. The remaining residue consistently meets strict EPA 
standards for reuse. America's 89 waste-to-energy plants 
operate in 27 States and generate 2,700 megawatts of 
electricity while safely disposing of 95,000 tons a day of 
trash.
    Our industry meets the power needs of nearly 2.3 million 
homes and serves the trash disposal needs of more than 36 
million people. The 30 million tons of trash combusted in our 
facilities each year has an energy value of 48 million barrels 
of crude oil worth more than $2 billion.
    America's waste-to-energy facilities meet some of the most 
stringent environmental standards in the world and employ the 
most advanced emissions control equipment available. In 
February of 2003, EPA wrote that America's waste-to-energy 
plants produce electricity with less environmental impact than 
almost any other source of electricity. In addition, a study 
published by multiple authors, including an official from the 
EPA, determined that waste-to-energy technology annually avoids 
33 million metric tons of carbon dioxide, a greenhouse gas that 
would otherwise be released into the atmosphere.
    I would like to provide you with a brief description of the 
economics of a typical waste-to-energy facility. The facility's 
revenues come from two sources, fees paid by disposal of trash 
and fees paid by the facility generating energy. New facilities 
or new units at existing facilities require significant capital 
investment. A new unit is a new boiler unit built at an 
existing facility, which is oftentimes more economical and 
politically feasible than constructing a new facility.
    Take an example of an existing waste-to-energy plant that 
has two boilers. A facility might burn 1,500 tons a day of 
municipal solid waste and generate 40 megawatts of electricity. 
If a company adds a third boiler, a facility would be capable 
of disposing of 2,250 tons a day of waste and 60 megawatts of 
energy. Construction of that 750-ton-a-day unit would cost 
about $120 million price tag, or about $6,000 a kilowatt. A 
greenfield plant of the same size could cost as much as $350 
million.
    The combined electricity and disposal fee revenues will, on 
average, not be sufficient to cover the total cost of new 
waste-to-energy units. Added to these costs, of course, is an 
adequate return on investment that is required to justify the 
investment. In part, due to economic considerations, no new 
waste-to-energy facilities have been constructed in the past 
decade. An adequate Production Tax Credit will, in many cases, 
make up the shortfall and make projects feasible. We view the 
PTC as a much-needed tool that will make development of this 
form of clean, renewable electricity more economically viable.
    We urge Congress to extend the section 45 PTC, as it is set 
to expire at the end of the year. We would recommend changes to 
the tax credit that would greatly enhance our ability to 
develop new waste-to-energy capacity. The IWSA urges the 
Committee to make the tax credit applicable to energy 
generating new units built at existing facilities as well as 
newly-sited facilities.
    The IWSA also urges the Committee to extend the existing 
section 45 Production Tax Credit to apply to new facilities and 
units placed into service within 3 years of enactment and to 
make the credit available for 7 years after the facility has 
been placed into service. In addition, we recommend the 
Committee provide a credit amount that provides a level 
playingfield for all renewable technologies with respect to the 
rate of return on investment.
    We fully support the goals of Congress to provide the 
incentives for the development of renewables in order to 
diversify the Nation's energy supply. We also provide that the 
PTC is one of the most effective tools to achieve this goal.
    I want to thank you for the opportunity to appear today.
    [The prepared statement of Mr. Norris follows:]
Statement of Michael Norris, Director of Business Development, American 
 Ref-Fuel Company, Montvale, New Jersey, on behalf of Integrated Waste 
                          Services Association
    Good afternoon, Mr. Chairman and members of the subcommittee. I 
would like to thank you for providing me with the opportunity to 
testify today. My name is Michael Norris, and I serve as Director of 
Business Development for American Ref-Fuel Company. I am testifying 
today on behalf of the Integrated Waste Services Association (IWSA), 
the national trade association representing America's waste-to-energy 
industry. IWSA and its members commend you for conducting this very 
important hearing on Section 45 renewable energy production tax 
credits, so that we may describe to you the importance of this tax 
credit for both the public and private sector members of the waste-to-
energy industry.
    The IWSA was pleased to have our ``trash combustion facilities'' 
included as a qualified facility for purposes of receiving the Section 
45 production tax credit last year. Inclusion of waste-to-energy 
continues more than twenty years of recognition as a source of 
renewable energy under federal law. The Federal Power Act, the Public 
Utility Regulatory Policies Act, the Federal Energy Regulatory 
Commission's regulations, and the Biomass Research and Development Act 
of 2000 all recognize waste-to-energy power as renewable energy, as do 
fifteen states, the U.S. Department of Energy, and U.S. Environmental 
Protection Agency (EPA).
    A tax credit for new waste-to-energy facilities or new generating 
units at existing facilities continues the federal government's policy 
to encourage clean, renewable electricity, and promotes energy 
diversity while helping cities meet the challenge of trash disposal.
    Waste-to-energy facilities generate clean, renewable energy through 
the combustion of municipal solid waste in specially designed power 
plants equipped with the most modern pollution control equipment in the 
power generation industry. Trash volume is reduced by 90%, thereby 
conserving landfill capacity. The remaining residue consistently meets 
strict EPA standards for reuse. America's 89 waste-to-energy plants 
operate in 27 states and generate about 2,700 megawatts of electricity 
while safely disposing of 95,000 tons of trash each day. Our industry 
meets the power needs of nearly 2.3 million homes, and serves the trash 
disposal needs of more than 36 million people. The 30 million tons of 
trash combusted in our facilities each year has the energy value of 48 
million barrels of crude oil worth more than $2 billion. The $10 
billion waste-to-energy industry employs more than 6,000 American 
workers with annual wages in excess of $400 million.
    America's waste-to-energy facilities meet some of the most 
stringent environmental standards in the world and employ the most 
advanced emissions control equipment available. In a February, 2003 
letter, EPA wrote that America's waste-to-energy plants produce 
electricity ``with less environmental impact than almost any other 
source of electricity''. In addition, a study published by multiple 
authors, including an official from EPA, determined that waste-to-
energy technology annually avoids 33 million metric tons of carbon 
dioxide--a greenhouse gas that would otherwise be released into the 
atmosphere.
    I would like to provide a brief description of the economics of a 
typical waste-to-energy facility. A facility's revenues come from two 
sources: 1) fees paid to dispose of the trash, and 2) fees paid to the 
facility for generating energy. New facilities or new generating units 
(boilers) built at existing facilities require significant capital 
investment. A new ``unit'' is a new boiler built at an existing 
facility, which is often times more economical and politically feasible 
than constructing a new facility. Take for example an existing waste-
to-energy plant that has two boilers. Such a facility might burn 1,500 
tons of municipal solid waste per day and generate 40 megawatts of 
electricity. If a company added a third boiler, that facility would be 
capable of disposing of 2,250 tons of waste per day and generate over 
60 megawatts of energy. Construction of a 750 ton per day unit at an 
existing facility might carry a $120 million price tag in capital.
    In the case of the construction of a typical new ``greenfield'' 
facility, the capital cost of, a facility that converts 2,250 tons of 
trash each day into 60 MW of electricity is approximately $350 million. 
The operations and maintenance cost without capital recovery approaches 
$28 million annually.
    The combined electricity and disposal fee revenues will, on 
average, not be sufficient to cover the total cost of a new waste-to-
energy unit. Added to these costs, of course, is an adequate return on 
investment that is required to justify the investment. In part due to 
these economic considerations, no new waste-to-energy facilities have 
been constructed in the past decade. An adequate production tax credit 
(PTC) will, in many cases, make up for the shortfall and make projects 
feasible. We view the PTC as a much-needed tool that will make 
development of this form of clean, renewable electricity more 
economically viable.
    We urge Congress to extend the Section 45 PTC, which is set to 
expire at the end of the year. We would also recommend changes to the 
tax credit that would greatly enhance our ability to develop new waste-
to-energy capacity. IWSA urges the Committee to make the tax credit 
applicable to electricity generated at new units built at either 
existing waste-to-energy facilities or newly sited facilities. Given 
the complexity of siting and permitting new facilities, it is likely 
that most new capacity in the industry will be added through the 
construction of new units at existing facilities.
    The IWSA also urges the Committee to extend the existing Section 45 
production tax credit to apply to new facilities or units that are 
placed in service within three years of enactment and to make the 
credit available for seven years after the facility is placed in 
service. In addition, we recommend that the Committee provide a credit 
amount that provides a level playing field for all renewable 
technologies with respect to the rate of return on investment.
    We fully support the goal of Congress to provide incentives for the 
development of renewable energy in order to diversify the nation's 
energy supply. We also believe that the PTC is one of the most 
effective tools to achieve this goal. The availability of the tax 
credit plays a critical role in determining whether or not new waste-
to-energy capacity will be brought online and we urge you to construct 
the credit in a manner that maximizes its success of promoting new 
renewable capacity.
    Thank you for the opportunity to appear before you today, and I 
will be happy to answer any questions.

                                 

    Chairman CAMP. Thank you very much, Mr. Norris. Now, we 
will have Mr. Vince Signorotti, which is Vice President for 
CalEnergy Operating Corporation.

  STATEMENT OF VINCE SIGNOROTTI, VICE PRESIDENT, REAL ESTATE 
      ASSETS AND COMMUNITY RELATIONS, CALENERGY OPERATING 
                CORPORATION, BRAWLEY, CALIFORNIA

    Mr. SIGNOROTTI. Thank you, Mr. Chairman and Members of the 
Committee. My name is Vince Signorotti. I am a Vice President 
for CalEnergy. With me today is Jonathan Weisgall with 
MidAmerican Energy Holdings, our parent company.
    CalEnergy generates 340 megawatts of clean, reliable, 
renewable geothermal electricity from ten plants near the 
Salton Sea in southern California, and the experts believe 
there is another 2,000 megawatts of geothermal energy still in 
the ground at this location.
    Two weeks ago, the State granted us a license for a new 
215-megawatt geothermal plant called Salton Sea 6. However, 
despite this approval and despite a 30-year fixed-price 
contract that we had signed for 95 percent of the output, these 
2,000 megawatts will remain untapped in this reservoir if the 
geothermal Production Tax Credit is not extended in a viable 
manner.
    As a developer, I am alarmed by what I am seeing in the 
marketplace, especially the volatile and rising price for 
natural gas. Increasing the production of electricity from 
renewable resources is a sensible alternative to this concern.
    Production wells at our facilities extra super-heated 
fluids from deep underground reservoirs which is flashed into 
steam and used to create electricity. The fluid is then 
injected back into the reservoir, completing the closed-system 
process. Geothermal plants produce what is called baseload 
power, consistent energy production, 24 hours a day, 7 days a 
week. Geothermal energy is an important indigenous renewable 
resource.
    However, the industry faces serious challenges, primarily 
the high up-front capital cost of building a plant. For 
example, our costs are more than four time per megawatt higher 
than comparable natural gas-fired power plants.
    The output from Salton Sea 6 will make it the largest 
renewable energy project of any kind in the United States. It 
took us 5 years and over $8 million in development costs to 
reach this point and it will take an additional 28 months to 
build, a total of more than 7 years from start to finish. 
Construction costs will exceed $700 million, which would 
represent the single largest capital investment in Imperial 
County, the most economically disadvantaged area in California 
and one of the poorest in the country.
    The bottom line is this. We have a permit to build the 
plant, so we could break ground tomorrow. We have a customer, 
and we are prepared to move forward with financing and 
construction. But the project is not yet commercially viable. 
Put simply, obtaining a Production Tax Credit for this facility 
is the difference between an economically viable project and 
wishful thinking.
    The first issue we ask you to address is the eligibility 
period. For geothermal projects, the placed-in-service date 
should be extended for an appropriate term to make a PTC 
viable. Given the construction time of most geothermal plants, 
a one- or two-year eligibility period extension will do nothing 
to make our plant a reality and probably won't help other 
geothermal developers. Three years is the minimum needed to 
benefit most geothermal developers, who must deal with the lead 
time challenges of planning, permitting, and construction.
    I, therefore, propose that you either extend the section 45 
placed-in-service date for at least 3 years or provide 
transition rules enabling new geothermal projects with binding 
contracts in place to qualify for a Production Tax Credit.
    The second issue is the duration of the PTC. We believe 
geothermals should receive the same ten-year term that is 
provided for wind. These improvements will result in better 
long-term planning and significant additional geothermal 
development.
    If Congress extends the PTC for geothermal energy in this 
manner, we will build Salton Sea Unit 6. It is that simple. It 
will greatly increase the odds of seeing Salton Sea Units 7, 8, 
and 9, because non-polluting baseload geothermal power is an 
attractive substitute for fossil fuel plants.
    Providing the geothermal industry with a PTC does not get 
us off the tax hook by any means. Geothermal plants pay more 
than three times more taxes than gas-fired plants pay on a per 
megawatt hour basis. This is largely the result of geothermal's 
high capital and related infrastructure costs and the fact that 
a much higher percentage of our costs go to labor than a 
comparably-sized gas plant. In fact, over the next 30 years, 
even with the benefits of a PTC, Salton Sea 6 will still pay 
more than $300 million in Federal, State, and local taxes.
    If, as policy makers, you want to encourage more renewable 
energy development, you can impose a mandate, like a Renewable 
Portfolio Standard, or offer an incentive, like a PTC. As a 
businessman, I like incentives and the PTC fits that bill 
perfectly. First, it is output-based, so you get your reward 
only after making your investment and operating your plant. 
Second, you can take it to the bank. Third, a low-cost producer 
gets the biggest reward.
    In sum, then, geothermal energy provides reliable baseload 
power. It is virtually emissions-free, contributes to fuel 
diversity, is an indigenous, renewable fuel source, contributes 
to energy security, provides price stability, as seen by our 
30-year fixed-price contract with our customer, and creates 
more jobs than a comparable fossil-fired plant.
    As President Bush has said, a key goal of comprehensive 
energy legislation must be to develop new sources of energy. 
The single best way to encourage new development of geothermal 
power is to extend the PTC together with a longer or modified 
placed-in-service date. That will do more to increase domestic 
production of geothermal energy than any previous government 
action. It would represent a huge win for the environment and, 
therefore, the country and all U.S. energy consumers.
    Thank you again for this opportunity, and at the 
appropriate time, I will be pleased to answer any questions.
    [The prepared statement of Mr. Signorotti follows:]
  Statement of Vince Signorotti, Vice President, CalEnergy Operating 
                    Corporation, Brawley, California
    Thank you, Mr. Chairman. My name is Vince Signorotti. I am a Vice 
President of CalEnergy Operating Corporation. I have lived in Imperial 
County, California for 17 years and have worked in the geothermal 
industry for the past 24 years. CalEnergy is a subsidiary of 
MidAmerican Energy Holdings Company, an international energy company 
headquartered in Des Moines. With me today is Jonathan Weisgall, Vice 
President of Legislative and Regulatory Affairs for MidAmerican Energy.
    My company currently generates 340 megawatts of clean, reliable and 
renewable geothermal electricity for California's energy consumers from 
our plants adjacent to the Salton Sea in the extreme southern part of 
the state. We believe there are six times this amount available, or 
another 2,000 more proven megawatts of geothermal energy that can be 
developed near the Salton Sea. In fact, just two weeks ago we received 
approval from the state for a new 215-megawatt geothermal plant, called 
Salton Sea Unit 6. However, despite this approval and despite a 30-year 
fixed price contract we have signed for 95% of the output, this power 
and the other 2,000-plus megawatts will remain untapped in this 
reservoir if the geothermal production tax credit is not extended in a 
viable manner.
    As a developer, what I'm seeing in the marketplace is volatile and 
rising natural gas prices and increasing concerns about climate change, 
clean air, job growth, and increased dependence on foreign sources of 
energy. Increasing the production of electricity from renewable energy 
addresses all of these problems head-on. As the Speaker's Task Force 
For Affordable Natural Gas concluded, ``A sound energy policy should 
encourage the development of renewables.'' \1\ Other recent studies 
show that reducing demand pressure on natural gas through increased use 
of clean, domestically-produced renewable energy can help bring down 
natural gas prices.\2\
---------------------------------------------------------------------------
    \1\ Speaker's Task Force For Affordable Natural Gas ``Final Summary 
of Finding,'' September 30, 3003, p. 6 (download at http://
energycommerce.house.gov/NaturalGasTaskForce/scripts/
file.pl?file=findings.htm).
    \2\ See, e.g., Ryan Wiser et al., ``Easing the Natural Gas Crisis: 
Reducing Natural Gas Prices through Increased Deployment of Renewable 
Energy and Energy Efficiency,'' Lawrence Berkeley National Laboratory 
(January 2005) (LBNL-56756) (download at http://eetd.lbl.gov/ea/ems/
reports/56756.pdf).
---------------------------------------------------------------------------
    Geothermal power, as the word implies, is energy that comes from 
heat in the earth. Production wells at our facilities extract the 
geothermal brine from underground reservoirs. When that superheated 
brine reaches the surface, it flashes into steam, which turns a turbine 
to create electricity. These wells range in depth from 5,000 to 9,500 
feet below the earth's surface. We then re-inject the brine back into 
the reservoir. Geothermal plants thus produce what is called baseload 
power: consistent energy production, 24 hours a day, seven days a week. 
In addition, a well-managed geothermal reservoir is a sustainable 
resource; there has been no measurable decrease in pressure in our 
Salton Sea geothermal reservoir since we started production in the 
early 1980s.
    Geothermal energy is a significant power producer, supplying about 
5% of California's electricity generation, 9% of northern Nevada's, and 
25% of Hawaii's. However, the industry faces serious challenges, 
primarily the high up-front capital costs of building a geothermal 
plant. Our costs are more than four times per megawatt higher than 
comparable natural gas-fired power plants.\3\ In addition, we typically 
sign long-term (20- to 30-year) fixed-price contracts, while coal- and 
natural gas-fired plants typically enter into shorter contracts--and 
usually with fuel adjustment clauses to hedge against fuel price 
volatility. Geothermal energy thus bears the dual financial burdens of 
higher initial capital costs combined with greater price risks going 
forward--a combination that makes it difficult to attract investment 
dollars.
---------------------------------------------------------------------------
    \3\ A 2003 California Energy Commission study concluded that the 
capital costs of geothermal plants are four to six times higher per 
megawatt than natural gas plants. Final Staff Report, ``Comparative 
Cost of California Central Station Electricity Generation 
Technologies,'' June 5, 2003 (download at http://www.energy.ca.gov/
reports/2003-06-06--100-03-001F.PDF).
---------------------------------------------------------------------------
    The output from Salton Sea Unit 6 will make it the largest 
renewable energy project of any kind in the United States. It took us 
five years--and over $8 million in development costs--to obtain our 
permit from the California Energy Commission, and it will take an 
additional 28 months to build--a total of more than seven years from 
start to finish. Construction costs will exceed $700 million, using 550 
construction workers and leading to more than 60 high-paying, fulltime 
positions. It will represent the single largest capital investment in 
Imperial County, which is the most economically disadvantaged area in 
the state and one of the poorest in the country.
    We have a permit, so we could put shovels in the ground tomorrow. 
We have a customer--the Imperial Irrigation District--which strongly 
supports the development of geothermal power and has signed a 30-year 
contract for 95% of the plant's output. We are also ready to go with 
financing and construction. However, the project is not yet 
commercially viable. Put simply, obtaining a production tax credit for 
this facility is the difference between an economically viable project 
and a dream. The present values of future production tax credits 
(especially if allowed for ten years of energy production) will launch 
this project and other geothermal projects around the country.
    The first issue we ask you to address is the eligibility period. 
For geothermal projects, the placed-in-service date should be extended 
for an appropriate term to make the production tax credit viable. Given 
the construction time of most geothermal plants, the existing one-year 
eligibility period does nothing to help make our plant a reality and 
probably won't help other geothermal developers. Three years is the 
minimum needed to benefit most geothermal developers, who, like us, 
must deal with multi-year lead time challenges of planning, permitting, 
and construction. I therefore propose that you either extend the 
Section 45 placed-in-service date for at least three years or provide 
transition rules enabling new geothermal projects with binding 
contracts in place to qualify. This modification would more 
realistically help to achieve Congress' intent to provide an incentive 
for more geothermal development.
    The second issue is the duration of the production tax credit. We 
believe geothermal projects should receive the same term provided for 
wind generation--ten years--as opposed to the current five years for 
geothermal. A five-year duration would represent an improvement to the 
existing investment tax credit, but re-aligning the duration of the 
credit from five years to match the ten years afforded other renewables 
such as wind will result in better long-term planning and significant 
additional geothermal development.
    If Congress extends the production tax credit for geothermal energy 
in this manner, we will build this plant; it's that simple. And it will 
greatly increase the odds of seeing a Salton Sea 7, 8 and 9, because 
non-polluting, baseload geothermal power is seen as an attractive 
substitute for coal and gas plants. The power from our plants near the 
Salton Sea can be directed west to San Diego, northwest to Los Angeles, 
northeast to Las Vegas, or east to Arizona. These are all areas with 
urgent needs for new, reliable electric power. They are having 
difficulty meeting current clean air requirements and they expect 
substantial growth in their power demands. While they are also subject 
to state or local renewable portfolio standards that mandate higher 
percentages of renewable energy, they are not likely to meet those 
standards in the absence of the production tax credit.
    Providing the geothermal industry with a production tax credit does 
not get us off the hook on the tax front by any means. Indeed, one 
recent study has shown that geothermal plants pay, on average, more 
than three times the taxes that gas-fired combined cycle power plants 
pay on a per megawatt-hour basis.\4\ This is largely the result of 
geothermal's high capital and related infrastructure costs and the fact 
that a much higher percentage of our costs go to labor than a 
comparably sized gas plant, whose highest cost item is fuel.\5\ In 
fact, our pro formas show that over the next 30 years, even with the 
benefits of the production tax credit in place, Salton Sea Unit 6 will 
still pay $100 million in federal income and payroll taxes and nearly 
$200 million in state and local income, property, and payroll taxes.
---------------------------------------------------------------------------
    \4\ ``Does the PTC Work?,'' by Brandon Owens (PR&C Renewable power 
Service, July 2004), pp. 10-12.
    \5\ One study has shown that ``job creation from geothermal energy 
is 11 times higher than from natural gas.'' ``Renewables Work: Job 
Growth from Renewable Energy Development in California,'' by Brad 
Heavner and Susannah Churchill, June 2002 (http://www.calpirg.org/
reports/renewableswork.pdf).
---------------------------------------------------------------------------
    Our industry does have another option--the energy investment tax 
credit. However, for my company, the one-time investment credit 
provides nowhere near the benefit that the recurring PTC does and 
simply cannot make the project commercially viable.
    If, as policy makers, you want to encourage more renewable energy 
development, you can impose a mandate like a renewable portfolio 
standard or offer an incentive like a tax credit. As a businessman, I 
like an incentive, and the production tax credit fills that bill 
perfectly. First, it is output-based, so you get your reward only after 
making your investment and operating your plant. Second, you can take 
it to the bank, and third, the low-cost producer gets the biggest 
reward. State renewable portfolio standards are somewhat limited by the 
cost of renewable power, but the PTC will literally energize these 
standards by reducing costs and stimulating investment.
    Lessons of the last few years--with record high prices for natural 
gas, coal, and gasoline--teach us that the United States must diversify 
and expand its domestic energy supply, and that means tapping our 
nation's entire renewable energy resource base.
    It is important that tax measures in the energy bill help to ensure 
that future U.S. electricity supplies will be available from a diverse, 
domestic, and environmentally friendly resource base located right here 
in the United States.
    Geothermal energy: (1) provides reliable baseload power; (2) is 
virtually emissions-free; (3) contributes to fuel diversity; (4) is an 
indigenous, renewable fuel source; (5) contributes to energy security; 
(6) provides price stability, as seen by our 30-year fixed price 
contract with our customer; and (7) creates more jobs than a comparable 
fossil fuel-fired plant.
    As President Bush has said in several recent speeches, a key goal 
of comprehensive energy legislation must be to develop new sources of 
energy. The single best way to encourage new development of geothermal 
power is to extend the production tax credit, together with a longer or 
modified placed-in-service date. Simply put, that action will do more 
to increase the domestic production of all renewable energy than any 
previous government action. It would represent a huge win for the 
environment and therefore the country and all U.S. energy consumers.
    Thank you. I would be pleased to answer any questions.

                                 

    Chairman CAMP. Thank you very much, Mr. Signorotti. Now we 
have Mr. Christopher O'Brien, who is Vice President of Sharp 
Solar Systems.

STATEMENT OF CHRISTOPHER O'BRIEN, VICE PRESIDENT, STRATEGY AND 
GOVERNMENT RELATIONS, SOLAR SYSTEMS DIVISION, SHARP ELECTRONICS 
CORPORATION, KINGSTOWNE, VIRGINIA, AND CHAIRMAN OF THE BOARD OF 
         DIRECTORS, SOLAR ENERGY INDUSTRIES ASSOCIATION

    Mr. O'BRIEN. Mr. Chairman, Members of the Subcommittee, I 
thank you for the opportunity to testify today. My name is 
Christopher O'Brien. I am Chairman of the Solar Energy 
Industries Association, the national trade association of the 
solar energy industry, representing over 100 companies who 
manufacture and sell solar energy systems and representing all 
major solar energy technologies--photovoltaics, solar thermal, 
and concentrating solar power.
    I am also Vice President for Strategy and government 
Affairs for Sharp Corporation's Solar Systems Division. Sharp 
is the world's largest manufacturer of solar photovoltaics, or 
PV, with manufacturing plants located in Japan, in the U.K., 
and in Memphis, Tennessee. The Sharp Solar plant in Memphis was 
inaugurated in 2003, with a capacity of manufacturing 20 
megawatts per year of solar panels. The capacity was doubled to 
40 megawatts per year in 2004, and will increase to 60 
megawatts later this year.
    I would like to make three points in my testimony this 
afternoon. First, the section 45 Production Tax Credit as 
structured has insignificant value to the solar industry. 
Second, meaningful incentives are key to bringing down the cost 
of solar energy and increasing deployment. Third, we would, 
therefore, recommend that solar be removed from the list of 
eligible technologies under Section 45 in exchange for an 
expansion of the existing section 48 Investment Tax Credit.
    Now, it may come as a surprise that the section 45 PTC does 
not benefit all eligible renewables. However, as structured, it 
simply is not beneficial to any sector of the solar energy 
industry. Let me explain.
    The section 45 credit, first of all, is available only to 
projects that engage in the sale of power. Most solar PV and 
solar thermal projects are distributed generation, installed on 
rooftops of homes and businesses, and the energy generated by 
these solar energy systems is used on-site. The definition of a 
power sale used by the legislation, therefore, excludes 
distributed solar energy systems from the credit.
    Larger utility-scale solar plants are also unlikely to 
claim the section 45 PTC because under current law, developers 
must choose between the section 45 PTC and the existing Section 
48 Investment Credit, and the latter is more significant in 
value.
    So, the most effective way to bring solar energy online in 
the U.S. would be to increase the Section 48 solar ITC to 
approximately 30 percent and make that credit available to all 
solar applications, even if that credit were to come at the 
expense of our being excluded from section 45 PTC.
    Congress has used Investment Tax Credits for the last 40 
years as a mechanism to support key emerging industries and to 
realize public value. Solar provides excellent public value, 
reducing peak demand, reducing pollution, and avoiding or 
deferring transmission and distribution upgrades. Furthermore, 
the U.S. has the best solar resources in the developed world.
    An expansion of the section 48 Investment Credit would have 
a strong positive effect on the U.S. solar energy market, 
increasing the scale and competition among manufacturers, 
accelerating the drop in the cost of solar energy to the point 
where solar energy would more rapidly and broadly compete with 
convention peaking and retail electric prices.
    SEIA, or the Solar Energy Association, estimates that an 
expansion of the ITC would over 10 years stimulate an estimated 
50,000 new jobs, decrease solar costs by 50 percent, and save 
consumers over $15 billion in electricity and natural gas 
costs. In California alone, we estimate that these provisions 
would create over 10,000 jobs and spur $8.5 billion in economic 
investment. In other places, like Saginaw County, Michigan, 
home to one of the largest producers of silicone for the solar 
industry, Hemlock Semiconductor Corporation would expect to see 
significant investment and capacity expansion.
    In other nations, similar policy models have been used to 
spur manufacturing scale-up, increased competition among 
installers, and improved marketing. This international market 
growth has cut the cost of solar energy sharply and 
demonstrated the ability of the industry to move off of 
incentives after that initial jump-start.
    On the other side of Capitol Hill, Senator Lamar Alexander 
has proposed in S. 727 a temporary 5-year expansion of the 
Investment Tax Credit that would apply to both residential and 
commercial sectors.
    We have an opportunity to shift a tax policy that does not 
work as effectively as intended for solar energy into one that 
does. Expanding the section 48 ITC would give the solar 
industry a credit of approximately the same proportional value 
as that enjoyed by other renewables through the section 45 PTC. 
This would help to accelerate the public benefits associated 
with the increased use of solar energy and bring a booming 
solar market back to the United States
    Once again, I appreciate the opportunity to testify and the 
willingness of this panel to explore new policy options. I look 
forward to answering your questions.
    [The prepared statement of Mr. O'Brien follows:]
   Statement of Chris O'Brien, Vice President, Strategy & Government 
    Affairs, Sharp Electronics, Solar Systems Division, Kingstowne, 
      Virginia, and Chairman, Solar Energy Industries Association
    Mr. Chairman, members of the committee, I thank you for this 
opportunity to testify.
    My name is Chris O'Brien. I am Vice President for Strategy and 
Government Affairs at Sharp Electronics, Solar Systems Division. We are 
the largest photovoltaics manufacturer in the world. Our Memphis 
facility will soon be the largest solar manufacturing facility in the 
United States. I also serve as Chairman of the Solar Energy Industries 
Association, the national trade association of the solar energy 
industry,--representing the photovoltaics (PV,) Concentrating Solar 
Power (CSP,) and solar heating industries.
    I would like to make three points this afternoon.

      First, the current production tax credit has no value to 
the solar industry.
      Second, meaningful incentives are key to bringing down 
solar costs.
      And third, we would willingly be removed from the section 
45 credit in favor of an expansion of the existing investment credit.

    It may come as a surprise that the current credit does not benefit 
all eligible renewables. However, the PTC as currently written is 
simploy not relevant to any sector of the solar industry.
    For different reasons, the credit is of no value to either 
distributed retail, or central station wholesale, solar power.
    As you know, this credit is available only to projects that engage 
in the sale of power. Most solar PV projects are distributed 
generation, installed on rooftops and run through the customer's meter. 
The definition of a power sale used by the legislation therefore 
excludes them from the credit.
    Even if they could theoretically take the PTC, owners of most PV 
systems would not realistically benefit. A typical home PV system is 2 
kilowatts--one twenty-five-thousandth the size of a small wind farm. 
With the PTC, that system would generate just $50 in annual credits. 
The difficulty inherent in somehow having the IRS ``read your meter'' 
would remove any economic benefit.
    Of course, photovoltaics are not the only solar electric 
technology. For almost 20 years, approximately 400 megawatts of 
concentrating solar (``CSP'') projects have been operating in the 
Mojave Desert of California. These plants use fields of mirrors to 
bring heat into a conventional steam power plant, feeding valuable peak 
power into the grid. New projects are currently in the pipeline. And 
although the developers of these new CSP plants could at least 
theoretically claim the PTC, they will not. Under current law, 
developers must choose between the PTC and the existing 10% commercial 
solar investment credit. While the current PTC represents 30-40% of 
power costs for wind, it is perhaps 6--10% of solar costs. Given the 
realities of commercial finance, no project developer will trade 6 % 
over 10 years for 10% up front.
    We appreciate that the expansion of the PTC indicates a desire by 
Congress to support clean, domestic solar power. Unfortunately, as 
written, it simply will not work.
    So, while our industry represents many different technologies, we 
speak with one voice on this issue.
    The most effective way to bring solar on-line in the United States 
would be to increase the existing investment credit to 30%--and make 
that credit available for all solar applications.
    The reasoning would be that increasing market size allows the 
industry to increase the scale of manufacturing, bring competition into 
the marketplace, and decrease costs.
    Historically, solar prices have come down 20% for each doubling of 
installed capacity. A usable ITC would ``jumpstart'' the U.S. market by 
bringing already-declining solar costs over the ``tipping point'' in 
many areas, to the point where they broadly compete with conventional 
peaking and retail electric prices.
    Similar models have been used by other countries to expand the 
solar industry, resulting in double-digit annual market growth. (Though 
the U.S. lags, global PV industry is now 10 times the size it was in 
1996.) In other nations, manufacturing scale-up, increased competition 
among installers, and improved marketing have proven the ability of the 
industry to move off of incentives after that initial ``jumpstart.''
    Congress has used investment tax credits for the last 40 years as a 
mechanism to stimulate economic growth in emerging industries, and 
realize public value.
    Solar provides excellent public value, and the United States has 
the best solar resources in the developed world. From Maine to Nevada, 
we could use solar power to meet some of our most pressing energy 
concerns--from peak demand reduction, to environmental benefits, to the 
avoidance of transmission and distribution upgrades. I would be happy 
to provide the committee with a body of work that quantifies these 
benefits.
    In S. 727, Senator Alexander has proposed a temporary 5-year 
expansion of the investment tax credit that would apply to both the 
residential and commercial sectors.
    This bill also proposes changes that would make the PTC usable for 
some types of solar projects. However, I've asked my colleagues, and we 
agree that if we seek to see significant near-term deployment and 
really bring down solar costs, the most important policy change that 
Congress could enact would be an expansion of ITC--even if that credit 
were to come at the expense of our being excluded from the production 
tax credit.
    Over 10 years, these credits would stimulate an estimated 50,000 
new jobs, decrease solar costs by 50%, and save consumers over $15 
billion in electricity and natural gas. In California alone, we 
estimate that these provisions would create over 10,000 jobs and spur 
$8.5 billion dollars in economic investment. Expanding the ITC is the 
most meaningful solar policy that Congress could enact in the energy 
bill.
    We have an opportunity to shift a tax policy that does not work 
into one that does. Expanding the existing ITC, would give the solar 
industry a credit of approximately the same value as that currently 
enjoyed by other renewables through the PTC. This would begin to bring 
the booming solar market back to the U.S.
    Once again, I appreciate the opportunity to testify, and the 
willingness of this panel to explore new policy options. I look forward 
to answering your questions.

                                 

    Chairman CAMP. Thank you very much. Thank you all very 
much. That was excellent testimony. I just have a couple of 
questions.
    Mr. O'Brien, do you see the market share of solar in the 
U.S. comparable with other countries, and if other countries 
have a larger solar use than the U.S., what reasons do you 
attribute that to?
    Mr. O'BRIEN. Probably the most dramatic example of an 
effective policy has been taking place over the last 10 years 
in Japan. Japan put in place a policy targeting installation of 
solar on residential rooftops. This is back in 1994 and they 
set a goal of five gigawatts of installed solar capacity by 
2010. At that time, the world market for solar was in the tens 
of megawatts, so it was an outrageous goal. Nevertheless, they 
committed to a long-term set of incentives. That, in turn, gave 
businesses a framework that they could work with, a degree of 
certainty to make the investments, to drive down the cost, and 
to increase deployment.
    What happened? Over the next 10 years, the installed cost 
of solar systems in Japan dropped by 70 percent. The subsidy 
level that the government provided decreased from approximately 
$8 per watt installed to--it will be phased out to zero next 
year. The total number of systems installed increased from 
approximately 500 in 1994 to 70,000 per year this year. So, it 
has overall been a great example of a short-term stimulus that 
has very effectively increased the dissemination and the use of 
solar energy in Japan.
    Chairman CAMP. That is one of the concerns, that data shows 
the cost of solar power is higher on a kilowatt hour basis than 
other kinds of renewables, and I wondered, if sounds as if in 
Japan it was economies of scale that brought that price down. 
Are there any technologies on the horizon that you see that may 
make solar power more economically comparable to other 
renewables?
    Mr. O'BRIEN. There are technologies emerging. There are 
some new--I think you see over the last 20 or 25 years, you 
have seen that the cost of the solar module, the solar panel 
itself, has decreased by about 20 percent each time that the 
global volume has doubled. It is about an 18 to 20 percent 
learning curve. There are new breakthrough technologies that 
are being worked on, including deposition of photovoltaics on 
plastic substrates. There are concentrating photovoltaic 
technologies. Concentrating thermal solar power is proving to 
be economic. So, I think that there are a variety of solar 
conversion technologies that are effective.
    I think equally important, though, and what we have seen in 
some of our larger markets is the productivity and the 
efficiency between the factory gate and the rooftop. What we 
have seen in places in larger markets is that some of the 
largest solar companies in Japan now are home-building 
companies. They have incorporated solar so that they have 
standard model homes that are eco-homes or zero-energy homes 
that you as a consumer can walk in, and instead of getting 
granite countertops, you can get a solar system on your roof 
and no energy bill. So, it is making much more efficient 
solar--market channels has been a big part of the successful 
outcome there.
    Chairman CAMP. Okay. Thank you very much.
    Mr. Ranger, I have a couple questions. I wondered, this 
obligation, this current requirement to flare landfill gas, how 
does that affect--how does that flare requirement factor into 
the economics of using the gas to generate and sell 
electricity, this preexisting requirement of flaring landfill 
gas?
    Mr. RANGER. Well, generally, Mr. Camp, the landfills are 
flaring that gas, so those systems are already installed at the 
bigger landfills. What has excited the industry about the 
section 45 tax credit is it is something that can go into 
putting in new capital to change that gas, take it away from 
the flare and turn it into electricity. It is still a capital-
intensive industry past the flare, and that is where we need 
the support of the tax credit.
    So, one thing that is troubling to me, personally, is that 
landfill gas gets penalized because there is an environmental 
benefit that is attached to collecting the gas. We still have 
the same capital requirements as any other renewable energy 
provider and we still need some support to make that 
investment. I would like to see all renewables be treated 
equally and make more of these projects happen.
    Chairman CAMP. All right. Thank you. Do you mean equal in 
terms of the time period as well as the amount, credit amount?
    Mr. RANGER. Correct.
    Chairman CAMP. From the charts we have, the production from 
wind and closed-loop biomass receive basically 1.9 cents per 
kilowatt hour for the first 10 years and others are not, are 
either equal or less than that. You think that has had an 
effect on the ability to compete in that area?
    Mr. RANGER. Well, the EPA estimates that there is another 
500 landfills that are candidates for landfill gas electricity 
projects. So, if we were at that level of support, you would 
see almost all those projects come about. But what has happened 
in the landfill gas industry is we keep getting ratcheted back. 
We have looked at numbers at 1.3 cents a kilowatt hour, and 
what finally came out was the 0.9. That is going to generate 
some activity, but we are talking 20 projects, in my 
estimation, that were going to come forward, not only because 
of the deadline but also the magnitude of the tax credit.
    Chairman CAMP. You said in your testimony that a medium-
size landfill would meet the electrical needs of 3,000 homes. 
That is fairly significant.
    Mr. RANGER. Yes, it is, and I think it is just a resource 
that continues to go up a flare and this country can't afford 
to watch that kind of energy evaporate, no matter what the 
reasons it is going into a flare.
    Chairman CAMP. All right. Thank you very much.
    The gentleman from New York, Mr. McNulty, may inquire.
    Mr. MCNULTY. Thank you, Mr. Chairman. I also thank all of 
you for your testimony.
    We have heard so many times today that we have had this 
goal of reducing our dependency on foreign sources of energy. I 
mentioned earlier that the President has made this a highlight 
in his State of the Union Address for the last couple of years 
and I was very enthusiastic about that. Then we get going 
through the legislative session and I find myself asking the 
question, where is the beef, because we talk about it a lot and 
we don't do a lot about it.
    So, in my limited time, I just wanted to kind of go down 
the line and get a little bit more from you about what you 
think the government ought to be doing. Now, I understand that 
is a limited role, and it should be. But I really appreciate 
Mr. O'Brien's testimony because he got into that. He talked 
about other things that we ought to be doing in order to help 
his industry.
    Now, I know how all of you feel about the PTC and the ITC, 
but in your opinion, what else should--I am looking for a sense 
of urgency here. I am not talking about you, about us, about 
getting the information so that we can move on something and 
get some things done, the things that--the urgency that Mr. 
Larson was talking about earlier.
    In your opinion, what else should we be doing beyond the 
PTC to help your industries grow and to reduce our dependency 
on foreign sources of energy? Mr. Gosselin, we can start and 
just go down the line. Just take about a minute.
    Mr. GOSSELIN. Thank you. For wind industry, we clearly 
believe a long-term extension is what is necessary for us to 
get traction, remove the inefficiencies from the production of 
the equipment, and drive down our costs to remove the 
dependency from the PTC itself and add significant new wind 
into the country's energy mix. It is as simple as that. Thank 
you.
    Mr. MCNULTY. Mr. Carlson?
    Mr. CARLSON. Thank you, Mr. McNulty. Basically, you heard a 
lot today about the cost of the various renewable technologies. 
Some are closer to the fossil fuel-driven electricity market 
than are others, and basically, the bridging of that gap really 
requires two actions, in my opinion.
    One isn't necessarily a Federal action, because many of the 
States have moved forward with things like Renewable Portfolio 
Standards, and that is basically a spreading phenomena that 
creates a market segment for just renewables which allows them 
to compete among themselves for that market segment. So, that 
is one action that needs to continue and spread across the 
country.
    The other basically is this Production Tax Credit and the 
levelizing of that so that all of these renewables have an 
equal opportunity to grab some of that market share where it is 
appropriate, because many of them, as you have heard today, are 
also very driven by location. Where there is forest restoration 
to be done, it may favor biomass. Where there is the large 
resources that Mr. Norris talked about in terms of trash, that 
may be the chosen technology. But we need to level the 
playingfield for all of those so they have an equal opportunity 
to compete.
    Mr. MCNULTY. Thank you, Mr. Carlson.
    Mr. Ranger?
    Mr. RANGER. I appreciate your openness and willingness to 
consider other ways to help our industry. From the landfill gas 
perspective, I think this incentive is going to be sufficient 
to see a lot of activity, but we just need more time. This was 
the first time we were included in the PTCs and the one-year 
time frame, as you have heard, is just insufficient. I think if 
you gave us an extension of at least 3 years, we will see a lot 
more of these, and if you would make the incentive the same as 
all the other renewables, I think you are going to be surprised 
at how many projects we could bring online in that time frame. 
Thank you.
    Mr. MCNULTY. Thank you.
    Mr. Norris?
    Mr. NORRIS. I think for the waste-to-energy industry, the 
big issue that we have, or the two big issues are the capital 
costs and the amount of time it takes to put one into 
operation. If we were to build a new waste-to-energy facility, 
by the time we got through developing, permitting, and 
construction, we are seven or 8 years in and probably close to 
$15 or $20 million, similar to what the geothermal is. With 
that, it is hard to get incentivized to build one when we have 
such a short period of time in order to put this into place.
    We have asked for a three-year here, thinking that we could 
add some small number of units at existing facilities because 
we think they may take a little less time to permit and to put 
into operation. But to make some wholesale big move as far as 
generating electricity out of the waste that comes out of urban 
areas that would normally go to landfills, to do that, we are 
going to need a lot longer time and a tax credit either through 
this way or the ITCs.
    If we will remember back in the mid-1980s when the vast 
majority of the waste-to-energy plants got built, there was an 
Investment Tax Credit there that went through that drove the 
vast market of that, and probably 40 percent of the plants, 40 
to 50 percent of the plants that are operating today got put 
into place because of that Investment Tax Credit. Since then, 
in the last 10 years, we have not built a new waste-to-energy 
facility anywhere in the United States.
    Mr. MCNULTY. Thank you.
    Mr. Signorotti?
    Mr. SIGNOROTTI. Well, clearly, as I hope I have 
illustrated, the single most important point that the 
government can do to help us is to extend the in-service date 
and to levelize the playingfield for geothermal. However, in my 
opinion, since so much geothermal in the West is located on 
public lands, and that does not apply to our project in 
southern California, but a vast amount of geothermal energy 
does exist on public domain lands, lands that are controlled by 
the Bureau of Land Management, it would seem to me that to 
accelerate leasing, to perhaps simplify some of the rules as 
far as getting permits to drill and the various other 
components that are involved in exploratory drilling and 
development of geothermal resources on public lands would be a 
tremendous benefit to the industry.
    Mr. MCNULTY. Thank you.
    Mr. O'Brien, I think you have answered some of my question, 
but if you wanted to add anything else----
    Mr. O'BRIEN. If you would, I think the most important point 
would be the longevity of the incentive program that was put in 
place, that for businesses like Sharp would provide a timeframe 
of certainty to justify investments in everything from new 
product development, project development, and manufacturing 
capacity expansion.
    There are two documents that I would like to enter into the 
record. These pertain to the PV industry. One is a PV roadmap 
that outlines a set of policies that would support that. The 
second is a job study associated with that that shows the 
related jobs development.
    [The information was not received at the time of printing.]
    Mr. O'BRIEN. I would say in addition to the Investment Tax 
Credit that I described, probably for distributed technologies 
like photovoltaics and solar thermal, the most important thing 
is really the, in addition to the tax credit, is the ability to 
easily interconnect to the electric grid and to get the full 
benefit of the energy that is used on-site. So, those would be 
some standardized interconnections, or interconnection 
standards and what is called net metering, or the ability to 
capture the value of the energy that is generated on site are 
the two things.
    Mr. MCNULTY. I thank you all and I thank the Chairman for 
letting me go over a little bit.
    Chairman CAMP. All right. Thank you.
    The gentleman from Florida, Mr. Foley, may inquire.
    Mr. FOLEY. Thanks, Mr. Chairman.
    One of our biggest challenges, obviously, is getting the 
people that proclaim they want to save the environment to allow 
us to try to by implementing new technologies. When we talk 
about methane gas, oh, no, I don't want a landfill. We talk 
about wind energy, Walter Cronkite, no, I don't want them off 
of Nantucket. No matter where you are located, they don't want 
a nuclear facility. Well, I don't want those solar panels on 
the roof in this development. We can't mar the nice-looking 
Mexican tile by having that ugly solar panel. So, it seems like 
everybody has an objection, yet they are all in unison 
screaming, we have got to do more to lessen our dependency on 
oil.
    Now, you all suggested equalizing the credit. I assume you 
would like to go to the 1.9, not reduce accordingly, is that 
correct? Okay. I am just making sure we are all on the same 
wavelength, singing from the same hymnal, because I do think it 
is important.
    Now, I must have missed something, but the gentleman from 
Energy led me to believe that very, very little of our energy 
production in the United States is by crude oil, am I correct 
in that statement, and is that a correct statement? It is 
mostly natural gas?
    Mr. O'BRIEN. He was speaking about the electricity 
generation.
    Mr. FOLEY. So, we are out of diesel fuel generation, we are 
out of light crude. I know the City of Lakeworth still has some 
old generators. So, everybody in the Nation has converted, is 
that true? Does anybody know? I am just curious.
    Mr. CARLSON. Yes. Let me answer that, if I could, Mr. 
Foley. He said only about three percent of our electric 
generation is from oil, and that is correct. The largest single 
source is coal, which represents slightly over half of the 
total. Then nuclear and natural gas making up perhaps 40 
percent, between those two. Then the hydro and renewables 
basically making up the rest, the last 10 percent or so.
    Mr. FOLEY. Then maybe I should have framed the question 
``fossil fuels,'' those that are brought up from the ground. 
So, then I would have had a higher number?
    Mr. CARLSON. Yes. Fossil fuels would represent somewhere, I 
believe, between 70 and 75 percent of the total.
    Mr. FOLEY. Okay. I failed to ask the question. They always 
teach you, make sure you know the question.
    Well, I am encouraged at least that we are having the 
debate, and I think each one of the members here presents real 
options and real opportunity. We have seen in Florida 
particularly solid waste facilities. Where we used to bury, now 
we are finding recycling. Where we used to use the methane, now 
we are trying to find ways to plumb it in and create the burn 
rate that will make it cost effective. When we used to throw 
everything into landfills, vegetative resources, now through 
biomass credits, we are seeing people really clean up the 
environment. So, if people give us a chance to do every one of 
these options listed, I sense ten or so years from now, we will 
be in a better place.
    People in this country are impatient. I mean, I remember 
when I had a cell phone in the 1980s. Nobody thought, oh, what 
are you doing with that thing, that big lug? It was this big. I 
could have used it for an attack weapon. Now they are this 
small. But people assume, oh, nobody will ever need a cell 
phone.
    I think in this particular quarter, we have to think way 
outside the box. I, myself, would be even interested in being 
more aggressive with tax credits for all of your industries 
because I think it is the pathway from reliance, whatever it 
is, fuel, coal, in order to minimize the degradation of the 
ozone and other things that you are able to provide for us.
    So, I applaud each and every one of your industries. I 
think we should try to make them equitable. I think that 
creates a competition between the sectors. So, I appreciate 
your input, and particularly those from Palm Beach County. We 
are very, very encouraged by some of the things we are seeing. 
On the interstate, we see phone systems now that are using 
photovoltaics in order to power those. No longer do you have to 
connect with electric wires. So, we are seeing a lot of new 
technology that I think is spurring the use now and the 
abilities in downtowns--new downtowns are going with 
photovoltaic lighting systems.
    Again, I guess the other reason we all want to support you 
equitably, and one of you mentioned it, we are all in different 
locations. Florida has an abundance of sunshine, as does 
Arizona. In fact, Arizona has quite a bit this last couple 
days. But that sunshine can help do things that in other 
climates may not be as practical.
    We certainly know we generate a lot of waste around here, 
and I am not talking about the government, I am talking about 
the confines of Washington, D.C., because there are a lot of 
people that have to have their product go to the landfill, 
which again would help us in the treatment of the methane and 
other things.
    Thank you for your presentations.
    Chairman CAMP. Thank you very much.
    The gentleman from California, Mr. Thompson, may inquire.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    To my colleague from Florida's early remarks, I think that 
he would be interested, knowing his interest in a specific 
product that comes out of my district, I saw two wineries this 
weekend, both of which were heavily dependent, and one of which 
was totally dependent on solar energy. They had their panels, 
one on the rooftop, the other one covering the septic system, 
an area that couldn't be used for anything else. That 
particular one at Frog's Leap was generating all the power that 
they needed to run their whole winery. So, I think some of that 
NIMBY stuff is going by the wayside and some folks are being 
very creative and very helpful at the same time.
    Mr. FOLEY. Would the gentleman please bring some of the 
finished product so we could test it?
    Mr. THOMPSON. I have never let you down in that regard, Mr. 
Foley.
    [Laughter.]
    Mr. THOMPSON. I just want to say that I think Congress has 
been way behind the curve in regard to providing a strategic 
energy plan that the voters that we all represent want. I think 
that those of you on the panel today represent the industries 
that can help get us ahead of that curve. So, thank you for 
being here.
    I understand and appreciate the value that all your 
industries bring to this discussion, so I don't want to sound 
like I am excluding anyone, but I do have nearly half the 
geothermal producers, or 17 of them are located in my district, 
so if you would bear with me, I just want to focus a little bit 
on the geothermal issue.
    Mr. Signorotti, you had talked about the facility that you 
are planning to build down in Southern California. I know that 
from what is happening in Lake County in my district in 
California, that the geothermal industry has done more than 
provide a cleaner environment. They have also provided an 
incredible boost to local government revenues, to local 
revenues in regard to job creation, and it has been a real plus 
to the entire community.
    I don't know if your industry quantifies that somehow, but 
do you see the same coming to the area in southern California 
where you are proposing your new facility?
    Mr. SIGNOROTTI. Absolutely. In Imperial County, where we 
have our ten plants and 340 megawatts, we employ about 220 
full-time employees. We are the largest taxpayer in the county 
and have been for many years. This new project, we estimate 
will generate an additional $3 million in new property taxes 
annually. We estimate that there will be 550 construction jobs 
created over a 24- to 28-month period and over 60 new full-time 
jobs. Again, this is in a very economically disadvantaged part 
of California.
    Mr. THOMPSON. If this is like Lake County, these are good 
jobs. They have benefits. They pay well.
    Mr. SIGNOROTTI. These are jobs that people stand in line 
for in our area, and I just wanted to follow up on your NIMBY 
comment. When we permitted this plant through the California 
Energy Commission, Commissioner Purnell commented at the 
conclusion of one of the public hearings that he had never been 
to a public hearing in his career as a Commissioner for the 
California Energy Commission where there was not one comment in 
opposition to this plant. I think that that speaks volumes 
about the environment that we live within Imperial County. 
Imperial County wants this, as does California.
    Mr. THOMPSON. I know the industry folks in my district are 
great neighbors, and you have the same response there.
    I asked the last panel, or the last witness, about a couple 
of specific issues, and I guess I would like to ask you about 
those, too. It seems to me, and the last witness, at the end of 
his testimony, he stated that studies show an increased use of 
biomass, wind, and geothermal technologies in the wake of 
higher natural gas prices or changes in environmental policies, 
such as greenhouse gas caps and trade programs.
    Given this, it would seem to me that we would want to 
restructure the PTC in a way that would allow you maximum 
leverage on getting investment dollars. I think the current 
proposal is going down the wrong road. Any comments on that?
    Mr. SIGNOROTTI. Well, clearly, with regard to Salton Sea 6, 
the PTC is the key factor. This project is PTC dependent. With 
the PTC, it will go forward. Without a PTC, it will not.
    Mr. THOMPSON. So, the PTC should be extended to include all 
of the industries that are providing us with these----
    Mr. SIGNOROTTI. I certainly wouldn't speak against that, 
but I am focusing in on our geothermal projects in the Imperial 
County, but I certainly think that there is a lot of equity and 
a lot to be said for that.
    Mr. THOMPSON. Thank you. I yield back, Mr. Chairman.
    Mr. SIGNOROTTI. Thank you.
    Chairman CAMP. Thank you.
    The gentleman from Indiana, Mr. Chocola, may inquire.
    Mr. CHOCOLA. Thank you, Mr. Chairman, and thank you all for 
being here today.
    Mr. O'Brien, I just wish that solar energy had a more 
viable future in Indiana. We don't get as much sunshine as I 
would like.
    But I guess the question I would ask all of you is how do 
we, or when do we declare victory? When would you all come here 
and say, you know, we don't need the tax credit anymore? Should 
we think about this as kind of a venture capital, helping new 
technology emerge, or should we think about this as a long-term 
subsidy that supports good policy?
    I will throw it open to all of you to try to give your 
perspective on that. Mr. Gosselin, I will start with you.
    Mr. GOSSELIN. Thank you. Again, from the wind industry 
perspective, we have been enjoying the benefit of the PTC and 
what it drives in technology for approximately the last 13 
years. We have seen at least eight generations of new machine 
technology come to bear and continually lower costs. It is just 
in the last couple of years that we have seen higher costs come 
into the capital base of a wind project, and we believe that by 
having a long-term, stable PTC environment, that manufacturers 
will come to the U.S., create a U.S. base, and use that long-
term PTC to drive out their inefficiencies that we currently 
have with the on and off again nature of the PTC.
    So, victory is removing ourselves from the dependence on 
the PTC and being able to stand alone on our own capabilities 
and merits in terms of economics associated with wind energy 
production. We believe that happens within the timeframe of a 
long-term PTC extension.
    Mr. CHOCOLA. Just briefly, one of the things you mentioned 
in your testimony was the rising cost of steel. I used to be in 
the grain bin business and I am painfully aware of the steel 
escalating cost. But doesn't really every industry have to deal 
with that? It is not unique, is it, to the wind generation?
    Mr. GOSSELIN. No, it is not unique, but wind energy has a 
very large component of steel in it. The towers alone are 
something on the order of 60 tons of steel. So, it has a very 
large component relative to other technologies. While steel is 
driving costs up, it is not as material as what has happened 
with the dollar-Euro, and also as we see new technologies 
introduced, again, seeking to drive down the production cost, 
the cents per kilowatt hour that allows us to stand alone and 
compete on our own.
    Mr. THOMPSON. Mr. Carlson?
    Mr. CARLSON. Thank you. I think we declare victory 
basically when we are no longer dependent on foreign sources of 
energy for any significant percentage of our total national 
total. If you take our raw material, for example, biomass, it 
cannot just be used to generate electricity. It can also be 
used to make fossil fuels for automobiles. There is a synergy 
between those two activities that goes beyond just having, for 
instance, electric cars replace internal combustion engines, 
where we can actually produce the fuel for the internal 
combustion engine, and a substantial amount of that activity 
does take place in Indiana in terms of the ethanol production.
    So, I think that it is all part of a coordinated total 
where the renewables must start to displace fossil fuels and 
the same activity must take place in the transportation fuel 
network to the point where we can push back our dependency on 
foreign sources of oil. I can't predict when we would declare 
victory, but I think we will know it when we get there and I 
think bringing renewables up to a substantial fraction of our 
Nation's electric supply, for instance, say 20 percent over the 
next couple of decades is a reasonable goal, and the PTC and 
levelizing the PTC is probably the key element in doing that.
    Mr. THOMPSON. Is poultry waste used in open-loop biomass?
    Mr. CARLSON. It can be. It is not to any large degree at 
this point. Those systems are typically very small and are 
based essentially on the farm where the waste is produced. But 
it certainly in some cases can be a viable fuel for electric 
generation, certainly.
    Mr. THOMPSON. I see we are going to run out of time here 
quickly, but if anybody has a quick comment----
    Mr. RANGER. I would like to just comment on the question. 
In the case of the landfill gas industry, we are not looking 
for a perpetual subsidy. In fact, one of the reasons that I 
shared with you the Riverview project story was that the 
subsidy has worked in the landfill gas industry to get energy 
projects built and that subsidy basically helped them pay off 
the capital.
    In the case of Riverview, Michigan, I declare that one a 
victory every day I look at the bottom line. We still have a 
project that is bringing in money into our company. It enables 
us to reinvest in that facility. You still have to keep the 
technology upgraded. We are putting in PLCs now, modernizing 
that plant. But Congress was successful in creating that 
project and the Congress should feel good about that and we 
need some help for another 500 more.
    Chairman CAMP. Why don't we move on quickly. The gentleman 
from Connecticut, Mr. Larson, may inquire.
    Mr. LARSON. Thank you again, Mr. Chairman, and I thank the 
panelists. I have indeed enjoyed your comments this afternoon.
    My question will be more in association with one a lot of 
the Members have raised in terms of a question following along 
the lines philosophically, I guess, of what Congressman McNulty 
raised earlier and Representative Chocola. What is the most 
important factor in attracting capital to your businesses?
    Mr. GOSSELIN. Certainly from the wind industry, the return 
of the capital and the understanding or the known part of the 
business is the single most important part of attracting it.
    Mr. LARSON. So, that is why, with respect to the tax 
credit, if there is certainty, if there is across-the-board 
distribution, so you set up a system of competition where solar 
isn't excluded or is included more under section 48 or Section 
45, then we are leveling the playingfield and we are providing 
an opportunity for you to compete.
    It seems again like we get into these vicious circles where 
we never directly get at the problem because we are always 
chasing our philosophical or economical tails, because it seems 
to me, and coming from perhaps a Keynesian perspective, that 
government has a responsibility in promoting sound public 
policy to make sure you are able to compete because you are 
fulfilling an objective. Whether that is energy sufficiency, 
and I won't even say total weaning ourselves off of dependency, 
but at least energy sufficiency so that we can compete on our 
own, that these are the kinds of things that we ought to be 
pursuing.
    Should the market dictate where we go, or is the 
combination of the market and government providing an 
opportunity for otherwise industries that would be dwarfed 
because of lack of capital coming to it, and therefore lack of 
investors? Where should Congress strike this balance in your 
minds? Anyone?
    Mr. CARLSON. If I could, sir, let me take a crack at that. 
I don't know that it is--that Congress needs to pick the 
winners and the losers. I think the market should pick the 
winners and the losers, and I think we have demonstrated as a 
panel that in different locations, you will have different 
winners.
    Mr. LARSON. Correct. That was a good point you made.
    Mr. CARLSON. Clearly, I think that what Congress should do 
is levelize the playingfield and make sure that we have the 
opportunities. We don't have----
    Mr. LARSON. As Mr. Foley said, is 1.9 percent the right 
figure? Does it need to be more? Does it need to be less?
    Mr. CARLSON. I think the 1.9 cents is a good starting 
point, and we have to have access to the contracts with the 
utilities, which is what PURPA gave us back in the late 1970s, 
is that they had to purchase power from independent suppliers 
that could supply it at their what was called avoided cost, the 
same cost that it would cost them to produce it. That was a 
watershed for the country.
    Now, there have been ways in which they have attempted to 
back away from that, certain utilities, and that needs to be 
reemphasized, that if you can buy it from an independent 
supplier at your cost, you should do so. Then any difference 
could be made up by this PTC that we are talking about.
    Mr. LARSON. Anyone else? Mr. O'Brien?
    Mr. O'BRIEN. I think the lesson learned in our industry was 
that there are successful policy examples that we can look to 
in other countries. Actually, two of the most successful 
countries have more sunshine than Indiana does, Japan and 
Germany.
    But I think that the clear ingredients for our industry and 
what has worked well has been a reasonable horizon for the 
longevity of the incentive combined with a clear signal that 
there is a sunset. So, I think sending the right signal to the 
folks that are making investments in product development and 
manufacturing capacity and in project development is important. 
You effectively get what you pay for by the longevity of the 
program. So, those technologies that are less mature, that 
require more development, I think require perhaps a longer 
timeframe to recoup those investments.
    Mr. LARSON. Is there a grand plan to synergistically link 
your industries together, and could such be conceived?
    Mr. GOSSELIN. Not that I am aware of.
    Mr. O'BRIEN. I think I would just answer that, I don't 
think there is a silver bullet. I think that when you look at 
the size of the gaps that need to be addressed, when you look 
at where we are today in terms of a dependence on fossil energy 
and you look at the--if you look going forward, there will be a 
portfolio that includes all of these technologies. I think it 
is important to recognize, and I think each of the technologies 
has different attributes. Some are distributed, some are 
central, some are large-scale, small-scale. But I think there 
is going to be--I would expect if you flash forward 20 years, 
you are going to see a portion of the portfolio with each of 
these technologies.
    Mr. LARSON. Thank you all very much. Thank you for your 
indulgence, Mr. Chairman.
    Chairman CAMP. Thank you, and again, I want to thank the 
panel for your excellent testimony this afternoon. The hearing 
of the Subcommittee on Select Revenue is now adjourned.
    [Whereupon, at 4:09 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]
           Statement of the American Public Power Association
    The American Public Power Association (APPA) is the national 
service organization representing the interests of over 2,000 
community-owned utilities located in every state but Hawaii. 
Collectively, public power utilities deliver electricity to one of 
every seven electric consumers (approximately 43 million people), 
serving some of the nation's largest cities. However, the vast majority 
of APPA's members serve communities with populations of 10,000 people 
or less.
    We appreciate this opportunity to offer our views on federal 
financial incentives for production of electricity from renewable 
energy sources. Appropriate incentives for renewable and clean coal 
generation are essential to achieving a balanced energy bill. At the 
same time, we believe an important element of the debate on renewable 
energy sources and clean technologies is absent from this hearing--
comparable incentives for public power systems. Without comparable 
incentives, nearly 3000 public power and rural cooperatives serving 
approximately 25 percent of America's electric consumers will be 
hampered from investing in renewable energy facilities.
    Under current law, investor-owned utilities are eligible to receive 
a production tax credit for generating electricity from renewable 
energy sources. However, not-for-profit utilities are ineligible for 
such incentives because they do not incur any federal tax liability. 
The only incentive provided to consumer-owned electric utilities for 
renewable energy production is the Renewable Energy Production 
Incentive (RPEI) Program subject to the annual appropriation process 
and has been grossly under-funded since its creation as part of the 
Energy Policy Act (EPAct) of 1992 and is discussed further in this 
section.
    The lack of comparable incentives will exacerbate problems for 
public power systems due to a growing trend of state mandates and 
prospects of a federal requirement that utilities generate a certain 
percent of their electricity from renewable energy sources. For-profit 
utilities have federal incentives in place to offset the cost of 
investing in renewable energy facilities to comply with government 
mandates while not-for-profits must pass on the cost as rate increases 
to their customers.
    Financial incentives for public power to invest in renewable energy 
projects will also contribute to the reduction of greenhouse gas 
intensity. As part of APPA's voluntary commitment with the U.S. 
Department of Energy for participation in a voluntary greenhouse gas 
reporting and reduction program, comparable incentives for all sectors 
of the electricity industry is specifically outlined in the proposal as 
an important strategy to achieve this objective and recognizing the 
role not-for-profit utilities play in the industry by serving 25 
percent of the nation's electricity customers.
Comparable Tax Incentives for Municipal Electric Utilities
    Current market conditions make the of production of electricity 
from renewable energy sources three to 10 times higher than from 
traditional fuel sources such as coal and natural gas. APPA's members 
have a commitment to their customers and the communities they serve to 
keep rates at the lowest possible level. This commitment makes it 
difficult to participate in a national energy policy that promotes 
diversification of sources of electricity generation to include greater 
use of renewable energy.
    Many APPA members are extremely interested in expanding generation 
capacity to include renewable generation facilities. Because public 
power systems are governed by local elected or appointed officials, 
they are responsive to the needs and expectations of their respective 
communities. Public power communities want clean energy even when this 
results in higher rates. In fact, public power has an excellent record 
of providing clean energy. However, the availability of comparable 
incentives would provide a more reliable and non-regressive financial 
mechanism to make it easier to invest in qualified projects to generate 
from renewable energy sources.
    Traverse City Light and Power (TCLP) Department in Traverse City, 
Michigan, is one example of a community's commitment to renewable 
energy. TCLP has a nameplate capacity of 1,000 Kilowatts (kW) from 
hydroelectricity generation. Furthermore, the TCLP owns and generates 
800,000 kWh/year of electricity from a nine-year old wind turbine to 
serve its 10,256 customers. The decision to make this investment was 
finalized after enough volunteers in the community agreed to pay a 1.5-
cent/KWh premium on their electricity rates to cover the cost of the 
production from a renewable energy source. The decision to make the 
investment has been a positive one for the community as it has 
diversified its energy supply and contributed to cleaner air. In 
addition, TCLP has recently begun discussions with the local school to 
provide some electricity from the wind turbines to charge a hybrid 
electric bus that the school hopes to put in to operation soon.
    Several of the dams used by TCLP for hydropower generation are in 
need of heavy capital investment. However, these improvements provide 
little additional power supply. TCLP estimates the dams would need 
approximately $4 million for upgrades and improvements. With little 
return on their investment and discussions in the Michigan legislature 
regarding a renewable portfolio standard, TCLP is considering 
additional wind generation capacity, but its options are limited 
because it will be difficult to garner enough volunteers to accept a 
surcharge given the necessity to ask citizens for help for the first 
wind project. Therefore, the viability of pursuing this new wind 
project will depend highly on whether or not public power systems 
receive a comparable tax incentive.
Renewable Energy Production Incentive Program
    The only federal incentive currently available to public power 
systems is the Renewable Energy Production Incentive (REPI) program 
authorized under the Energy Policy Act of 1992. This program was 
created to be a comparable counterpart to the renewable energy 
production tax credits made available to investor-owned utilities under 
this law. Under REPI, the U.S. Department of Energy (DOE) is authorized 
to make direct payments to not-for-profit public power systems and 
rural cooperatives at the rate of 1.5 cents per kWh (1.8 cents when 
adjusted for inflation) from electricity generated by solar, wind, 
geothermal, and biomass projects. Unfortunately, the REPI program is 
subject to the annual appropriations process, and the program has been 
woefully under-funded since its inception. According to DOE sources, 
approximately $80 million would be required in Fiscal Year (FY) 2006 in 
order to fully fund all past and current REPI applicants. Despite the 
demonstrated need, however, DOE has only asked for $5 million for FY 
2006, citing budgetary constraints.
Renewable Portfolio Standards
    Complicating the issue is a recent trend by several states to enact 
renewable portfolio standards (RPS) and the prospects of a federal RPS 
mandate. According to the U.S. Energy Information Administration (EIA), 
almost 20 states have enacted some form of an RPS, and there are 
further discussions in other state legislatures to enact similar 
mandates. For-profit utilities can have the ability to use the federal 
tax incentives granted to them to offset the costs associated with the 
state laws. Not-for-profit utilities required to comply with these RPS 
mandates will not have comparable incentives to assist them in doing 
so.
    Without federal financial assistance, public power systems must 
finance more expensive renewable energy facilities internally--through 
higher rates for everyone or surcharges paid by those willing to pay 
more for ``green'' power. For example, the Board of Water and Power 
Commissions for the Los Angeles Department of Water and Power (LADWP) 
recently adopted a policy in response to a state RPS and a resolution 
passed by the City Council. The policy approved by the Board set the 
goal of LADWP supplying 20 percent of its generation load by 2017 from 
renewable energy resources and an interim goal of 10 percent by 2010. 
In order to determine how LADWP will pay for this effort, a study will 
be conducted to examine a renewable surcharge for its customers to pay 
for meeting the RPS goals and possibly a calculation method and plan 
for implementing the surcharge. Also included in the study will be an 
assessment for a solar surcharge to support installation and generation 
of electricity from photvoltaics. But without comparable incentives, 
the LADWP is limited to what financial options can be used to meet the 
City Council's resolution.
Greenhouse Gas Initiative
    APPA has joined with partners in the electricity industry in 
signing a Memorandum of Understanding (MOU) with DOE that commits us to 
voluntarily reduce greenhouse gas intensity. This MOU was part of 
President Bush's proposal for a voluntarily greenhouse gas emissions 
reporting and reduction program. The goal of the program is to reduce 
greenhouse gas intensity levels by 18 percent by 2012.
    APPA worked diligently to ensure that the MOU recognizes the need 
to provide investment incentives to public power systems in order to 
utilize the latest clean technologies and renewable generation. The MOU 
specifically spells out the need to promote policies that provide 
``investment stimulus on an equitable basis to all segments of the 
power sector in order to accelerate use of existing [greenhouse gas]-
reducing technologies, deploy advanced technologies and maintain 
America's critical energy infrastructure (emphasis added).''
Taxable Tax Credit Bonds
    In the 108th Congress, the Senate twice passed legislation that 
included a proposal to offer comparable tax incentives to consumer-
owned utilities. The proposal, included as part of the Senate passed 
comprehensive energy bill and the Foreign Sales Corporation/
Extraterritorial Income (FSC/ETI) Bill, would have established a 
mechanism--known as tradable tax credits--whereby public power systems 
and rural electric cooperatives could earn tax credits for production 
of electricity from renewable sources and then sell the tax credits to 
entities with federal tax liabilities. The proceeds from the sale of 
the tax credits would be used to offset the higher cost of renewable 
energy generation. However, concerns expressed by the White House and 
Members of the House prevented the plan from making it into the final 
version of either bill.
    In response to recommendations made by the Bush Administration and 
Members of Congress to develop an alternative to the tradable tax 
credit, APPA has worked closely with the National Rural Electric 
Cooperative Association (NRECA) and others to develop an alternative 
approach to the production tax credit so that the not-for-profit 
utilities that serve nearly 25 percent of the total population can 
receive incentives to help them invest in renewable energy resources. 
The proposal is similar to a tax policy already incorporated in the 
U.S. Tax Code. While not exactly identical, the alternative to tradable 
tax credits utilizes a financial investment previously recognized in 
the tax code that is familiar to most. The proposal is referred to as 
clean energy bonds and has been introduced in the Senate as S. 962. 
Senate Finance Committee Chairman Grassley and Ranking Member Baucus 
have recently introduced this bill to provide for the use of taxable 
tax credits bonds for qualified renewable energy facilities. APPA 
strongly supports S. 962.
    The clean energy bond would allow municipal utilities and rural 
electric cooperatives to issue interest-free debt through a taxable tax 
credit bond to raise revenue for renewable energy generation projects 
as defined under Section 45 of the U.S. Tax Code. In lieu of interest 
on the investment, the bondholders would receive a tax credit from the 
federal government that could then be put toward reducing their 
personal income tax liability. The bond is taxable, so if the credit is 
worth $100 and the bondholder is in the 35 percent tax bracket, the 
bondholder would deduct $65 from his or her tax liability.
    In addition to renewable energy generation facilities, proposals in 
Congress are being considered to expand the clean energy bond to 
include new clean coal generation technologies. Coal is the most 
abundant natural resource for producing electricity in the United 
States. Increased use of clean coal technologies will allow us to 
increase our use of this readily available and reliable resource. At 
this time, the technology for clean coal facilities is not cost 
effective compared with traditional generation facilities. But 
including this technology as an eligible project under the scope of the 
clean energy bond will allow for greater market share across 
theelectricity industry; thereby reducing the cost for utilities to 
install and generate from clean coal technologies.  Senator Bunning and 
others have introduced legislation in the Senate incorporating the 
clean energy bond as a financing method for clean coal technologies
Conclusion
     Not-for-profit electricity utilities need comparable tax 
incentives for renewable and other clean energy generation. The debate 
amongst policymakers regarding greenhouse gas emissions, RPS and 
reducing our dependency on foreign sources of energy make the call for 
comparable incentives that are much more important to keep electricity 
rates affordable. While some not-for-profit electric utilities have 
taken steps to advance renewable energy projects, the burden of the 
cost has fallen exclusively on their ratepayers. These communities, 
both large and small, should be recognized for their desire to promote 
clean technologies and renewable energy generation. However, the 
ability to participate in ``green'' power generation should be made 
available to all communities regardless of economics, population or 
geography and without the need to implement a regressive tax.
    The policy to reduce our nation's dependence on foreign sources of 
energy by investing in renewable energy and clean energy will greatly 
benefit the economy and health of all Americans. But such a decision 
should not exclude utilities that serve 25 percent of Americans from 
receiving incentives to help achieve this positive goal.
    Again, APPA thanks both the Chairman and Ranking Member for their 
leadership on this issue, and we encourage the House to work with the 
Senate to enact comparable tax incentives for not-for-profit electric 
utilities in the 109th Congress. We look forward to working with you on 
this issue.

                                 

                                   Solar Mission Technologies, Inc.
                                            Missoula, Montana 59801
                                                  No date available
Honorable Committee Members:

    Solar Mission Technologies, Inc is a privately owned, renewable 
energy power station developer based in the U.S. Solar Mission's core 
business is to develop Solar Tower power stations globally.
    The first Solar Tower development is in advanced stages of project 
feasibility in Australia by local developer, Enviro Mission Limited; a 
publicly-traded Australian company. Solar Mission has maintained an 
investment in the Australian project since 2001.
    Australia was selected as the launching place for Solar Towers due 
to the favorable political and market sector receptiveness for clean 
green electricity from a fully dispatchable solar powered generating 
plant.
    The success of the Australian roll-out is cornerstone to 
development of similar power stations in the United States.
    U.S. federal tax credits for renewable energy generators form part 
of the impetus and timing for Solar Mission's decision to commence 
development in the U.S. as a priority over markets where political 
incentives do not exist.
    The market case for renewable energy development is also supported 
by evidence that energy supply is set to lag behind demand based on GDP 
growth figures plotted against the equivalent energy indicators, 
whether BTU's (natural gas/oil) or MWH (electricity generally). This 
worldwide trend supports investment and policy incentives for energy 
infrastructure development, particularly renewable energy.
    The imperative for energy development was driven home at the World 
Energy Congress (WEC) Sydney, Australia, (September 2004) with the call 
that recommended ``no energy source should be taken off of the table.''
    See: http://www.worldenergy.org/wec-geis/wec_congress/default.asp
    In addition the WEC concluded ``[a] larger share of global 
infrastructure investment must be devoted to energy''.
    Tax credits will help move the electricity market in the United 
States toward those two goals.
    Solar Mission's development strategy for the U.S. is influenced by 
the current tax policy although the tax credit structure could go 
further to standardize the term, quantity and value of tax credits for 
all renewable fuel sources. Standardization will provide certainty in 
planning and costing renewable energy projects and will foster 
investment confidence in renewable energy development.
    Solar Mission seeks the support of the Legislative Committee to 
continue shaping legislation that aims to capture electricity 
production from renewable sources.
    Thank you for the opportunity to table the views of Solar Mission's 
directors and management.
            Sincerely,
                                                  Christopher Davey

                                 

                 Statement of Edison Electric Institute
    The Edison Electric Institute (EEI) appreciates the opportunity to 
submit this statement for the hearing record on tax credits for 
electricity production from renewable sources. EEI is the trade 
association for U.S. shareholder-owned electric companies, and serves 
international affiliates and industry associates worldwide. Our U.S. 
members serve almost 95 percent of the ultimate customers in the 
shareholder-owned segment of the industry and nearly 70 percent of all 
electric utility customers in the nation. They generate almost 70 
percent of the electricity generated by U.S. electric companies. 
Several of our members have made significant investments in renewable 
technologies including wind, biomass co-firing, landfill gas and waste 
to energy, and geothermal, and many others may do so in the future.
    While last year's extension of the Production Tax Credit (PTC) for 
five or ten years was a step in the right direction, the requirement 
that the facilities be in-service by the December 31, 2005 severely 
limited the PTC's effectiveness. To maximize the impact of the tax 
credit, there must be a realistic opportunity to plan for equipment 
purchases in a sustained business cycle, address transmission and 
siting issues, and begin production over a longer time period. The 
``boom and bust'' business cycles created by frequent twelve-month 
extensions of the tax credit have not helped developers of renewable 
energy technologies and have only increased costs for the consumer. The 
PTC extension was authorized in the JOBS Bill last fall and did not 
provide enough time for technologies with long lead times, or 
technologies that face equipment shortages, transmission access issues, 
and siting challenges. It is very difficult to have all these functions 
prepared for implementation or construction within a twelve-month 
period. Consequently, EEI recommends extending the in-service date 
requirement until December 31, 2010 and continuing the ten-year 
opportunity to claim PTCs. Alternatively, a binding contract rule for 
the project output could be substituted for the in-service requirement.
    EEI supports extending the PTC for renewable technologies because 
it will increase fuel diversity. This diversity is necessary to assure 
domestic energy security, provide affordable reliable power to 
customers, moderate fuel price fluctuations and increase in generation 
costs, and improve the quality of the environment. For many companies, 
their strategic business goals include asset diversification among 
technologies and fuels, and renewable energy is expected to play an 
important role. Achieving these goals will require policies that 
optimize the use of all fuels. The PTC assists in furthering national 
electric industry goals of fuel diversity by making it easier for 
immature, but promising technologies to compete more effectively in a 
brutally price competitive market: generation. The electric industry 
supports subsidy only until such time as these technologies achieve 
sufficient production to reach marketplace success through economies of 
scale.
    As you can see from the attached charts, non-hydro renewable energy 
is a small but growing segment of the U.S. electricity generation 
portfolio. However, the increase in a given year has varied depending 
on the availability of the PTC. Ensuring that no one fuel type 
dominates the electricity production will increase electricity pricing 
stability for all consumers. EEI supports the PTC to help develop 
renewable technologies so that they can be an important part of the 
electricity production mix, along with coal, hydro, natural gas and 
nuclear generation. Additionally, renewable technologies have the 
potential to impact natural gas demand in some locations. The renewable 
energy industry needs the PTC because it is still a new industry that 
has yet to achieve the economies of scale that mature industries have 
achieved. In the few cases where per unit costs are nearing 
conventional fuels, there are still outstanding issues that are being 
resolved. Because many of the best renewable resources may not be near 
the load centers, additional transmission is likely to be needed to 
bring the output to the load. Also, addressing local concerns about 
siting can be expensive, difficult, and time consuming. In most cases, 
the costs of renewable technologies are still higher than conventional 
fuels because they have not yet achieved the necessary economies of 
scale.
    A five-year in-service rule would give developers adequate time to 
plan forward to place facilities in service and provide a dependable 
source of revenue so that multi-year projects could be developed. This 
is particularly important for geothermal and landfill gas projects, 
which would allow electric utilities to plan and build required 
transmission facilities. This is consistent with other Congressional 
efforts to use the tax code to increase sources of energy. EEI is 
confident that such a program would result in increased renewable 
investment, thereby increasing the nation's fuel diversity. 
Additionally, an extended PTC is also likely to stimulate the 
development of new technologies and more efficient devices to convert 
the raw fuel input into electricity, whether the technology is 
geothermal, wind, biomass, or land-fill gas.

Generation from renewable sources of energy has increased significantly 
                               since 1990

    Note: Numbers exceed 100% due to rounding.
    *Includes wind, solar, biomass, geothermal and other non-hydro 
renewable energy sources
    Source: Energy Information Administration, 2004 preliminary data

                                 

    Statement of Carolyn Elefant, Ocean Renewable Energy Coalition, 
                           Potomac, Maryland
Introduction 
    Ocean Renewable Energy Coalition is a trade association founded to 
promote energy technologies from clean, renewable ocean resources. The 
coalition is working with industry leaders, academic scholars, and 
other interested NGO's to encourage ocean renewable technologies and 
raise awareness of their vast potential to help secure an affordable, 
reliable, environmentally friendly energy future.
    We seek a legislative and regulatory regime in the United States 
that fosters the development of ocean renewable technologies, their 
commercial development, and potential for export.
    The United States is falling behind in the race to capture the rich 
energy potential of our oceans. While other countries have already 
deployed viable, operating, power generating projects using the 
emission-free power of ocean waves, currents, and tidal forces, the 
U.S. is only beginning to acknowledge the importance these 
technologies.
    Ocean energy can play a significant role in our nation's renewable 
energy portfolio. With the right support, the United States ocean 
energy industry can be competitive internationally. With the right 
encouragement, ocean renewable energy technologies can help us reduce 
our reliance on foreign oil--fossil fuels, in general--and provide 
clean energy alternatives to conventional power generating systems.
Why the Ocean Energy Industry Needs the Production Tax Credit
1) What is ocean energy?
    Ocean energy refers to a range of technologies that utilize the 
oceans to generate electricity. Many ocean technologies are also 
adaptable to non-impoundment uses in other water bodies such as lakes 
or rivers. These technologies are can be separated into three main 
categories:
    Wave Energy Converters: These systems extract the power of ocean 
waves and convert it into electricity. Typically, these systems use 
either a water column or some type of surface or just-below-surface 
buoy to capture the wave power. In addition to oceans, some lakes may 
offer sufficient wave activity to support wave energy converter 
technology.
    Tidal/Current: These systems capture the energy of ocean currents 
below the wave surface and convert them into electricity. Typically, 
these systems rely on underwater turbines, either horizontal or 
vertical, which rotate in either the ocean curren or changing tide 
(either one way or bi-directionally), almost like an underwater 
windmill. These technologies can be sized or adapted for ocean or for 
use in lakes or non-impounded river sites.
    Ocean Thermal Energy Technology (OTEC) OTEC generates electricity 
through the temperature differential in warmer surface water and colder 
deep water. Of ocean technologies, OTEC has the most limited 
applicability in the United States because it requires a 40 degree 
temperature differential that is typically available in locations like 
Hawaii and other more tropical climates.
2) Is ocean energy commercially viable now?
    Yes, but thus far, on a small scale and not in the United States:

      The LIMPET project, a 500 kw shore-based wave plant in 
Scotland has been feeding power to the grid for 5 years at a cost of 7 
cents a kilowatt/hr. Another 600 kw project similar to LIMPET on Island 
of Pico in the Azores is operational.
      The Pelamis, a Scottish wave energy converter has been 
feeding power to the grid in Scotland since August 2004--and recently 
announced plans to construct a 2.25 MW plant off the coast of Portugal.
      An Australian company, Energetech, is in the final stages 
of anchoring a 500 kw wave energy device in Port Kembla, Australia 
which will feed power into the Australian grid.

3) What is the status of U.S. wave, current and tidal projects?
    A number of such projects in the United States have been proposed 
and are on the cusp of deployment:

      New Jersey based Ocean Power Technologies has operated a 
test wave energy buoy off the coast of Hawaii for the U.S. Navy and 
plans to interconnect to the grid by the end of the year.
      Washington state based Aqua Energy has proposed a 1 MW 
pilot project for the Makah Bay off the coast of Washington state. The 
project is currently in the midst of what is now verging on a three 
year permitting process at the Federal Energy Regulatory Commission. 
(FERC)
      New York based Verdant Power is undergoing licensing at 
FERC and intends to deploy six units of a tidal/current project located 
in the East River and supply power to customers on Roosevelt Island 
imminently, once all regulatory clearances have been obtained.
      Australian based Energetech has formed a subsidiary in 
Rhode Island which has received funding from the Massachusetts Trust 
Collaborative and has planned a 750 kw project for Port Judith Rhode 
Island. Permitting has not yet commenced.
4) Are these projects discussed above the start of real 
        commercialization?
    Yes--or at least that's what the Electric Power Research Institute 
(EPRI), perhaps the nation's most prominent utility research 
collaborative, concluded. An EPRI Report released in January 2005 found 
that ``wave energy is an emerging energy source that may add a viable 
generation option to the strategic portfolio.'' Among the benefits of 
wave that the report identified are that it is environmentally benign, 
has a low profile and is generally not visible and is more predictable 
than solar and wind so it is more dispatchable to the grid. In light of 
the success of its wave energy report, EPRI has now embarked on a 
second stage of exploring the energy potential of tidal and current 
ocean and coastal resources.
5) But is ocean energy economically viable?
    The EPRI report found that presently, the cost of power from ocean 
technologies ranges from 7 cents to 16 cents/kw in a low case scenario. 
But these costs are expected to decline as the industry matures and as 
economies of scale make ocean projects less costly. To compare, back in 
1978 wind energy cost 25 cents/kwh to produce--but now costs between 
4.5 and 6 cents/kwh. Wave is already less costly than wind. Moreover, 
the EPRI report found that if wave had obtained the same government 
subsidies as wind, it would be a far more advanced technology than at 
present.
6) So how would a PTC help the ocean energy cause when ocean plants are 
        not yet producing power in the United States?
    Several reasons. First, ocean projects are already operating 
commercially, albeit on a small scale overseas and are on the cusp of 
doing so in the United States. Second, in the absence of a PTC, ocean 
is perceived by investors as a second class renewable, thus making it 
impossible for ocean developers to attract necessary capital. Third, 
the absence of a PTC also makes ocean a less desirable renewable 
investment than other renewables like wind or solar that do receive the 
credit.
    Because currently, the government offers no funding or programs for 
ocean energy, the industry, though nascent, has had no choice but to 
seek out private investment. But the ocean, wave and tidal/current 
energy industry cannot attract financing effectively if handicapped by 
the absence of a PTC for new technologies with applicability to ocean, 
lakes and other free flowing non-impounded bodies of water.

                                 

    Statement of Glenn English, National Rural Electric Cooperative 
                    Association, Arlington, Virginia
    On behalf of the National Rural Electric Cooperative Association 
(NRECA), I appreciate this opportunity to provide testimony for the 
record on an issue of great importance to our members--incentives for 
renewable generation. Electric cooperatives are an untapped market 
force for deploying more renewable generation technologies. Developing 
additional renewable generation in rural America would help to advance 
these technologies and bring down their costs. But although electric 
cooperatives are uniquely situated to develop additional renewable 
resources, the cost of these resources is too high for their consumers. 
Electric cooperatives need an incentive comparable to the Production 
Tax Credit so they can bring the benefits of renewable generation to 
their communities.
Background
    Electric cooperatives are private, not-for-profit utilities, owned 
by the consumers they serve. In most states, member-elected boards have 
ultimate sign-off on rates, terms and conditions of daily business 
transactions. Today, 930 electric cooperatives serve electric consumers 
in 47 states. There are generally two types of electric cooperatives: 
``distribution'' cooperatives that deliver electricity directly to the 
consumer and ``generation and transmission'' (``G&T'') cooperatives 
that generate and transmit electricity to distribution cooperatives. 
Distribution cooperatives may also purchase power from the marketplace 
and from investor-owned utilities and public power systems.
    Electric cooperatives serve an average of 6.6 consumers per mile. 
By way of comparison, investor-owned utilities serve an average of 34 
customers per mile and municipal utilities serve an average of 44 
customers per mile. Although cooperatives serve 12% of the nation's 
electric consumers, they own and maintain 43% of the miles of 
distribution lines (lines that move power from higher voltage 
transmission substations into homes and businesses). Revenue per mile 
for cooperatives averages only $8,558 while it is more than six times 
higher for investor-owned utilities, at $58,981.
Electric Cooperatives Face Cost Impediments
    Given the relatively low revenue per mile that electric 
cooperatives receive from members, keeping electricity rates affordable 
depends upon access to low-cost generation. The capital cost to install 
new renewable generation capacity is three to ten times more expensive 
than the cost to install conventional gas generation. Despite this 
challenge, electric cooperatives are committed to offering renewable 
generation to their consumers. In 2003, electric cooperatives purchased 
more than 200 megawatt hours of energy from renewable resources 
operated by developers that benefit from the Production Tax Credit 
(PTC). Nearly 250 co-ops offer renewable energy options through ``green 
power'' programs. Yet only twelve out of 930 electric cooperatives own 
renewable generation. Electric cooperatives generate about 5% of the 
electricity produced in the United States, but taking renewable 
generation alone, electric cooperatives own less than 1%. Why? Because 
renewable generation is driven by the PTC and the developers and 
utilities that benefit from the PTC. There is no incentive that enables 
electric cooperatives to affordably develop renewable generation for 
their communities.
Electric Cooperatives Are Ideally Situated to Plan More Renewable 
        Generation
    Renewable generation should be planned not for the purpose of 
receiving a tax break, but to deliver electricity to consumers on a 
long term, affordable basis. Electric cooperatives are ideally situated 
in rural America to site, build and transmit renewable energy to their 
consumers. I say transmit, because having a good spot for a new wind 
project does not mean that the power can actually be delivered to the 
grid. The transmission grid is a complex and often highly constrained 
system. There are utilities that would like to sign contracts to take 
delivery of power from wind farms but are prevented because 
transmission constraints prevent delivery of that power. Electric 
cooperatives have a tradition of integrated, long-term planning and 
expertise on the nation's electricity grid that must be taken into 
account as Congress seeks to foster more renewable generation. 
Renewable generation must ultimately reach end consumers in order to 
appropriately fulfill Congress' goals of more renewable energy 
production at lower costs.
    Beyond the planning that electric cooperatives can provide when 
developing a new project, there is a potential for a significant 
synergy given our rural geography. Electric cooperatives serve many 
farm communities and have an opportunity through a partnership with 
farmers to solve problems of animal waste runoff. A farmer can purchase 
a methane digester, and the local electric cooperative can in turn 
purchase the methane output and convert it to electricity. Electric 
cooperatives are also located in many wind-rich areas, as well as in 
proximity to landfill gas facilities. Electric cooperatives are 
positioned to make renewable energy more affordable and economically 
competitive with convention generation.
Electric Cooperatives Need Affordable Options for Complying With New 
        Policies
    Given their mission of providing affordable electricity to rural 
consumers, electric cooperatives rely and have historically relied upon 
inexpensive generation from coal. But electric cooperatives are seeking 
the means to provide more costly renewable generation to their 
consumers on an affordable basis. Increasingly stringent clean air 
standards addressing NOx, SO2 and Mercury are being set forth in new 
federal and state regulations and possibly new legislation. Climate 
change standards requiring carbon reductions, if enacted, will require 
electric cooperatives and the entire utility industry to seek more 
production from non-emitting generation sources. And, electric 
cooperative consumers in some states are impacted by renewable 
portfolio standard mandates.
    Given the increasing costs that these policies are imposing, those 
electric cooperatives with access to local renewable generation 
resources should have the option that all others have to develop those 
resources for their consumers on an affordable basis. And, electric 
cooperative consumers should not face the uncertainty of being entirely 
dependent upon purchases from third parties. Depending upon the market, 
private developers may or may not pass through the savings they realize 
through the PTC in power sales to cooperatives. Electric cooperatives 
need an opportunity to develop local generation resources for the 
benefit of the consumers within their service territories.
The Cooperative Business Model: Why Comparable Incentives are Needed
    NRECA supports the extension of the PTC equitably to all renewable 
resources, given that many electric cooperatives purchase from the 
developers who rely on the PTC. But electric cooperatives also need 
access to comparable incentives. Electric cooperatives provide power to 
their consumer-owners ``at cost'' and thus are not-for-profit. 
Therefore electric cooperatives do not generally pay federal income 
tax. Revenues above cost of service are returned to customers, used to 
reduce rates or reinvested in utility infrastructure rather than paid 
to shareholders. Traditional tax incentives do not work for not-for-
profit utilities as they have no federally taxable income to offset. 
And, while electric cooperatives have access to low-interest loans from 
the Rural Utilities Service (RUS), the interest rate on those loans 
does not nearly approach the approximately 30% cost reduction that the 
Production Tax Credit, for example, achieves for the wind developers.
    In order for Congress to fully realize the benefits of tax 
incentives that are designed to make renewable energy economical, a tax 
incentive tailored to the unique characteristics of not-for-profit 
utilities is required. Electric cooperatives previously proposed a 
``tradable tax credit'' incentive for electric cooperatives, but it was 
rejected by the Committee due to tax policy concerns. Electric 
cooperatives have therefore developed a new approach--a ``clean energy 
bond.'' Clean energy bonds can provide electric cooperatives with an 
incentive comparable to the production tax credits that are available 
for the private sector. Clean energy bonds are based upon a ``tax 
credit bond'' that currently exist in the tax code for school 
construction under the ``qualified zone academy bond'' (QZAB) program. 
In essence, a clean energy bond would provide cooperatives and public 
power systems with interest-free loans for financing qualified energy 
projects.
    S. 962, the ``Clean Energy Bonds Act of 2005,'' was recently 
introduced by Chairman Grassley and Senator Baucus, and a House 
companion will soon be introduced. The bills provide the clean energy 
bond for the renewable resources in Section 45 of the Code. I urge the 
Committee to consider this legislation in a potential energy 
conference.
Conclusion
    Electric co-ops need incentives to afford renewable generation, 
just as investor-owned utilities and private developers are able to 
afford renewable generation through the PTC. The Clean Energy Bond 
provides an incentive tailored to co-ops, acting as an interest-free 
loan to finance qualified renewable energy projects. I appreciate the 
Subcommittee's consideration of our business model, which is critical 
to serving rural America; the significant renewable generation 
opportunities that exist in the areas we serve; and our desire to 
provide our consumer-owners with affordable green energy options. 
Please let me know if I or anyone in our organization can be of 
assistance to the Committee as it considers these important issues.

                                 

             Statement of the Geothermal Energy Association
    On behalf of the Geothermal Energy Association, we submit this 
testimony to the Subcommittee on Select Revenue Measures for inclusion 
in the record of its hearing on May 24, 2005 on tax credits for 
electricity production from renewable energy sources.
    Geothermal energy is a clean, renewable resource that provides 
energy in the United States and around the world. Geothermal energy is 
defined as heat from the earth. It is considered a renewable energy 
resource because the heat emanating from the interior of the earth is 
essentially limitless. The heat continuously flowing from the earth's 
core is estimated to be equivalent to 42 million megawatts of 
energy.\1\ The interior of the earth is expected to remain extremely 
hot for many years to come, ensuring a permanent flow of energy.
---------------------------------------------------------------------------
    \1\ Energy and Geosciences Institute, University of Utah. Prepared 
by the U.S. Geothermal Industry for the Renewable Energy Task Force 
(1997), Briefing on Geothermal Energy. Washington, D.C.
---------------------------------------------------------------------------
    The benefits of geothermal energy include minimal air emissions, 
marginal land impact, reduced waste, and reduced environmental costs. 
In addition, geothermal energy is one of the most reliable renewable 
energy sources available. Electric power from geothermal sources is 
very desirable because it is base load power, not peaking, and it 
enjoys the highest capacity and availability factors of any power 
generation system.
    Today, geothermal energy provides nearly 3,000 MW of reliable 
electric power in the U.S. But according to the USGS, this represents 
only a small fraction of U.S. resource potential.\2\ Because of the 
high initial cost and risk of developing new geothermal power projects, 
geothermal, one of the largest energy resources in the western U.S., 
has not been developed to its full potential.
---------------------------------------------------------------------------
    \2\ The U.S. Geological Survey testified before the Subcommittee on 
Energy and Mineral Resources of the House Resources Committee, U.S. 
House of Representatives, on May 3, 2001 that their 1978 report still 
represents the best available resource estimate. According to that 
report, there is an identified geothermal potential of 22,000MW and an 
undiscovered, unidentified potential for geothermal production of an 
additional 72,000 to 127,000 MW. This does not include all resource 
types considered to be part of the geothermal resource base.
---------------------------------------------------------------------------
    Geothermal projects take years to bring to fruition. Early 
exploration is high risk, and verification of a geothermal resource on 
a prospective site typically involves ten million dollars or more for 
drilling and related geophysical studies and reports. The success rate 
for ``green field'' exploration has been estimated to be between 20 and 
50 percent in recent years, which is significantly higher than 
historical success rates. Once a resource is verified, permitting and 
construction can take 3-5 years or more, depending upon the resource 
location and the number and variety of governmental authorities with 
jurisdiction over the project. Despite all of these barriers, new 
geothermal projects are coming on-line today for initial prices between 
6.0 and 7.5 cents/kWhr
    In 2003, the California Energy Commission estimated that the 
average capital cost of a geothermal facility was roughly $2700 per 
kilowatt, which is 4-6 times greater than the capital cost involved in 
a comparable-output combined cycle natural gas power plant as shown in 
the following table.\3\ (The CEC estimate does not reflect recent 
increases in steel and drilling costs discussed later in this 
statement, and does not include ``site specific'' costs such as 
permitting and transmission shown later in Figure 1.)
---------------------------------------------------------------------------
    \3\ California Energy Commission (2003). ``Comparative Cost of 
California Central Station Electricity Generation Technologies.''

     Table 1: Capital Costs of Natural Gas and Geothermal Facilities
                             (CEC estimates)
------------------------------------------------------------------------
                                                                   In-
                                            Capital  Installed   service
                                             Costs     Costs      Cost
------------------------------------------------------------------------
 Combined Cycle Natural Gas                     542
---------------------------------------------------------- 592------ 616
------------------------------------------------------------------------
 Geothermal Flash                              2128       2410      2558
------------------------------------------------------------------------
 Geothermal Binary                             3210       3618      3839
------------------------------------------------------------------------

    Because a geothermal facility has very low fuel costs and no fuel 
market volatility, in the long run, over 30-50 years, the ``levelized'' 
cost of a facility might be quite reasonable. But without the Section 
45 Production Tax Credit (PTC), the initial risks, long lead times, and 
high capital cost will compel many investors to choose other 
alternatives that have shorter lead times, less risk, and lower front-
end costs.
    An expanded Section 45 Production Tax Credit (PTC) that includes 
geothermal energy helps overcome these barriers. An expanded PTC gives 
geothermal energy the opportunity to develop to its full potential 
alongside other renewables on an equitable basis, and spurs development 
of one of the nation's largest under-developed energy resources. While 
geothermal development in the U.S. flourished in the late 70s and 80s, 
since roughly 1992 there has been very limited development of new 
geothermal facilities. During this period, natural gas became a 
plentiful and cheap energy source and states struggled with changing 
their laws to allow more competition in the power industry. With cheap 
and plentiful gas and substantial legal uncertainty, developers shied 
away from making expensive and risky investments in geothermal power.
    Congress' decision to expand the PTC to include geothermal energy 
in 2004 appears to be changing these trends as interest in new projects 
is evident in several western states. With continued support, 
geothermal power can rebound from the stagnant 90s and provide needed, 
reliable energy to meet our nation's needs. An expanding geothermal 
power industry will mean improvements in technology, expansion of the 
resource base, and as the infrastructure supporting geothermal 
development is rebuilt reduced production costs.
    Here are some reasons to support making geothermal energy eligible 
for the full, ten-year Section 45 PTC:

      It will spur new investment, adding hundreds of new 
megawatts of highly reliable base load geothermal power to the grid. 
Geothermal power provides some of the most reliable electric power 
produced today, and produces electricity virtually emissions free.
      New geothermal development will mean new jobs and an 
immediate economic stimulus, and will bring substantial, long-term 
economic benefits to many communities in the West.
      It is justified. Geothermal power plants are capital 
intensive, costing several times more than a comparable fossil fuel 
plant, and involve greater risk due to the uncertainties of the 
subsurface resource. Providing investors a production tax credit 
incentive helps overcome these barriers and spurs new development.
      Development of geothermal energy resources will add to 
our nation's energy security. As former CIA Director Woolsey, National 
Security Advisor McFarlane, and Chairman of the Joint Chiefs of Staff 
Admiral Moorer said in their September 19th, 2001 letter to the Senate, 
``disbursed, renewable and domestic supplies of fuels and electricity, 
such as energy produced naturally from wind, solar, geothermal, 
incremental hydro and agricultural biomass address the challenges [to 
America's energy security].'' Their letter went on to urge immediate 
action on renewable energy production tax credits.
      It is equitable. Federal tax incentives for renewable 
energy have favored wind energy more than other renewable technologies. 
Extending the PTC on an equal basis to geothermal and other renewable 
energy sources would allow the market to choose which technology to 
pursue.
      The net cost to the federal government should be 
negligible. A recent study of the economic impact of extending the PTC 
to geothermal energy conducted by the National Renewable Energy 
Laboratory found, ``from the perspective of the U.S. Treasury, it is 
likely that the net cost of the PTC would be insignificant or perhaps 
even negative . . .'' (NREL/TP-620-31969, April 2002)

    In many areas, rural economic development is nearly as important as 
securing reliable energy at stable prices. The geothermal facilities 
operating today provide high quality jobs in many rural counties, and 
are often among the principal sources of income supporting local 
schools and government services. New facilities spurred by extending 
the PTC to geothermal energy would provide reliable electricity, income 
and economic benefits for decades. As GEA stated in its October 3, 2001 
testimony before the House Resources Committee, ``If the goal of the 
DOE [Geothermal Energy] Strategic Plan could be reached, the cumulative 
federal royalties from new power plants would reach over $7 billion by 
2050, and estimated income tax revenues would exceed $52 billion in 
nominal dollars.\4\ From just the state share in these royalties, 
alone, that would mean an additional investment of $3.5 billion in 
schools and local government facilities in the western states.''
---------------------------------------------------------------------------
    \4\ Princeton Energy Research Inc (December 15, 1998). Review of 
Federal Geothermal Royalties and Taxes. Volume I, page 17.
---------------------------------------------------------------------------
    There is broad support outside of Congress, as well. Not just the 
renewable power companies, but also the National Association of 
Regulatory Utility Commissioners, the Edison Electric Institute, and 
the Western Governors' Association have been among the groups calling 
for the expansion and extension of Section 45 as a national priority.
    For similar reasons, Congress should consider providing equivalent 
incentives to public power entities and cooperatives that face similar 
investment choices. These organizations provide power to 25% of the 
nation's consumers. One approach that we believe deserves support is 
embodied in The Clean Energy Bonds Act of 2005, recently introduced in 
the Senate as S. 962.
Background on the PTC
    A recent report from Platts Energy Resource provides some 
interesting background and insight on the role of the PTC:
    The U.S. government has a long history of supporting renewable 
power technologies. This support has taken the form of publicly funded 
research and development (R&D) activities, on the order of over $15 
billion in the past 20 years, as well as direct market intervention 
through the enactment of favorable regulatory policies, such as the 
Public Utilities Regulatory Policies Act of 1978 (PURPA, P.L. 95-617) 
and direct tax incentives like the investment and production tax 
credits. Among these support mechanisms, the production tax credit 
(PTC) is viewed as the most effective method for achieving increased 
market expansion of renewable energy sources.
    Before its expiration on December 31, 2003, the PTC provided an 
inflation-adjusted tax credit of 1.8 cents (") for every kilowatt-hour 
(kWh) of electricity produced from wind farms, ``closed-loop'' biomass 
systems, or animal waste facilities during the first 10 years of 
operation. Policy-makers and the renewable energy industry generally 
believe that this credit, originally enacted as part of the Energy 
Policy Act of 1992, was the primary driver behind the double-digit 
growth of the U.S. wind power industry over the past five years. U.S. 
wind power capacity grew by 31 percent between 1998 and 2003, 
increasing from 1.6 to 6.3 gigawatts (GW).\5\
---------------------------------------------------------------------------
    \5\ Owens, Brandon (July 2004). ``Does the PTC Work?'' PR&C 
Renewable Power Service.
---------------------------------------------------------------------------
    However, while the wind industry grew by double digits between 1998 
and 2003, the geothermal industry grew by 2%, adding two new 
facilities--49MW and 10MW power plants in California--that received 
state production-based incentive payments similar to but slightly less 
than the current 5-year geothermal PTC. These incentive payments were 
enacted in association with the initial power industry deregulation 
legislation and are no longer available. Two other projects that should 
have been completed with incentive payments in the northern part of the 
state were mired in a stranglehold of federal reviews given their 
location on National Forest Service land. While these two projects are 
still moving forward, the cost to the developer of delays caused by 
federal land management agencies has been substantial.
    Today, several states are moving ahead with laws that will promote 
contracts for new renewable power development. The geothermal industry 
is hopeful that these will lead to new power development, but the jury 
is still out on their overall effectiveness.
    State ``renewable portfolio standards'' (``RPS'') were recently 
reviewed in a report by the National Geothermal Collaborative, 
supported by the U.S. Department of Energy, entitled ``Evaluating State 
Renewable Portfolio Standards: A Focus on Geothermal Energy,'' 
available at  www.geocollaborative.org/publications.  This report 
concludes that state RPS laws have so far had mixed success and have 
predominantly assisted wind energy development: ``. . . early 
experience with the RPS in U.S. states has been mixed. Moreover, 
geothermal energy has not yet been the primary beneficiary of many 
state RPS policies.'' \6\
---------------------------------------------------------------------------
    \6\ Wiser, Ryan, et al. (2003). Evaluating State Renewables 
Portfolio Standards: A Focus on Geothermal Energy. National Geothermal 
Collaborative (NGC). page 1.
---------------------------------------------------------------------------
    In its examination of the existing state RPS programs, several 
drawbacks were identified: ``. . . we also find that the RPS has some 
potential disadvantages relative to other types of renewable energy 
policies: (1) due to its complexity, the RPS can be difficult to design 
and implement well, (2) an RPS may be less flexible in offering 
targeted support to renewable energy than some of the other renewable 
energy policies, (3) the exact cost impacts of an RPS cannot be known 
with certainty in advance, (4) operating experience with the RPS 
remains limited, (5) if an RPS does not lead to the availability of 
long-term power purchase agreements, the ability to finance new 
renewable projects will be limited and compliance costs may increase, 
and (6) an RPS is not necessarily suited to supporting diversity among 
renewable technologies, although an RPS can be designed to do so 
through the use of resource tiers and credit multipliers.'' \7\
---------------------------------------------------------------------------
    \7\ Ibid, page 2.
---------------------------------------------------------------------------
Policy Justifications for Adding Geothermal Energy to the PTC
    While recent analysis by the California Energy Commission (CEC) 
cited by the staff of the Joint Committee on Taxation in their report 
for this hearing, JCX-36-05, shows that on a long-term basis, 
investment in geothermal energy makes economic sense, the marketplace 
is geared towards short-term decisions and minimum risk. As a result, 
the CEC analysis misses the point.
    What the PTC is doing is not so much levelizing cost as equalizing 
risk. Given the high capital cost and risk associated with geothermal 
development, the PTC gives the investor the incentive necessary to 
consider geothermal energy on an equal basis with conventional power 
projects. In addition, by lowering the capital risk for the geothermal 
projects, the ratepayer and the economy benefit by avoiding price 
spikes and instead ensuring long-term stable prices for energy.
    While the California Energy Commission's report presents an 
interesting case for supporting geothermal energy and other renewables, 
there are several points that need to be made about their analysis. 
First, we do not agree that there is such a great disparity in the cost 
of electricity between binary and flash plants as their study 
concludes. Second, their capital cost estimates do not reflect recent 
increases in world steel prices, which have more than doubled. 
Geothermal facilities use significant amounts of steel, and this price 
increase can result in a 10-20% or more increase in the cost of a 
project. Similarly, the recent surge in world oil prices has led to a 
rebound in the demand for drilling equipment and drilling supplies. 
Geothermal developers are finding the cost of drilling has increased at 
least 20-30% in the past year, and drilling is a significant part of 
the cost of new facilities as shown in the Figure below. (Also, as the 
Figure below indicates, only about half of the investment needed for a 
new geothermal facility qualifies for the Investment Tax Credit, making 
it effectively a 5% credit, while an output-based credit like the PTC 
makes no such distinction.)
Comparative Taxation Rates
    It is generally observed that geothermal facilities pay significant 
federal, state and local taxes. A study conducted for the Department of 
Energy in 1998 by the Princeton Economic Research, for example, states:
    ``A lot more Federal income tax is being collected from geothermal 
electricity than from electricity produced from natural gas, on a per 
kWh basis. It appears that geothermal power systems, while having been 
granted a number of Federal tax incentives . . ., nevertheless appear 
to bear much heavier Federal income tax loads than are borne by some 
natural gas power generating systems. This is mostly because geothermal 
systems are much more capital intensive than natural gas power systems, 
and profits and income taxes are generally proportional to the size of 
investments.'' \8\
---------------------------------------------------------------------------
    \8\ Entingh, Daniel J. (December 15, 1998). ``Review of Federal 
Geothermal Royalties and Taxes.'' Princeton Economic Research, Inc., 
page 4.
---------------------------------------------------------------------------
    More recent analysis supports this conclusion. Brandon Owens, who 
is currently Associate Director at Cambridge Energy Research 
Associates, published a study entitled ``Does the PTC Work?'' which 
found: ``Fossil fuel--fired technologies have a lower tax burden 
relative to all renewable power technologies. The difference in tax 
burden is most pronounced for biomass and geothermal technologies, 
which, in this example, pay 227 percent and 338 percent more in total 
taxes, respectively, than they do for gas-fired combined-cycle units on 
a per megawatt-hour (MWh) basis.'' \9\
---------------------------------------------------------------------------
    \9\ Owens, Brandon (July 2004). ``Does the PTC Work?'' PR&C 
Renewable Power Service, page 9.
---------------------------------------------------------------------------
    That study, published by PR&C Renewable Power Service, presents the 
following graphic of the relative tax value per Megawatt hour of 
different technologies: \10\
---------------------------------------------------------------------------
    \10\ Ibid, page 10. Figure and legend note are duplicated from the 
original work.
---------------------------------------------------------------------------
Assessing Positive Geothermal Externalities
    Another policy reason often given as a justification for support 
for geothermal and other renewable technologies is compensation for 
their values to the nation that are not reflected in the market price 
of electricity--or their ``externalities.'' Domestic energy production 
has obvious national security benefits, and electricity production has 
new relevance to national security since EIA and others are projecting 
significant and growing imports of natural gas. Obviously, reducing 
natural gas imports will have national security benefits, as well as 
benefits for our balance of trade. However, it is beyond GEA's 
capability to estimate a dollar value for these attributes. While gas-
fired power plants must keep buying imported gas long into the future, 
geothermal power plants do not buy fuel at all and have a captive 
source of domestic energy.
    A more measurable externality is the air emissions benefits of 
geothermal power. One way to approximate positive geothermal 
externalities is to examine the economic values received for these 
attributes in existing emissions trading systems. In assessing 
geothermal externalities through trading systems, we do not necessarily 
advocate the inclusion of renewables in trading schemes over other 
legislative policies nor speculate that the values here would be 
received in any particular plan. There are a range of challenges to 
analyzing such approaches that are beyond the scope of this statement. 
We also recognize that if renewables were to be included in emissions 
trading, prices would likely fluctuate, as markets would shift. In 
response to these uncertainties, we have opted to use somewhat 
conservative price per ton estimates, which we believe result in 
conservative assessments. We have extrapolated average price per ton 
values from the existing trading systems (NOx and 
SO2 systems in the U.S., CO2 systems in Europe) 
that currently exclude renewables.
    Here are the results. Using the mid range value of the reported 
price per ton estimate of each emission (NOx, 
SO2, and CO2), we obtained a rough sense of the 
positive externalities created by geothermal power production for each 
emission. Valuing NOx at $2250 per ton, and estimating that geothermal 
power production prevents emissions of 32 thousand tons of 
NOx per year, U.S. geothermal power production generates a 
value of $72 million a year ($2250 x 32,000). Valuing SO2 at 
$150 per ton, and estimating that geothermal power production prevents 
emissions of 78 thousand tons of SO2 per year, U.S. 
geothermal power production generates a value of $11.7 million a year. 
Valuing CO2 at $10 per ton, and estimating that geothermal power 
production prevents emissions of 16 million tons of CO2 per 
year, U.S. geothermal power production generates a value of $160 
million a year. The total equals $243.7 million in equivalent air 
emissions value.
    While this calculation is very rough, it does give an approximation 
of the externality value provided by geothermal power production. 
Assuming average annual geothermal power production of 15 billion kWhrs 
in the U.S., this equivalent air emissions total represents roughly 1.6 
cents/kWhr in value that is not marketable and not recognized in the 
market price of geothermal power.
Tax Policy Advantages of a Production Tax Credit
    The structure of the Production Tax Credit is unique, and when 
first enacted in 1992 it represented a radical change from the 
Investment Tax Credit. The move to a production tax credit makes sense 
from a number of policy perspectives.

      The Production Tax Credit works--the PTC has stimulated 
new investment in wind energy;
      The Production Tax Credit encourages cost reduction and 
efficiency by rewarding investors based upon project output instead of 
total expenses; and,
      The Production Tax Credit requires production for the 
full period of the credit to ensure that projects are legitimate power 
producers and not tax credit ``scams.''
Conclusion
    Congress' decision to expand the Production Tax Credit to include 
geothermal technology was an appropriate policy choice. To make this 
effective, we urge Congress to extend the credit three to five years. 
If any shorter period is enacted, we urge Congress to allow geothermal 
projects to qualify for the credit based upon binding contracts, not 
just the ``in-service'' date of the power plant. Further, we urge 
Congress to provide geothermal projects the same ten-year credit period 
as wind sources.
    These changes would make the PTC an effective and equitable 
stimulus for new investment in geothermal power and result is 
substantial economic, energy security, and environmental benefits.

                                 

          Statement of the Independent Wind Power Association
    The Mission of the Independent Wind Power Association (IWPA) is to 
enable small to mid-size wind energy companies to grow in order to meet 
the United State's future energy production needs. The IWPA seeks to 
define issues and support legislation that allows significant expansion 
of the opportunities and capital investment pool available for these 
companies.
    In considering whether to extend the Production Tax Credit 
(``PTC''), Congress should seize the opportunity to encourage more 
competition among participants in this emerging segment of the power 
industry. The PTC is a positive incentive that has stimulated the 
development of clean energy projects throughout the United States, yet 
the structure of the PTC can and should be perfected and improved to 
increase market efficiency.
    More competition can be achieved by allowing the PTC to be more 
equitably utilized by independent, smaller developers including 
ranchers, farmers, small businessmen and start-up renewable energy 
project entrepreneurs--in addition to the nation's largest power 
generators which under the current law benefit first from renewable 
PTCs.
     Such an amendment to Section 45 can be easily accomplished without 
incurring a negative fiscal impact to the Treasury. Furthermore, by 
encouraging more robust competition among renewable power facility 
operators, the Congress can quickly and substantially diversify the 
country's supply base thus increasing the number of taxable entities 
and hastening the marketability and cost-competitiveness of renewable 
electric power.
    The practical imbalance of the current PTC is a function of price 
and income. Though the price gap is narrowing, electricity generated 
from renewable sources is currently more costly than electricity 
generated from conventional power plants. Congress clearly intended for 
the PTC to stimulate the development of renewable projects in the face 
of this price differential.
     As we have seen in recent months, global energy prices have become 
increasingly volatile. Many economists predict crude prices could spike 
as high as $100 per barrel in the coming years. The negative impact of 
such a spike would be a significant blow to electric consumers and our 
economy as a whole. It is important that Congress act now to promote 
more electric generation in this country from sources other than fossil 
fuels to avoid the negative impacts resulting from price volatility and 
potential supply/capacity shortages. Wind power is one the cleanest and 
most abundant sources of energy making it an important part of any 
solution addressing America's energy needs.
    To take full advantage of the PTC, a taxpayer must first have 
sufficient offsetting taxable income. While large power producers enjoy 
multiple revenue streams generated from diversified business segments, 
ranchers, farmers, small businessmen and start-up renewable energy 
project developers tend to be focused on a single renewable power 
source and subsequently lack this offsetting income. As a result, these 
smaller entrepreneurs are typically forced to sell their projects, 
often in complex and costly transactions, to large financial 
institutions whose chief interest in renewable energy is acquiring the 
PTC to offset unrelated income.
    As a solution, the IWPA proposes a more fair and equitable 
structure of the PTC designed to allow competitive wind developers, who 
commonly lack substantial taxable income, to retain ownership of their 
projects by building the value of the PTC into the power purchase 
agreement with their energy buyer. IWPA's proposal allows the 
purchasers of renewable energy, who likewise have a direct interest in 
expanding the development of renewable energy, to acquire all or a 
portion of the PTC in connection with a long-term power purchase 
agreement. This proposal confines the benefit of the PTC exclusively to 
those investors taking the risks associated with bringing these clean 
sources of electricity to the market.
    The IWPA recommends the Congress consider legislation that would 
allow the PTC, in a one-time election, to be utilized by a qualified 
renewable-energy purchaser through a long-term power purchase 
agreement. The experience of the current PTC indicates this proposed 
modification will make the PTC more practical for the small businesses 
taking financial risks in developing clean energy. The proposal 
effectively allows the current PTC benefit to reside with the utilities 
(which it was originally intended to benefit) seeking to purchase clean 
energy and thus benefits the consumers who will see long-term benefits 
in price, security and reliability from the production of clean, 
domestic energy.
    The proposal simply creates more efficient use of the PTC without 
altering the definition of the current PTC. Furthermore, the IWPA 
believes the amendment will not increase the government's cost of the 
credit. The proposal will significantly improve the availability of 
private capital for new wind-power projects thus lower financing costs.
    Finally, the uncertainty associated with successive short-term 
extensions of the PTC in recent years has added to rising costs. The 
drive to complete construction within the one-year extension time 
frames has created strains on turbine supplies and construction 
contracting as project developers rush each year to develop projects 
before the PTC expires.
    A multi-year extension combined with the ability to join the PTC 
into a power purchase agreement as proposed herein will provide the 
industry better tax predictability and improved market stability. This 
more attractive incentive will create favorable private financing and 
is a significant step towards achieving Congress' initial goals in 
establishing the PTC to promote renewable energy development.

                                 

    Statement of David Koenig, American Forest and Paper Association
    The American Forest & Paper Association (AF&PA) is the national 
trade association for the forest products industry. We represent more 
than 200 companies and related associations that engage in or represent 
the manufacturers of pulp, paper, paperboard and wood products. 
America's forest and paper industry ranges from the state-of-the-art 
paper mills to small, family owned sawmills and some 10 million 
individual woodlot owners. The U.S. forest products industry is vital 
to the nation's economy. We employ approximately 1.3 million people and 
rank among the top ten manufacturing employers in 42 states with an 
estimated payroll of $50 billion. Sales of the paper and forest 
products industry top $230 billion annually in the U.S. and export 
markets. We are the world's largest producer of forest products.
    Today, the U.S. forest products industry is facing serious domestic 
and international challenges. Since 1997, 101 pulp and paper mills have 
closed in the U.S., resulting in a loss of 70,000 jobs, or 32% of our 
workforce. An additional 67,000 jobs have been lost in the wood 
products industry since 1997. New capacity growth is now taking place 
in other countries, where forestry, labor, and environmental practices 
may not be as responsible as those in the U.S.
    Energy is the third largest operating cost for the forest products 
industry. In the pulp, paper and paperboard sector of the industry, 
energy makes up 10-15 percent of the total operating costs. Since 1972, 
our industry has reduced its average total energy usage by 17 percent 
through increased efficiencies in the manufacturing and production 
process. In addition, we have reduced our fossil fuel and purchased 
energy consumption by 38 percent, and increased our energy self-
sufficiency by 46 percent.
    The American Jobs Creation Act (H.R. 4520) included a provision to 
expand the Section 45 tax credit to include open-loop biomass. For 
purposes of the credit, open-loop biomass is defined as any solid, non-
hazardous, cellulosic waste material which is segregated from other 
waste materials and which is derived from forest-related resources, 
solid wood waste materials, or agricultural sources. Eligible forest-
related resources are mill and harvesting residues, pre-commercial 
thinnings, slash, and brush. The 2005 credit for electricity produced 
from open-loop biomass facilities is 0.9 cents per kilowatt hour 
compared with 1.9 cents per kilowatt hour of electricity generated from 
closed-loop biomass facilities. To qualify for the credit for both open 
and closed-loop biomass, the facility must be placed in service prior 
to January 1, 2006.
    The forest products industry is the largest user of biomass for 
energy production, which is used largely to fuel our wood and paper 
manufacturing facilities. In addition to biomass like bark, sawdust, 
and other residues from the wood harvesting and product manufacturing 
processes, the industry uses biomass in the form of ``spent pulping 
liquors.'' Spent pulping liquors are created as a residual during the 
pulping process, and the wood residuals (mostly lignin) are burned in a 
process that separates and recovers the chemicals for reuse and 
captures the heat value from the lignin to create steam and 
electricity. In total, the forest products industry currently uses 
biomass to generate 60% of its power needs.  With continued research 
and development of new technologies, and expanded tax incentives, the 
potential exists to greatly increase our industry's capacity for energy 
production.
    Regarding Section 45, the placed in service date for facilities 
that produce electricity from open-loop biomass needs to be extended 
from January 1, 2006 to January 1, 2010. Such projects take several 
years to complete and the industry needs the certainty of knowing that 
the current tax credit will be available in the future to take the risk 
of making the investment. At the very minimum, Congress should extend 
the placed in service date to January 1, 2008 as the Administration 
proposed in its FY 2006 budget.
    Also, clarification is necessary to the Section 45 definition of 
open-loop biomass to ensure inclusion of the lignin content from spent 
pulping liquors used to produce electricity at new or expanded 
facilities. Wood is composed primarily of cellulose (wood fibers) held 
together by lignin. Wood bark is composed of hemicelluloses. Pulping 
chemicals are used to dissolve the wood used for making paper. The 
cellulose fibers become paper products, the pulping chemicals are 
recycled from recovery boilers for reuse in the pulping process, and 
the wood residues (mostly lignin) are used to generate heat for making 
steam and electricity.
    Finally, the current inflation adjusted tax credit of 0.9 cents per 
kilowatt hour needs to be increased to 1.5 cents per kilowatt hour to 
make the additional electricity produced competitive with other 
traditional forms of electric generation. The increased tax credit 
would provide a critical incentive for new investments in energy 
production facilities connected to current paper mill infrastructure, 
thus helping to improve the competitive position of the forest products 
industry.
    We appreciate the subcommittee's interest in our thoughts on the 
need to extend and modify the Open-Loop Biomass component of the 
Section 45 tax credit.

                                 

        Statement of Richard Kolodziej, American Biogas Alliance
    The American Biogas Alliance (Alliance) is an organization of 
companies and individuals dedicated to increasing the production of 
methane from renewable sources in the United States.
COMMENT SUMMARY
    Currently, the federal government provides tax credits for the 
production of electricity from waste or renewable sources for new 
projects. Landfill operators may receive 0.9 cents tax credit per 
kilowatt-hour for electricity produced from landfill gas at facilities 
placed in service during 2005. This is the equivalent of $2.64 per 
million btus of electricity (delivered energy). For electricity 
produced from animal and crop waste and municipal sewage, the tax 
credit is 1.8 cents per kilowatt-hour or $5.28 per million btus. For 
ethanol produced from crops or biomass, the credit is 52 cents per 
ethanol gallon or $6.87 per million BTUs.
    While the Alliance applauds Congress for providing these incentives 
and for encouraging the production of electricity from renewable 
sources, we believe that Congress can replicate the success of these 
incentives for electricity production by also providing an incentive 
for producing methane from these same renewable sources. Rather than 
having the federal government pick winners among the energy forms, the 
Alliance urges Congress to treat companies that own and operate 
facilities that produce methane (biogas) from landfills, animal and 
crop waste and municipal sewage the same as those companies that own 
and operate facilities that produce electricity from these sources. 
Specifically, Congress is urged to provide companies that produce 
methane from landfills, animal and crop waste and municipal sewage the 
same tax credit per million btus of methane produced (and either used 
by that organization or sold to a third party) as they would receive if 
they produce a million btus of electricity from these sources.
BACKGROUND
    Almost a quarter of America's primary energy consumption is natural 
gas, and natural gas is primarily composed of methane. Over 70 percent 
of new single-family homes have natural gas service and, for the past 
decade, more than 90 percent of new power plants have been natural gas 
fueled. The reasons for this growth are the inherent environmental, 
economic and form-value attributes of the fuel itself. Unfortunately, 
the popularity of natural gas is driving demand to levels that will 
exceed domestic and North American supply. As a result, the price for 
natural gas has increased significantly over the past few years, and 
there is renewed interest in building new liquefied natural gas (LNG) 
receiving terminals in the U.S. to capitalize on the growing world-wide 
trade in LNG. While LNG imports have benefits (especially if the gas 
were imported from non-OPEC countries), it would be even more 
beneficial if the U.S. took advantage of its undeveloped domestic 
methane sources. One of the most valuable is the production biogas from 
waste products.

      Biogas is a product of the decomposition of organic 
materials, such as animal or crop wastes. Biogas composition is 
typically about 60 percent methane and 30 percent carbon dioxide, with 
the remaining 10 percent dominated by nitrogen and water vapor. This 
gas is produced at landfills, sewage waste treatment plants, feedlots, 
and any other place where there is decaying organic material. The 
biogas resulting from these activities can be released to the 
atmosphere, collected and flared, or collected and used as a fuel. It 
also can be collected and concentrated to match the composition of 
natural gas, and used to supplement America's natural gas supplies. 
Unfortunately, atmospheric release and flaring are the most common 
methods of dealing with biogas today. A 1998 U.S. Department of Energy 
study \1\ estimated that, worldwide, between 25 and 37 quadrillion btus 
of methane each year is released into the atmosphere (beyond the 
methane currently captured) due to natural decomposition of organic 
material. This is equivalent to between 25 and 38 percent of all of the 
energy used in the U.S. each year. Much of the naturally occurring 
renewable methane is produced in small quantities from disparate 
sources (e.g., swamp gas), and, therefore, is difficult and expensive 
to capture. Fortunately, much of the biogas generated from human 
activity is produced in larger quantities in discrete locations, where 
it can be captured. In the U.S., the DOE study referenced above 
estimated that the potential biogas production from farm waste, 
landfills and municipal sewage alone is approximately 3.5 quadrillion 
btus of methane. Of that amount, the study estimated that it would be 
feasible to capture and use over a third of this methane (or about 1.25 
quadrillion btus). This is equivalent to:
---------------------------------------------------------------------------
    \1\ ``Biogas For Transportation Use: A 1998 Perspective,'' July 9, 
1998, QSS Group Inc.
---------------------------------------------------------------------------
      6 percent of all the natural gas used in the U.S., or
      175 percent of all the LNG currently being imported into 
the U.S., or
      The output of four new one billion cubic-foot-per-day LNG 
terminals

    Landfills: Landfills generate a substantial amount of methane 
through the anaerobic (oxygen-free) degradation process that occurs 
naturally within the landfills themselves. The methane can be a safety 
hazard if not ``drained'' properly. In November, the Bush 
Administration co-signed a ``Methane-to-Markets'' agreement with 12 
other countries, in part, to help developing countries implement 
landfill gas collection programs. Currently, the federal government 
offers incentives for new projects to convert landfill gas to 
electricity. As a result, according to the U.S. EPA, there are 380 such 
landfill gas electrification projects in place today. Unfortunately, 
not all landfills are located in areas where the economics of 
electricity production are sufficient to make landfill gas collection 
and processing financially feasible (e.g., inadequate electricity 
prices or access to the electricity grid), and, therefore, many U.S. 
landfills do not capture their methane. They simply ``flare'' the gas 
or allow the gas to vent into the atmosphere. The U.S. EPA estimates 
that there are 600-700 additional landfill gas-to-energy projects that 
could be constructed nationwide. An alternative to electrification is 
to clean and concentrate the gas into pipeline-quality methane, and (1) 
inject the gas into the local natural gas distribution system, (2) use 
the gas to fuel trash trucks and other local vehicles at (or very near) 
the landfill site or (3) transport the gas by truck to a location where 
the gas can be used to displace petroleum or other, more polluting 
fuels.
    Animal Waste: The processing of waste from domesticated animal 
operations (such as dairies, and pork and poultry production) is an 
expensive process that presents significant environmental challenges. 
With the proper financial encouragement, farmers and other operators of 
these animal facilities could install anaerobic digester systems to 
convert the waste to usable methane--with valuable, sanitary fertilizer 
as a byproduct. As with landfill gas, there currently is a federal 
incentive to convert animal waste to electricity, but no federal 
incentives to convert animal waste to methane. Companies that must cope 
with large quantities of animal waste can become significant producers 
of methane through the use of anaerobic digesters. For example, 
Smithfield Bioenergy today is producing biogas with a substantial 
methane component at a Smithfield Foods hog farm in Utah. That 
Smithfield facility shows that hog farms and similar operations can be 
a viable source of methane that can reduce our dependence on imports if 
the process can be made economically viable.
    Sewage: The amount of human sewage that must be processed continues 
to grow with the population. The economic costs are large, and the 
environmental costs are significant. As with animal waste, sewage can 
be converted to methane via anaerobic digesters. In Malmo, Sweden, for 
example, the city runs part of its fleet of transit buses on methane 
produced at its local sewage treatment plant. As with landfill gas and 
animal waste, there currently is a federal incentive to convert 
municipal sewage to electricity, but no federal incentives to convert 
municipal sewage to methane.
    Biomass: While not a major source of fugitive methane, recoverable 
biomass--including crop waste, plants (such as switch grass) grown 
especially for energy production and other organic matter--also can be 
used as a feedstock for the production of methane. Here, too, Congress 
has provided financial incentives for the conversion of biomass into 
some forms of energy. For example, federal tax credits are available to 
those who blend of ethanol with gasoline and to producers of biodiesel 
from virgin plant oils (e.g., soy beans) that is used to displace 
diesel fuel in vehicles.
    While producing and capturing methane from these sources is 
generally not economic given existing prices for competing fuels and 
the fact that many of the technologies for producing and capturing 
methane from these sources are new and just developing, with adequate 
federal incentives, projects to capture and use methane from these 
sources could become quite economically attractive. Currently, 
commercial technologies exist for the production of biogas from all 
these sources. However, since the demand for these technologies is 
limited, there is little mass production and economies of scale. Early 
projects stimulated by federal incentives would help demonstrate the 
technology, help reduce the cost of similar future commercial projects 
and increase competition for this equipment.
RECOMMENDATION
    The Alliance urges Congress to treat companies that own and operate 
new facilities that produce methane from landfill gas, animal and crop 
waste and municipal sewage the same as those companies that own and 
operate new facilities that produce electricity from these sources. 
Specifically, Congress is urged to provide companies that produce 
methane from landfill gas, animal and crop waste and municipal sewage 
the same tax credit per million btus of methane produced (and either 
used by that organization or sold to a third party) as they would have 
receive if they produce a million btus of electricity from these 
sources.
    History has shown that such incentives for the production of 
natural gas can be very effective. In 1979, Congress approved an 
incentive for the production of methane from coals seams and coalmines. 
For the first decade, investment and production grew slowly. Since 
then, however, the production of methane from these sources has 
mushroomed, so that, last year, nine percent of the natural gas used in 
the U.S. was produced from coal seams and coalmines.
    It is difficult to estimate prospectively the cost of the proposed 
biogas incentive. However, the Alliance would urge Congress to consider 
two points. First, from discussions with a number of project owners/
operators, it is believed that many of the renewables-to-electricity 
projects that would be constructed in the future (assuming that the 
existing Section 45 incentives for electricity production are extended) 
would instead become renewables-to-methane projects if methane 
production were provided the same incentive as electricity production. 
To the extent that producers choose the methane course, this expansion 
of Section 45 would offset itself. In other words, for those projects, 
the additional cost to the Treasury would be zero. Second, it is 
expected that it would take significant time to identify appropriate 
sites, negotiate contracts, and then build and install the methane 
producing technologies. The cost of those new facilities would run into 
the millions, a reality that ensures that new entrants into this method 
of methane production would be limited in number in the initial years, 
hopefully, increasing as the credit is shown to make methane production 
economically viable. The slow growth of coal seam methane production 
over the first decade of the incentive illustrates this point. As a 
result, the additional cost in the first several years of extending the 
incentive to methane production should be comparatively modest at first 
and climb only gradually in future years.
    Increasing the production of biogas from animal and crop waste, 
landfills and municipal sewage would help address several public policy 
problems simultaneously. It would increase the supply of domestically 
produced, non-fossil fuel energy while reducing the amount of 
greenhouse gas now emitted into the atmosphere. It would lead to the 
development and deployment of new technologies, and create jobs here at 
home as the industry grows. It would help dairy, hog and poultry 
farmers and their surrounding communities to successfully address the 
significant environmental challenges to waste disposal while providing 
them a valuable supplementary revenue source. And, for municipalities, 
it also would provide a valuable supplemental revenue source while 
reducing the amount of sewage that currently needs to be processed.
    The noted scientist and inventor R. Buckminster Fuller observed: 
``Pollution is nothing but the resources we are not harvesting. We 
allow them to disperse because we've been ignorant of their value.'' 
Encouraging the harvesting of methane from these renewable sources 
would be a win-win-win for America.

                                 

                                                US Geothermal, Inc.
                                                 Boise, Idaho 83706
                                                       May 24, 2005

Dear Members of the Subcommittee:

    My name is Daniel Kunz and I am President of US Geothermal, Inc. My 
colleague's name is Douglas Glaspey who is the Chief Operating Officer 
of our company. We have lived in Boise, Idaho for over 25 years and 
have worked in the natural resource development and energy industries. 
US Geothermal, Inc. was formed nearly 4 years ago to develop the Raft 
River geothermal site in southeastern Idaho.
    US Geothermal, Inc. is developing the Raft River geothermal 
resource to initially produce 10 megawatts of clean, reliable and 
renewable geothermal electricity under a 20-year contract with Idaho 
Power Company. The power will be delivered to Idaho Power's energy 
consumers from our site in the southeastern part of the state, half way 
between the capital city of Boise and Salt Lake City, Utah on 
Interstate highway I-84. We believe there are 10 to 20 times this 
amount of energy available at Raft River, or another 100 to 200 
megawatts of geothermal energy, that can be developed. In fact, two 
months ago we signed two new 10 megawatt, 20-year power sales 
agreements with Idaho Power Company. This means that we now have 30 
megawatts under contract. However, despite having these 20-year fixed 
price contracts it is probable that the other 100 to 200-plus megawatts 
will remain untapped in this reservoir if the geothermal production tax 
credit (PTC) is not extended in a viable manner. Idaho has additional 
geothermal sites that we will seek to develop if the PTC is extended in 
a viable manner.
    Geothermal power plants produce what is called base load power: 
consistent energy production, 24 hours a day, seven days a week. In 
addition, a well-managed geothermal reservoir is a sustainable resource 
as evidenced by many geothermal power projects in California and 
Nevada. Geothermal plants enjoy the highest capacity and availability 
factors of any power plant or project. Once the capital costs have been 
paid for, these plants are very low cost to operate and have very 
little ``down time'' because there is no combustion that requires 
significant maintenance in other plants like coal, nuclear and gas. Our 
problem is primarily the high up-front capital costs of developing a 
resource and building a geothermal plant. Our costs are more than four 
times per megawatt higher than comparable natural gas-fired power 
plants. In addition, we typically sign long-term (20- to 30-year) 
fixed-price contracts, while coal- and natural gas-fired plants 
typically enter into shorter contracts--and usually with fuel 
adjustment clauses to hedge against fuel price volatility. Geothermal 
energy thus bears the dual financial burdens of higher initial capital 
costs combined with greater price risks going forward--a combination 
that makes it difficult to attract investment dollars. The benefits of 
the power source often go unnoticed and unaccounted for. For example, 
geothermal power has a high capacity factor that allows the customers 
to rely on this source over very long periods of time. These plants 
have no market fuel costs and are not subject to market related price 
adjustments. The fuel source is secure, located in the United States: 
no worry about the foreign energy sources.
    We need a stable production tax credit program with a term of 3 to 
5 years so that the capital allocation people can plan and rely on the 
credit in order to invest in geothermal power development.
    The first issue we ask you to address is the eligibility period. 
For geothermal projects, the placed-in-service date should be extended 
for an appropriate term to make the production tax credit viable. We 
believe three years is the minimum needed to benefit most geothermal 
developers, who, like us, must deal with multi-year lead time 
challenges of planning, permitting, and construction. Five years would 
be better. We propose that you extend the Section 45 placed-in-service 
date for at least three to five years.
    The second issue is the duration of the production tax credit. We 
believe geothermal projects should receive the same term provided for 
wind generation--ten years--as opposed to the current five years for 
geothermal. Making the duration of the credit match the ten years 
afforded other renewables such as wind will result in better long-term 
planning and significant additional geothermal development. If Congress 
extends the production tax credit for geothermal energy in this manner 
then the development program at Raft River can proceed toward building 
the ultimate capacity that we believe is between 100 and 200 Megawatts.
    While we are the ``little guys'' in geothermal development, we have 
a great opportunity to grow and develop new geothermal sites in Idaho 
and elsewhere in the west, adding good paying jobs to mainly rural 
areas, providing tax revenues to those same rural areas, providing a 
``flywheel'' effect from our jobs and tax payments that helps local 
businesses and suppliers, and developing new technological advances in 
this clean form of power development. For example, we have been awarded 
a grant from the U.S. Department of Energy to be applied to the use of 
a potentially higher efficiency power cycle using ammonia absorption. 
This is an additional risk that may be difficult to finance without the 
PTC. However, if successful, the ammonia absorption power cycle could 
open doors for geothermal electric power development at resource sites 
that today may not be economically viable.
    We appreciate the opportunity to ``be heard''. We are thankful for 
the hard work that the committee does in support of energy development 
and independence. We respectfully request that you support the 
extension and improvements in the PTC as outline herein.
            Sincerely,
                                                        Daniel Kunz
                                                          President

                                                    Douglas Glaspey
                                            Chief Operating Officer

                                 

                                    Public Service of New Hampshire
                                    Manchester, New Hampshire 03101
                                                       May 26, 2005

Dear Chairman Camp:

    On behalf of Public Service of New Hampshire (PSNH), a subsidiary 
of Northeast Utilities (NU), I am pleased to submit comments to the 
Subcommittee on Select Revenue Measures of the House Ways and Means 
Committee concerning renewable energy production tax credits.
    PSNH, the largest electric utility in the State of New Hampshire, 
operates three fossil electric generating facilities and nine hydro-
electric generating plants in the state. Both PSNH and New Hampshire 
understands and has prioritized the value of fuel diversity; and 
continues to look for ways to meet today's and tomorrow's energy 
challenges, while being environmentally responsible.
    PSNH has first hand knowledge of the benefits and challenges of 
embarking on a renewable biomass project. The Northern Wood Power 
Project (NWPP), located in Portsmouth, is our renewable energy 
initiative in which we will be replacing an existing coal-fired boiler 
with a state-of-the-art boiler designed to burn biomass. Biomass, or 
clean wood, is a resource abundant in the New England region. Because 
of its innovative approach, this project has enjoyed broad support, but 
has not been without its challenges. Biomass projects are often smaller 
in scale and therefore borderline in their financial viability. Federal 
support, by way of the renewable production tax credit, can be the 
critical piece which allows these important projects to move forward.
    Supporting the application of the renewable energy production tax 
credit for open loop biomass expands the fuel diversity of America's 
energy supply and lowers dependence on foreign oil and gas supply. 
Encouraging the use of biomass as a fuel to generate electricity 
expands the fuel diversity while providing low-emissions generation 
options.
    Biomass as a renewable, using biomass as a fuel, is uniquely 
important in supporting sustainable forest management practices and 
selective forest clearing--an important wildfire prevention treatment. 
Biomass power also generates jobs in rural economies and injects 
sizable revenue into the regional economy. When completed, PSNH's NWPP 
is estimated to add approximately $20 million annually into the New 
Hampshire economy.
    For these reasons, PSNH urges the Subcommittee to treat biomass no 
differently than other forms of renewable energy. Extending the time 
frame for the ``placed in-service date for qualifying facilities'' 
provision under the renewable energy production tax credits for units 
placed in service through 2006 would encourage the environmentally 
cleanest use of biomass for electricity generation. The newer, state-
of-the-art boiler design we plan to use at the NWPP is a great benefit 
to the environment since air emissions are significantly reduced. 
Extending the in-service date would provide an important boost in 
encouraging industry to participate in the renewables program since it 
takes many years to plan, site and develop these projects.
    PSNH appreciates the opportunity to offer comments on the Renewable 
Production Tax Credits hearing of the Subcommittee on Select Revenue 
Measures. Please contact Mr. Todd W. Lavin, Executive Director of 
Governmental Affairs for Northeast Utilities at (202) 508-0901 should 
you require further information on this topic.
            Sincerely,
                                                       Gary A. Long
                              President and Chief Operating Officer

                                 

    Statement of Market Street Energy Company, Saint Paul, Minnesota
    Mr. Chairman and Members of the Subcommittee, Market Street Energy 
Company appreciates this opportunity to submit a statement for the 
record for the Subcommittee's hearing on Federal tax credits for 
electricity production from renewable resources.
Market Street Energy Company

    Market Street Energy Company is an experienced leader in energy 
conservation and the conception, design, operation and management of 
renewable energy systems. The company is a for-profit affiliate of 
District Energy St. Paul, a non-profit heating utility, and District 
Cooling St. Paul, a non-profit cooling utility, in St. Paul, Minnesota. 
Market Street Energy's mission is to deliver quality, cost-effective 
energy projects and services that benefit communities, investors, 
clients and the environment. The company is committed to expanding the 
presence of renewable energy systems that achieve outstanding energy 
efficiencies and improve the environment throughout the United States.
Deep water air conditioning

    Deep water air conditioning offsets the demand for electricity by 
using a renewable energy source to provide reliable, environmentally 
friendly, low-cost air conditioning. Cool water from a deep lake or 
ocean is pumped through a pipeline to a cooling system on the shore. 
The intake pipe is placed at a depth where the water temperature is 39-
46 F. A cooling station transfers the water's chill to water 
circulating in a closed loop pipeline system (district cooling system) 
that provides air conditioning service to consumers. The water is 
returned at a depth where the water in the lake or sea has a similar 
temperature as the returned water.
    Recent deep water projects include a system using cold water from 
Cayuga Lake to cool campus buildings at Cornell University, another 
using water from LakeOntario to cool buildings in downtown Toronto, and 
another using water from the Baltic Sea to cool buildings in downtown 
Stockholm. We are currently developing projects in Hawaii.
The benefits

    Deep water air conditioning offers many advantages over 
conventional methods to provide air conditioning.
    Uses a renewable, energy source--cold, deep water.
    Significantly reduces electrical usage--each ton of deep water air 
conditioning saves about 0.7 kW of electric capacity.
    Reduces reliance on fossil fuels.
    Reduces emissions from power plants--r educed use of fossil fuels 
provides for significant reductions in greenhouse gas emissions as well 
as CO, NOx, SO2 and particulate emissions.
    Eliminates need for chillers and cooling towers--eliminating the 
use of cooling towers reduces potable water consumption, toxic chemical 
use, and the production of sewage.
    Eliminates use of ozone-depleting and greenhouse gas refrigerants.
Current law

    While the Internal Revenue Code (sec. 45) provides a tax credit for 
the domestic production of electricity from renewable resources, there 
are no tax incentives for the use of renewable resource technology that 
replaces the consumption of electricity, even though the environmental 
advantages are the same. Sec. 48 provides an investment tax credit for 
any property that uses solar energy or geothermal deposits for heating 
or cooling, but does not apply to the use of deep water. Private 
activity bonds (sec. 141) can be issued to finance local district 
heating or cooling projects, including deep water air conditioning 
projects, subject to the volume cap in sec. 146.
Need for change

    The Congress has recognized the importance of tax incentives in 
developing and accelerating the use of similar renewable energy 
technologies. Deep water air conditioning projects provide the same 
benefits as technology that qualifies for the sec. 45 credit for 
electricity production from renewable resources and technology that 
qualifies for the sec. 48 energy investment credit. The startup cost 
for these projects is considerable. A lake source cooling project to 
cool the central campus of Cornell University had a $60 million price 
tag. A proposal to cool a significant portion of downtown Honolulu will 
cost about $120 million.
Proposed change

    In order to encourage the substantial up-front investment required 
for deep water air conditioning projects, Congress should:

         Extend the sec. 45 credit for production from renewable 
resources to deep water air conditioning projects,
         Extend the sec. 48 energy investment credit to deep water 
projects, or
         Allow the issuance of private activity bonds for such projects 
outside the volume cap.

                                 

 Statement of Richard A. Meyer, Ocean Energy Council, Inc., Royal Palm 
                             Beach, Florida
    Mr. Chairman and members of the Subcommittee, I welcome the 
opportunity to add my Submission for the Record regarding including 
OCEAN ENERGY as a significant renewable energy source worthy of 
becoming eligible for the Section 45 production tax credit (PTC).
    The Ocean Energy Council has over 80 members including 
representatives of federal, state and local government, private 
industry, research facilities, the offshore (oil) industry, power 
generating firms, and others. There has been an abundance of testimony 
by various witnesses to your Committee on the importance of adding to 
and extending PTCs to encourage expansion of development of renewable 
sources of energy.
    Ocean energy encompasses various technologies including harnessing 
the energy in the oceans from wave, thermal differences (OTEC), 
offshore wind, tidal, current, biomass and salinity gradients. Each has 
its champions, and all have been demonstrated not only in research 
laboratories worldwide, but in recent years with demonstration 
facilities in the ocean.
    The keynote speaker at the April, 2005 EnergyOcean2005 Conference, 
held in Washington, was Spencer Abrahim, Secretary of Energy in 
President Bush's Cabinet until he left the administration in February. 
He referenced the powerful and positive report on ocean energy that the 
Edison Power Research Institute / EPRI, an independent energy research 
organization, had just released in February, saying it would be a great 
asset towards influencing Congress, the offshore industry, power 
producers and investors.
    He said: ``The ocean energy industry has matured over the past few 
decades, and the technologies are becoming commercially viable at a 
time when our nation seeks greater energy independence. The time is 
right.''
    I want to make 3 points regarding ocean energy:
1. Ocean Emergy outranks nuclear, oil, coal, and natural gas in net 
        energy analysis.
    Ocean Energy outranks these energy sources economically. When 
producing electrical power, an associated amount of energy is expended. 
The costs of finding, extracting, processing, transporting, and 
delivering energy too often goes unconsidered. Ocean energy is not the 
most economical: hydroelectric and geothermal rank higher. But these 
energy sources are found in only a limiting small number of locations. 
Ocean energy is widely available.
    Three major studies of net energy analysis have been done, by the 
University of Massachusetts, Stanford University and the Oregon Office 
of Energy Research.
2. Ocean Energy has far wider potential for adding to the energy 
        picture than other renewables including wind, biomass, 
        geothermal and direct solar.
    Renewable ocean energy has vast potential because the sun's heat 
warms the entire planet, but unlike land surfaces where it is 
dissipated, this heat is
    stored in the oceans, where it is waiting to be utilized. The 
oceans cover over 70% of the earth's surface. The oceans are, 
indisputably, the earth's largest solar collector. And while all this 
energy takes up residence in the world's oceans, it is constantly 
renewed and replenished. Throughout most of the world, it is available
24/7--unlike most other solar and renewable technologies. It is truly 
``The 24/7 Energy''.
    3. The U.S. is far behind Europe, China, Japan and Austrailia in 
developing renewable energy.
    Offshore wind farms have been operating for several years in 
Denmark, Sweden, and the U.K. Two wave energy facilities have been 
connected to local grids off Scotland and England. France and Canada 
have had tidal generating installations providing power for decades. 
Portugal, just last month, contracted for a wavefarm off its shores. 
Australia has initiated two wave generating plants, and China has just 
authorized an offshore wind farm. OTEC plants are planned for the 
Mariana island of Saipan and in Tamil province in India.
    I will be happy to provide further references regarding any of the 
above statements upon request at 561.795.0320 or 
[email protected].
    We ask that you include ocean energy in the renewable sources of 
electrical energy production eligible for Production Tax Credits. Thank 
you.

                                 

Statement of Honorable Earl Pomeroy, a Representative in Congress from 
                       the State of North Dakota
    I first want to commend the Chairman and Ranking Member for holding 
this hearing on the important subject of providing incentives to the 
renewable energy industry in our country. I would like to bring the 
subcommittee's attention to two significant issues with regard to the 
production tax credit.
    1) Extend the production tax credit for wind energy development for 
a minimum of five years. There are currently some 6,700 MW of installed 
wind generation in this country. That number is expected to climb to 
nearly 9,000 MW by the end of the year. Without an extension of this 
tax credit, growth in the wind energy industry would virtually grind to 
a halt.
    In North Dakota, about 60MW of wind energy has been installed that 
is owned and operated by FPL Energy. FPL is the owner and operator of 
these facilities. The incentive provided to FPL through the production 
tax credit (PTC) allows the company to sell wind generated electricity 
in our market at a competitive price. That price has been attractive 
enough for FPL to secure purchased power agreements from Basin Electric 
Power Cooperative, Bismarck, (for 40 MW) and Otter Tail Power 
Company,Fergus Falls,Minn. (for about 20 MW). Without this production 
tax credit, the price of wind generation would not be competitive in a 
state like ours where generation costs are extremely low compared to 
national averages.
    Another reason the PTC needs to be extended is to encourage 
suppliers to gear up for this market. Already, utilities in my state 
that are interested in developing more wind energy tell me that 
equipment costs for wind generation have risen 20 to 25% in the past 
year. That's because not enough companies are gearing up to supply 
equipment to the industry. Congress needs to provide certainty to this 
market and the manufacturers who supply equipment to it. The stop and 
start nature of the production tax credit must end; we must provide 
long term certainty for a robust market to develop.
    2) Provide a comparable incentive for nonprofit and municipal 
utilities: The PTC is essentially not available to about 25% of the 
electricity market supplied by nonprofit cooperatives and municipal 
electric utilities. That's because these entities are generally not 
subject to federal income tax. I encourage this committee to support a 
comparable incentive for nonprofit and municipal utilities that wish to 
own and operate wind generation facilities. I support a proposal for 
Clean Energy Bonds, which could provide electric cooperatives and 
municipal utilities with an incentive comparable to the production tax 
credit. Clean Energy Bonds are based upon a ``tax credit bond'' that 
currently exists in the tax code for school construction under the 
qualified zone academy bond (QZAB) program. This program would allow 
the U.S. Treasury to provide the holder of such bonds a tax credit to 
be applied against federal income tax liability in lieu of interest 
payments from the issuer of the bond. Essentially, a clean energy bond 
would provide cooperatives and public power systems with interest-free 
loans for financing qualified renewable energy projects.

                                 

                                       Technology Transfer Partners
                                                  Chicago, Illinois
                                                  No Date Available
Honorable Committee Members:

    I offer the following observations upon use of tax credits to help 
promote electricity from renewable resources. These comments are based 
upon 25 years experience worldwide literally in all facets of the 
energy industry. First if one looks at economic development trends 
worldwide, and then plots GDP growth against any rational energy 
equivalent factor in BTU's (natgas/oil) or in MWH (electricity 
generally), what becomes apparent is that worldwide, energy supply will 
potentially begin to lag energy demand over the next decade.
    For that reason as the World Energy Congress concluded in Sydney, 
Australia in September 2004 that ``no energy source should be taken off 
of the table.''
    With that thought in mind Congress has developed and attempts to 
encourage alternative energy supply development under the rubric of 
``renewable energy''. In light of the World Energy Congress conclusion 
above, ``renewable energy'' really has no absolute definition or 
application, but ultimately functions as a flexible working definition 
to include any alternative source of energy whose use may be stimulated 
by reasonable incentives.
    One category of energy supply readily available but often 
overlooked is waste heat or waste energy off of existing electrical or 
industrial applications. Congress may want to stimulate both industry 
and creative minds to capture and employ this currently available-but 
untapped--energy source. There are technologies already developed that 
may be employed for this task; traditional cogeneration, the new 
expansion gas motor technology, and other rankine cycle technologies.
    I would encourage this legislative Committee to give serious 
consideration to shaping its legislation in part to capture this 
readily available energy supply. Specifically I suggest that tax credit 
coverage be broadened to include particular types of equipment that 
capture waste heat or energy. Alternatively the Committee may consider 
creating an entirely new fiscal measure to further encourage productive 
use of waste heat/waste energy. Thank you for your time.
            Sincerely,
                                                    David Rosenberg

                                 

                                                      Verdant Power
                                          Arlington, Virginia 22207
                                                       June 6, 2005

    Thank you for allowing us to comment on this critical issue of 
paramount importance to the emerging ocean renewable energy industry. 
As you know the Production Tax Credit (PTC) has been and continues to 
be a tremendous impetus to the successful development and maturation of 
the wind industry. One of the values of the credit is that it 
recognizes actual electricity production, not mere promises. All of the 
business and market risks of the technology development and 
implementation remain the obligation of the private sector.
    We as a country need to extend the same principles to the emerging 
ocean energy industry in order to provide needed critical support to 
the development and growth of a domestic industry. Currently much of 
the governmental support for research and development of this 
technology is based in the European Union, which provides significant 
financial, technical, and regulatory assistance to its budding marine 
energy industry. Great strides are being accomplished as a result, with 
a danger that the irrevocable dominance of this industry will 
permanently reside outside of the United States.
    The domestic industry is real. Our own company has been actively 
developing a 200kW showcase demonstration project in the East River in 
New York City, to be followed by a build out of a larger field of up to 
5-10 MW. This facility would place New York City as one of the largest 
urban renewable energy producers in the world. This particular effort 
has been followed by the filing by other developers of preliminary 
permits with the Federal Energy Regulatory Commission for more than a 
dozen similar ocean energy projects.
    In conclusion, we appreciate the advantages that the PTC has 
provided the wind industry and its development. It has helped put the 
wind industry on a path toward self sustainability. Might the same be 
done for an emerging industry--ocean energy? The PTC would go a long 
way toward accelerating the development of a new industry, which the 
United States could dominate.
            Sincerely yours,
                                                    Ronald F. Smith
                                                           Chairman

                                 

                      Statement of Mark R. Stover
    Hydropower is one of the nation's most valuable energy resources. 
It is low-cost, clean, domestic, renewable and emits no air pollution. 
Hydropower also provides vast recreational opportunities, improves 
electric grid reliability and significantly reduces the amount of 
carbon emissions from the United States.
    In fact, NHA estimates that U.S. hydropower generation avoids 130 
million metric tons of carbon each year. Put another way, the carbon 
emissions avoided by U.S. hydropower generation is equivalent to 
removing approximately 40 percent of the vehicles from U.S. roadways. 
Truly a unique electricity source, hydropower provides numerous 
benefits every day to millions of Americans.
    Despite its many benefits, data from both the Energy Information 
Administration and the Department of Energy confirms that the nation's 
hydropower resources are greatly underutilized. Hydropower has 
significant growth potential. Considering the nation's growing need for 
clean and domestic energy, the time has come for Congress to ensure 
that this potential is developed.
    Less than three percent of the nation's 75,000 dams produce 
electricity. The Department of Energy estimates that as much as 21,000 
megawatts of hydropower capacity sits unused at existing hydropower 
facilities and non-hydropower dams--this is capacity that could be 
developed without building new dams or impoundments. This is enough 
power for eight cities the size of Seattle or for the entire state of 
Virginia. It is enough yearly power for 7.8 million homes.\1\ 
Developing this unused capacity would also result in the avoidance of 
42 million metric tons of carbon emissions each year.
---------------------------------------------------------------------------
    \1\ Using a 45% capacity factor and an EIA figure stating that the 
average U.S. home consumes 10,524 KwH of electricity per year.
---------------------------------------------------------------------------
    Of the 21,000 MW identified by DOE, 4,300 MW of new hydropower 
generation could be achieved by simply further developing our nation's 
existing hydropower infrastructure through efficiency improvements and 
capacity additions. This is known as incremental hydropower. There is 
enough incremental hydropower to meet the electricity needs of the 
states of New Hampshire and Vermont. Put another way, it is enough 
yearly power for 1.6 million homes.
    In addition to the conventional hydropower technologies mentioned 
above, DOE estimates that a wealth of potential exists for micro, low-
head, kinetic and low-power hydropower development. In fact, DOE 
believes that the hydropower industry could double its present 
contribution to the nation's electricity supply if these emerging, 
cutting-edge, non-conventional technologies are fully deployed.
    Unfortunately, almost none of the nation's potential hydropower 
capacity is being developed. Bringing new hydro generation on-line is 
capital intensive, and the costs are increasing. In addition, 
hydropower faces costly regulatory hurdles of new development not faced 
by other resources. While the costs clearly vary from project to 
project, new hydro generation--depending on the type of upgrade--runs 
from $650 to more than $2,500 per kilowatt (Kw), sometimes much more.
    Hydropower's development costs are very similar to the development 
costs of the resources that are presently included in the Section 45 
production tax credit (PTC). In short, hydropower faces similar 
obstacles in today's energy markets as other renewable energy sources 
and deserves similar policies designed to encourage the development of 
renewable energy, such as the Section 45 PTC.
    In its December 2004 Report, the bipartisan National Commission on 
Energy Policy recommended that Congress expand the renewable energy 
production tax credit to include ``new hydropower generation.'' During 
the 107th and 108th Congresses, members in both the Senate and the 
House, on both sides of the aisle, introduced 15 bills that recognized 
the hurdles to new hydropower development by providing incentives--none 
of which were adopted. The Energy Policy Act of 2005, which was 
recently adopted by the House, authorizes appropriated payment 
incentives, but the Section 45 PTC is without question the best 
mechanism to ensure that new hydropower generation will come on-line in 
the near future.
    Incentives work. One need only look at the recent growth of the 
wind energy industry, as well as some of the other renewable energy 
industries. Or, look at the last time there was any significant growth 
in the hydropower industry--the 1980s when Congress last provided 
incentives for hydropower development. Those incentives resulted in 
approximately 10,000 MW of clean energy being placed on the electricity 
grid. Since then, development has been stagnant at best. It's time for 
Congress to provide hydropower incentives again.
    Without incentives, the wealth of valuable hydropower potential 
will continue to sit unused at a time when it is most needed. NHA urges 
Congress to include a strong role for hydropower in its renewable 
energy tax incentive package. Specifically, the National Hydropower 
Association calls on Congress to amend the Section 45 PTC to include as 
``qualified energy resources:''

    1. incremental hydropower;
    2. qualified hydroelectric facility; and
    3. kinetic hydropower.

    As stated above, ``incremental hydropower'' is additional electric 
generation achieved from increased efficiency or additions of capacity 
at an existing hydropower facility. A ``qualified hydroelectric 
facility'' is a FERC-licensed minor diversion structure less than 20 
feet in height or an existing non-hydro dam to which turbines or other 
generating devices are added to produce energy. ``Kinetic hydropower'' 
is any technology that uses water to generate electricity but does not 
require the use of a dam or impoundment.
    Hydropower enjoys strong public support. It's time for policies in 
Congress to better reflect this support. A 2002 poll showed that 93 
percent of America's registered voters believe that hydropower should 
play ``an important role'' in our energy future.\2\ Of those voters, 75 
percent support incentives from the federal government to develop more 
renewable power in the United States and favor incentives for new 
hydropower capacity at existing hydropower projects. Put another way, 
they support increasing the efficiency and generating capacity of 
existing hydro projects (incremental hydropower).
---------------------------------------------------------------------------
    \2\ Public Opinion Surveys with Registered Voters, January 2002; 
Bisconti Research, Inc. (BRi). Error of +/--3 percent.
---------------------------------------------------------------------------
    Of the registered voters who support incentives from the federal 
government to develop more renewable power in the United States, 74 
percent favor incentives for new hydropower capacity at existing non-
hydro dams (qualified hydropower). Put another way, they support 
retrofitting non-hydro dams with power generating equipment.
    Hydropower, to quote FERC Chairman Pat Wood, III, has long been ``a 
backbone of the nation's energy infrastructure.'' Considering the 
nation's growing interest in fully developing its clean, domestic 
energy supplies, the public's support for hydro, as well as the growing 
bipartisan support for maximizing the power output of the nation's 
existing hydropower and dam infrastructure, it's time for Congress to 
bolster the nation's hydropower resources. The best way to do that is 
to include a strong role for hydropower in the Section 45 PTC. In 
addition to clean energy, development of new hydropower will lead to 
jobs, investment in the economy, fees to the government for the use of 
federal non-hydro dams, general hydropower fees and a new source of tax 
revenue once the tax credit expires.
    This year marks the 125th anniversary of hydropower usage in the 
United States. Including hydropower in the Section 45 PTC is the right 
way to celebrate this milestone. Hydropower has long played an 
important role in the nation's energy portfolio and energy strategy, 
but it stands ready to play an even greater role in the future with the 
proper incentives from Congress. With proper incentives, such as the 
Section 45 production tax credit, Congress can ensure that the nation's 
hydropower resources and its many power, environmental and societal 
benefits are fully deployed and available to future generations of 
Americans.

                                 

        Statement of Pat Wolff, American Farm Bureau Federation
    The American Farm Bureau Federation stands in strong support of the 
multi-year extension of tax credits for renewable fuels. We thank the 
committee for the opportunity for Farm Bureau to provide its comments 
for the record of the May 24 hearing on tax credits for electicity 
production from renewable sources.
    The Renewable Electricity Production Tax Credit (REPTC) is a small 
but important piece of a renewable energy strategy for the United 
States. The tax credit provides incentives for the development and 
expansion of a reliable source of ``home grown'' fuel that will help to 
ensure adequate supplies, stabilize energy costs and reduce dependence 
on traditional energy resources. Wind power capacity in the United 
States has quadrupled since 1990 and currently provides enough energy 
to support the electrical needs of 1.5-1.9 million households. Biomass 
conversion is already one of the most widely used renewable 
technologies, accounting for 12 percent of renewable energy supplies.
    The tax credit also promises to provide a steady source of income 
to our nation's farmers and ranchers. As one of the largest holders of 
private land, the agricultural sector is the most logical provider of 
the resources needed for the continued growth of the wind power 
industry. Producers stand to benefit from lease payments provided by 
wind energy developers using land for placement of wind turbines.
    Income realized from wind energy projects is usually very stable, 
increasing revenue security for farmers. In addition, many leasing/
royalty contracts contain a provision for a minimum payment per 
turbine, providing reassurance during low-wind periods. Farmers and 
ranchers can harvest the air around them while they grow crops and 
graze livestock. Wind turbines have a small ``footprint'' and provide 
little obstruction, with the largest models utilizing only one-quarter 
acre, including access roads. Furthermore, the turbines can be placed 
on CRP land with USDA's approval.
    Information collected from the Department of Energy (DOE), the 
Government Accounting Office (GAO) and the USDA outlines the current 
and potential benefits to the agricultural industry. While there are 
several types, a typical leasing agreement provides $2,000 per year for 
a 750-kilowatt wind turbine, roughly two to three percent of a wind 
project's gross revenue. A 250-acre farm could increase annual income 
up to $14,000 per year, given the common turbine spacing requirements. 
With DOE's goal of producing five percent of the nation's electricity 
through wind energy by 2020, farmers and rural landowners could see 
$1.2 billion in additional income from wind energy over the next 15 
years.
    Extension of the tax credit for electricity produced from biomass 
fuels will boost demand for the crop residues and the bioenergy crops 
needed to fuel biomass conversion. An extension of the credit could be 
expected to generate demand for as much as 40 million acres of land for 
bioenergy crops. Bioenergy crops could become the fourth most important 
crop market from an acreage standpoint after wheat, corn and soybeans.
    USDA and DOE's assessment of the potential pay-off from expanded 
production of biomass indicates that an expanding conversion industry 
would generate higher commodity prices. USDA's feasibility studies 
suggest crop prices would be up to 14 percent higher with bioenergy 
crops using 40 million acres of production. This would boost farm 
incomes $3 billion to $6 billion due to higher receipts for existing 
crops and receipts from bioenergy crops. As a result of improved crop 
prices, there would be a reduction in farm program costs of $2 to $3 
billion with lower commodity payments due to higher prices and 
conservation costs reduced by allowing CRP contract holders to grow 
bioenergy crops on reserve acreage in return for a lower rental 
payment.
    The REPTC is set to expire at the end of this year. A long-term 
extension of the credit will speed up adoption of renewable 
technologies and support development of the market infrastructure 
necessary to make these technologies more competitive. Furthermore, a 
multi-year extension of the REPTC will ensure the stability of the tax 
credit, attracting the capital necessary to realize the benefits of 
long-term planning.
    Farm Bureau urges Congress to act quickly to pass a multiple-year 
extension of the Renewable Electricity Production Tax Credit.

                                 
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