[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]





                     SUBCOMMITTEE HEARING ON SMALL
                     BUSINESS RENEWABLE ENERGY TAX
                        INCENTIVE POSSIBILITIES

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

                     SUBCOMMITTEE ON CONTRACTING & 

                               TECHNOLOGY

                      COMMITTEE ON SMALL BUSINESS

                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 26, 2007

                               __________

                          Serial Number 110-47

                               __________

         Printed for the use of the Committee on Small Business


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


WILLIAM JEFFERSON, Louisiana         STEVE CHABOT, Ohio, Ranking Member
HEATH SHULER, North Carolina         ROSCOE BARTLETT, Maryland
CHARLIE GONZALEZ, Texas              SAM GRAVES, Missouri
RICK LARSEN, Washington              TODD AKIN, Missouri
RAUL GRIJALVA, Arizona               BILL SHUSTER, Pennsylvania
MICHAEL MICHAUD, Maine               MARILYN MUSGRAVE, Colorado
MELISSA BEAN, Illinois               STEVE KING, Iowa
HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia
GWEN MOORE, Wisconsin                LOUIE GOHMERT, Texas
JASON ALTMIRE, Pennsylvania          DEAN HELLER, Nevada
BRUCE BRALEY, Iowa                   DAVID DAVIS, Tennessee
YVETTE CLARKE, New York              MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana              VERN BUCHANAN, Florida
HANK JOHNSON, Georgia                JIM JORDAN, Ohio
JOE SESTAK, Pennsylvania

                  Michael Day, Majority Staff Director
                 Adam Minehardt, Deputy Staff Director
                      Tim Slattery, Chief Counsel
               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                SUBCOMMITTEE ON CONTRACTING & TECHNOLOGY

                      BRUCE BRALEY, IOWA, Chairman


HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                     MARY FALLIN, Oklahoma


                                  (ii)






















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Braley, Hon. Bruce...............................................     1
Davis, Hon. David................................................     2

                               WITNESSES

Kelly, Quentin T., WorldWater & Solar Technologies Corp..........     4
Breitbach, Craig, Western Dubuque Biodiesel......................     6
Woolsey, Ed, Green Prairie Wind Development......................     7
Zuhlke, Kim, Alliant Energy Corporation..........................     9
Hutchinson, John, Powell Construction............................    12

                                APPENDIX


Prepared Statements:
Braley, Hon. Bruce...............................................    28
Davis, Hon. David................................................    31
Kelly, Quentin T., WorldWater & Solar Technologies Corp..........    33
Breitbach, Craig, Western Dubuque Biodiesel......................    36
Woolsey, Ed, Green Prairie Wind Development......................    41
Zuhlke, Kim, Alliant Energy Corporation..........................    44
Hutchinson, John, Powell Construction............................    51

                                 (iii)






















 
                     SUBCOMMITTEE HEARING ON SMALL
                     BUSINESS RENEWABLE ENERGY TAX
                        INCENTIVE POSSIBILITIES

                              ----------                              


                     Wednesday, September 26, 2007

                     U.S. House of Representatives,
                   Subcommittee on Contracting & Technology
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 9:35 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Bruce Braley 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Braley, Cuellar, Clarke, and 
Davis.
    Also Present: Representative Holt.

              OPENING STATEMENT OF CHAIRMAN BRALEY

    ChairmanBraley. I now call this hearing to order and would 
like to welcome everyone. I call this Subcommittee hearing to 
examine the issue of small businesses and the renewable energy 
tax incentive possibilities.
    The notion of modifying our tax policy to reflect the 
economic needs of our Nation and of small business is critical. 
Nowhere is that more clear than when we talk about energy 
policy. Since the 1900s, the Tax Code has served as a primary 
tool that shape energy priorities in America. Today, this 
Subcommittee will have the opportunity to explore how tax 
incentives can play a role in promoting renewable sources of 
energy. Our distinguished panel shows us that small business 
can play an important role in this effort.
    Over the last 2 decades, small businesses have been at the 
forefront of renewable energy production and growth. Whether it 
is the growing number of small biodiesel or solar facilities or 
farmers who are providing inputs, small companies are leading 
the way in shifting America toward clean domestic supplies of 
energy. While there has been significant growth, renewable 
energy continues to make up only 7 percent of the energy 
produced and consumed in this country. As for renewable fuels, 
they make up only 1 percent of this energy.
    In order to improve upon this, it is critical that we have 
a proper Federal policy in place. The bottom line is that if we 
are going to stimulate investment and production in alternative 
sources of energy we must have valid tax incentives. These 
measures will not only encourage investment in new technologies 
but will make it financially possible for renewable energy 
producers to operate and to expand. I am very optimistic that 
alternative sources of energy will continue to grow due to the 
fact that this Congress has already taken steps to encourage 
greater production and use of clean domestic supplies.
    Recently, the House passed its comprehensive energy bill 
that included a number of measures to promote renewable 
production. It included tax incentives that place a higher 
premium on new technologies and production that will further 
the next generation of renewable energy. I supported this bill 
because it invests in America's future. It is renewable energy 
like wind, solar, hydropower, and other clean fuels. It puts 
small businesses front and center in this effort, and it 
develops a framework for renewable energy to grow. The tax 
policies in this legislation will help many small producers 
address the challenges that exist in renewable energy 
production.
    Earlier this year, our Subcommittee held a hearing on 
meeting the workforce demands of small bioenergy businesses, 
and I am extremely pleased that the Farm Bill that we recently 
passed included a renewable energy workforce education program 
that was first outlined in the New Era Act I introduced in 
February. We must secure our Nation's energy future through 
efforts such as tapping into biofuels, wind and solar by 
training our farmers and workforce for bioenergy production. We 
also know that the viability of renewable energy producers is 
dependent upon having modern technology.
    All of these challenges threaten the financial viability of 
renewable energy production. With the proper tax incentives, we 
can help producers overcome some of these challenges. We must 
have economic policies that will help bring stable energy 
supplies and create jobs here in America.
    In Iowa alone, the exploding renewable energy sector has 
created thousands of jobs. As of early 2005, it is projected 
that ethanol could create over 5,000 direct and indirect jobs 
and pay $82.4 million in wages per year. With further 
improvements, these numbers underscore the potential for 
additional opportunities for small businesses with the proper 
tax incentives.
    The time to act is now. By switching our energy focus from 
the Middle East to the Middle West and to the entire country, 
we can transform our energy economy and improve our 
international security.
    There is a promising future for the next generation of 
bioenergy, including great potential for the growth in the 
evolving cellulosic industry. At a time when our country is 
facing record energy prices, it is critical that we continue to 
develop alternative energy supplies. Small businesses can help 
us achieve this goal, but only if they have the right tax 
priorities to make it happen. If we truly care about the 
security of our children's future, we need to continue pushing 
the envelope on the bioenergy economy. Reexamining our energy 
tax priorities will be a huge help.
    I look forward to today's discussion, and I yield now to my 
colleague and friend from Tennessee, Ranking Member Davis, for 
his opening statement.

                 OPENING STATEMENT OF MR. DAVIS

    Mr.Davis. Thank you, Mr. Chairman.
    I would like to thank all of the witnesses for attending 
and for contributing today at this very important hearing 
concerning small business renewable energy tax incentive 
possibilities.
    I would like to especially thank Mr. John Hutchinson, who 
traveled from Johnson City, Tennessee, where he is located in 
my district, to be here with us today.
    Again, thank you to all of the witnesses. We are eager to 
hear your testimonies.
    No matter where you are or where you go nowadays, it is 
impossible to escape the realities of the extremely high energy 
costs facing the American population. The simple act of filling 
up a gas tank has become a painful experience for many 
Americans due to the high cost of fuel. A great many American 
families are dreading the winter season due to the high cost of 
heating their homes that will come with it.
    Additionally, small businesses are taking a huge blow due 
to the fact that increased energy costs are greatly affecting 
their bottom line. For some time now, everybody has known that 
the strife faced today is because of high energy costs due to 
the fact that America is far too dependent on foreign oil 
sources, and for some time now much effort has been put into 
developing alternative sources of energy to diminish the 
necessity of America's reliance on oil that often comes from 
volatile areas such as the Middle East and Venezuela.
    Great strides have been made in developing alternative 
fuels. With a large amount of attention being given to 
renewable fuels, biodiesel and ethanol have been proven to be 
safe optional fuels which are derived from seemingly unending 
sources. Wind energy and solar power also offer great promise 
in the quest for energy resources, and I am certain that 
further research into alternative energy sources will yield new 
techniques for producing renewable fuels that most of us here 
today in this room cannot even fathom.
    Some believe that restructuring the Internal Revenue Code 
to provide incentives for this type of research may help 
expedite this process. I agree. I firmly believe that 
simplifying our Tax Code and offering targeted tax reductions 
for alternative fuel research, production and compensation can 
help wean our dependence on foreign sources of energy.
    However, in this drive to reinvent the way we produce and 
consume energy, I think it is extremely important not to forget 
an already existing energy source right under our noses. A 
balanced approach is needed to maintain the high energy demands 
our country needs for continued growth. Renewables offer a 
great deal of promise in the very near future, but we must also 
be able to maintain our current energy production while 
fostering growth in this exciting new field.
    For example, coal is indispensable for the production of 
electricity, and still, it is very important in the 
manufacturing of cement, paper and industrial heating. U.S. 
coal reserves currently stand at 275 billion tons, an amount 
that is greater than any other Nation's in the world. These 
reserves are capable of meeting domestic demands for more than 
285 years at current rates of consumption.
    Domestic sources of fossil fuels currently provide us with 
a renewable source of energy, and obtaining them from places 
such as the Arctic National Wildlife Refuge should not be 
discounted.
    Once again, I look forward to hearing the testimony from 
all of our witnesses today, and I believe it will give us a 
great insight into the issue at hand.
    Thank you again for being here today.
    ChairmanBraley. Thank you, Mr. Davis.
    We will now move on to testimony from the witnesses. The 
witnesses will be allowed 5 minutes to deliver their prepared 
statements.
    The way the light works is, when you have 1 minute 
remaining, the yellow light will come on, and then when your 
time is up, the red light that you see on the table between Mr. 
Breitbach and Mr. Woolsey will come on.
    At this time, I would like to introduce my friend and 
colleague Rush Holt to introduce our first witness.
    Mr.Holt. Thank you, Chairman Braley, for calling this 
hearing on this important subject to discuss renewable energy 
tax credits and for bringing together such a distinguished 
panel. I would particularly like to recognize and introduce to 
you my friend and constituent Quentin Kelly, who will testify 
in just a moment.
    I think you have emphasized, Mr. Chairman, that small 
business is not only the source of jobs and new jobs in this 
country but is also the source of ideas and inventions. I have 
been privileged to know Mr. Kelly for many years, and as the 
founder, chairman and CEO of WorldWater Corporation in 
Pennington, New Jersey, Mr. Kelly has done a great deal to 
provide water and power solutions around the U.S. and 
especially to developing nations. WorldWater holds patents on 
powerful solar electric systems, motors, and Mr. Kelly is a 
member of the New Jersey Inventors' Hall of Fame, and is 
particularly well-suited to talk about today's topic. 
WorldWater has helped provide relief in the gulf coast region 
following Hurricane Katrina, and I am pleased that the 
committee is hearing from Mr. Kelly today, and I am sure that 
his experience will be very helpful as you carry this subject 
forward.
    I say welcome.

 STATEMENT OF QUENTIN T. KELLY, CHAIRMAN AND CEO, WORLDWATER & 
        SOLAR TECHNOLOGIES CORP., PENNINGTON, NEW JERSEY

    Mr.Kelly. Thank you. Mr. Chairman, thank you for this 
opportunity.
    Members of the House Small Business Committee, Subcommittee 
on Contracting and Technology, Congressman Holt, other 
panelists, and guests, I am Quentin T. Kelly, Chairman and CEO 
of WorldWater & Solar Technologies Corporation of Pennington, 
New Jersey. We are solar engineers and water management 
engineers. We solve power problems and water problems, 
utilizing our proprietary solar technology. This is PV, 
photovoltaic.
    This technology which we have developed enables us not only 
to generate and to distribute solar electricity but to also 
drive motors and pumps up to 1,000 horsepower. Now, I will 
repeat that. We can drive motors and pumps up to 1,000 
horsepower from sunshine alone or in seamless conjunction with 
the electric grid, or diesel generators. We are one small 
business that can point directly to the Federal energy bill 
that instituted the 30 percent Investment Tax Credit as an 
extremely significant part of our success.
    Today, WorldWater technology is operating the largest solar 
irrigation system in the world, a citrus ranch in Borrego 
Springs, California, the largest agricultural solar system in 
the world, a 1,000-acre avocado ranch in Fallbrook, California. 
The only totally self-sustaining water district in the world--
that is, grid power--may be interrupted, a blackout or the 
district can be disconnected from the grid, and that water 
district can continue normal operations strictly from our solar 
electronics. We have a half megawatt of solar-generated 
electricity at the Atlantic City, New Jersey Water Treatment 
Plant, and we have just begun construction on the largest PV 
plant for an airport in the world, for the Fresno-Yosemite 
International Airport in Fresno, California, where we will 
supply 40 percent of the electricity required and will save the 
airport an estimated $13 million over the 20-year contract 
period.
    We first implemented the tax credit, the 30 percent tax 
credit, in 2006 by creating Power Purchase Agreements for 
third-party investors. This investor group funds the 
installation of our solar technology and equipment for host 
customers who then pay for the electricity so generated for 
their buildings, airports, water districts, et cetera, at a 
discount to the going utility rate. The host customers pay 
directly to the investor group, who take advantage of the 30 
percent tax credit plus other incentives from the State and 
take the renewable energy credits which are also generated.
    The amount of business created by this, not just with 
WorldWater but throughout the solar business as it is now 
beginning to roll, is truly significant. What happens with our 
PPAs is a triple win situation. The host customer, corporate 
facility owner, municipality or water district pays nothing up 
front and receives a discounted rate for his electricity when 
it is installed and delivered. The investor group makes some 10 
to 15 percent after-tax return annually, and WorldWater sells a 
whole lot more technology and equipment, earning much more 
revenue and employing substantially increased numbers of 
workers.
    To be specific, we had no PPA business in 2005. We 
initiated our first PPAs in late 2006, and nearly all of our 
business in 2007 will be from PPAs. In 2005, we had 27 
employees and generated $2 million in revenue. In 2006, when we 
started the PPAs, we moved up to 40 employees and $17 million 
in revenue from $2 million. In 2007, we now have 80 employees, 
and I have given guidance on revenues for this year of $25 
million. We have a potential business pipeline now of $200 
million, and much of that will be through PPAs. Next year, we 
anticipate having 150 employees.
    In addition to the direct influence on the sales of this 
one tax credit of 30 percent, the greatly increased growth of 
our company through the help of the PPAs now enables us to 
reach up and to bid for projects in the U.S. and around the 
world of a much larger dollar size and system capability.
    The importance of this hearing today on tax policy favoring 
credits and assistance to renewable energy efforts, in my 
opinion, could not be reflected any more clearly than in the 
facts and prospects that I have just described. What you have 
instituted and are considering in terms of lengthened tax 
incentives has palpable effects in the marketplace. WorldWater 
and Solar Technologies is a prime example. If we benefit, the 
renewable energy industry benefits, and America's energy policy 
will experience success unforeseen even a few years ago. That 
is how fast we in the solar business now see the future of our 
power generation developing. We can use your help.
    Thank you very much. I would love to go into some more 
detail, if you are interested, in the Q and A.
    [The prepared statement of Mr. Kelly may be found in the 
Appendix on page 33.]

    ChairmanBraley. We will have that opportunity.
    The next witness is a constituent from my district. Mr. 
Craig Breitbach is the Director at Western Dubuque Biodiesel in 
Farley, Iowa, and for those of you keeping score, Farley is 
located about 10 miles from the Field of Dreams, and I think 
there is nothing more accurate as a symbol of what bioenergy 
provides in terms of the future other than a field of dreams.
    So, with that, Mr. Breitbach and his company employs 31 
people. Western Dubuque Biodiesel, LLC was formed in November 
2005 by a group of eastern Iowa farmers and businesspeople. 
Western Dubuque develops and operates a biodiesel facility that 
produces a cost-effective and environmentally friendly fuel 
while supporting agriculture and reducing America's dependence 
on foreign oil.
    With that, Mr. Breitbach, thank you for joining us.

    STATEMENT OF CRAIG BREITBACH, DIRECTOR, WESTERN DUBUQUE 
                    BIODIESEL, FARLEY, IOWA

    Mr.Breitbach. Thank you.
    Thank you, Mr. Chairman, Ranking Member Davis and members 
of the committee, and thank you for allowing me to testify on 
behalf of Western Dubuque Biodiesel and REG.
    Two weeks ago, we had our ribbon-cutting at our facility. 
Western Dubuque Biodiesel, a 30-million-gallon-a-year plant 
uses feedstock, soy oils and other oils for feedstock. I will 
give you a little background on Western Dubuque Biodiesel.
    In October of 2005, a group of investors, small and big, 
came up with $6 million of seed money to do a feasibility 
study. Western Dubuque then set a date for an equity drive on 
June 6 of 2006. In one day, investors came out in droves. 579 
unit members came up with 19,529,000 in 4 hours. It was the 
fastest equity drive seen in Iowa--closed in 4 hours. We broke 
ground in July of 2006, started producing biodiesel in August 
of 2007.
    As Chairman Braley said, we have 31 employees--31 
employees--no more than 25 miles away from the plant to travel. 
It is a great plant for Farley, Iowa. Farley is 18 miles west 
of the Mississippi. Farley, Iowa is a 1,200-person town with a 
$41 million plant. Not only did this plant create 31 jobs; it 
created jobs for trucking industries, local vendors, pipes and 
valves, and so forth. I would also like to take note that REG 
is working toward the construction of a new biodiesel facility 
in Rock Port, Missouri in Congressman Graves' district.
    Biodiesel, it is a great renewable field. It takes 1 unit 
of input energy to create 3.2 units of output energy. REG and 
Western Dubuque Biodiesel are all about putting out quality BQ-
9,000. BQ-9,000 is an ASTM standard to produce the best quality 
biodiesel. We are very proud of our plant. As it takes normally 
4 to 6 weeks to achieve this goal, our plant achieved it in 7 
days, so we are very proud of that. With the help of REG and 
the commitment to put out a quality product and achieve, we 
achieved the ASTM standards in 7 days.
    Biodiesel, it reduces our dependency on oil, and domestic 
biodiesel is grown in America by American farmers, produced by 
Americans and is delivered to Americans by Americans.
    The biodiesel emissions, the EPA has sent out several 
emission standards. Biodiesel, total unburned hydrocarbons, a 
negative 67 percent. Carbon monoxide, a negative 48 percent. 
Particulate matter, a negative 47 percent. Overall, a negative 
50 percent--negative--from standard diesel.
    Western Dubuque Biodiesel and the biodiesel industry in 
Iowa employ over 3,000 Iowa investors. Excuse me. 3,000 Iowa 
investors have invested in the biodiesel industry in Iowa.
    I am here asking for your help on three things--extending 
the dollar per gallon biodiesel blender's tax incentive to help 
make fuel prices competitive with conventional diesel fuel, 
maintaining a strong CCC bioenergy program to help with high 
feedstock prices, and enacting a biodiesel-specific requirement 
as part of a renewable fuel standard. We need a market for our 
product.
    I would like to conclude and thank you. Mr. Chairman, I 
appreciate the opportunity to come before you today and to 
present our case. Thank you very much.
    [The prepared statement of Mr. Breitbach may be found in 
the Appendix on page 36.]

    ChairmanBraley. Thank you, Mr. Breitbach.
    Our next witness is Mr. Ed Woolsey, who is the President of 
Green Prairie Wind Development in Prole, Iowa, which is located 
in the Des Moines Metro area. He was raised on a farm that 
harvested corn, soybeans, alfalfa, grain, sorghum as well as 
raising cattle and hogs. Mr. Woolsey spent 5 years as a 
renewable energy program coordinator for the State of Iowa, a 
very, very important responsibility, and he currently works 
with farmers and small businesses in developing community-based 
wind turbine projects.
    Welcome, and please share your opening remarks with the 
committee.

    STATEMENT OF ED WOOLSEY, PRESIDENT, GREEN PRAIRIE WIND 
                    DEVELOPMENT, PROLE, IOWA

    Mr.Woolsey. Thank you, Chairman Braley, members of the 
Subcommittee and Ranking Member Davis. Thank you for the 
ability to come here and to speak to you today about this 
industry.
    I have had the opportunity to work in the renewable energy 
business for over 20 years now in Iowa. I have owned and 
operated small renewable energy businesses for 13 of those 
years. I want to start by saying I am more optimistic now about 
the future of the industry than I ever have been in my life. 
When I started working in the industry in Iowa, one person 
could follow all of the projects in the State and understand 
the technologies. Today, we have over $5.5 billion worth of 
concrete and steel in the ground or under construction in 
renewable energy. I believe we are only scratching the surface 
of this 21st Century industry. Many organizations have 
estimated the jobs and economic development surrounding the 
industry. I would refer you to the Union of Concerned 
Scientists and to the Energy Foundation for reports.
    While the reasons for supporting renewable energy have 
always included reducing heavy metals like mercury in the 
environment, reducing asthma-causing particulates in the air, 
preventing oil wars, slowing global warming, reducing trade 
imbalances, and protecting God's creation, the motivating issue 
that seems to have gained the most traction is that of making 
money. Tax policy is one of the key mechanisms that enables 
developers in the industry to make money. In the energy 
development business, there is no economic level playing field. 
Fossil fuels have been subsidized for decades in ways too 
numerous to mention. If we were to internalize all of the costs 
associated with fossil fuels and pay that price and we turned 
on the light switch or were to pay at the pump and we were to 
incorporate the benefits of developing sustainable energy in 
the price consumers pay, there is no doubt sustainable energy 
would be cost-effective today, but unfortunately, that is not 
the world we live in. With that in mind, let me briefly lay out 
some details of how we are currently able to build projects, 
some of the hurdles and some of the ideas where incremental tax 
policy might help.
    I am currently involved in what we call "community-owned 
wind projects." the projects I am referring to consist of 10 
2.1-megawatt wind turbines and 10 mostly farmer owners. These 
wind turbines cost over $3 million each installed. The 
electricity is sold to a local generation and transmission 
cooperative at a very modest price under a long-term contract. 
The turbines are utility-scale, state-of-the-art machines, each 
being able to supply enough electricity for 750 homes.
    While all sustainable energy development is good, it needs 
to be done rapidly. It is not all equal. For example, energy 
projects with significant local ownership have been shown to 
return up to 10 times the economic value to communities as 
those with typical corporate ownership. Projects having typical 
corporate ownership, the vast majority of those, usually 
provide land rental to the local landowner typically in the 
range of $2,500 to $4,000 per turbine while the same landowner 
who owns the turbine could retain $20,000 to $50,000 per 
turbine annually after debt service. In the renewable energy 
industry, ownership matters.
    Since none of our 10 farmer owners had $3 million in the 
bank, other money must be brought to the project. This is where 
tax policy played the largest role. Section 45 production tax 
credits is the largest cash-flow contributor after the sale of 
the electricity itself. In order to take advantage of the tax 
credit and to meet the passive income constraint, an outside 
investor must participate in the ownership of the business. The 
investor must then monetize his contribution to a present 
value, then hopefully monetize the available accelerated 
depreciation of that capital expense at the same time. Selling 
both of these tax credits by the developer reduces the value of 
the credits by the amount necessary to serve as an incentive 
for the new partner to participate. This discount is not taken 
by large companies able to use the entire tax credits and 
depreciation internally and those that have passive income 
appetites. The ability of the section 45 tax credit to offset 
active as well as passive income will be helpful to our locally 
owned project development.
    In addition to bringing in an equity partner, success of 
our projects was dependent on each of the 10 LLCs successfully 
obtaining grant money and loan guaranties under the new energy 
title, section 9006 of the 2002 Farm Bill. This energy title 
has been hugely successful starting new sustainable energy 
companies in Iowa, and we hope it will be reauthorized and 
funded in a much larger amount in the 2007 Farm Bill. Money 
from the USDA program does trigger a reduction in section 45 
tax credits due to a double-dipping provision. The elimination 
of this provision would have a favorable impact on project 
development.
    After bringing in money from a new partner, the Farm Bill 
and any State incentives available, a considerable amount of 
debt is still to be obtained and serviced. Due to the maturing 
nature of the industry, local banks are now ready and willing 
with debt financing. The funding is available at market rates, 
and this funding stream may be a place where future tax policy 
may provide some incentives for small business development. A 
beginning farmer loan is an example of that.
    Tax changes that could rapidly build our industry would be 
to provide tax credits to the electricity offtaker for signing 
long-term contracts with sustainable energy projects that meet 
the criteria of "locally owned." these incentives would need to 
be at a level that would more than offset the current advantage 
that electricity buyers/utilities see in owning the turbines, 
themselves.
    I have a couple of more. I see I have exceeded my time. I 
will submit them for the record.
    [The prepared statement of Mr. Woolsey may be found in the 
Appendix on page 41.]

    ChairmanBraley. Thank you.
    Our next witness is Mr. Kim Zuhlke, who is the Vice 
President of New Generation for Alliant Energy Corporation in 
Madison, Wisconsin. Alliant Energy has diversified electric 
generation capabilities, including renewable resources like 
wind, solar and anaerobic digesters. Alliant is an investor-
owned, public utility holding company which provides electric 
and natural gas service to Iowa, Wisconsin and Minnesota.
    Thank you for joining us, and welcome, Mr. Zuhlke.

   STATEMENT OF KIM ZUHLKE, VICE PRESIDENT - NEW GENERATION, 
         ALLIANT ENERGY CORPORATION, MADISON, WISCONSIN

    Mr.Zuhlke. Mr. Chairman, Ranking Member Davis and members 
of the committee, thank you for the opportunity to appear 
today. I am Kim Zuhlke, Vice President of New Generation for 
Alliant Energy, an electric and gas utility, serving portions 
of Iowa, Minnesota and Wisconsin, including part of the 
chairman's district in Iowa.
    Small business is the job creation and economic development 
engine across the country. Our service territory is no 
exception. Having grown up on a farm and starting my career in 
the agricultural seed business, in my experience, farmers are 
among the most courageous of small business people. While I 
applaud your effort to uncover the opportunities and to remove 
the obstacles of expanding renewable energy use and production 
by small business, my remarks will focus on farming. There are 
two specific areas that I will address as it relates to 
potential Federal actions that could remove barriers and expand 
on-farm use and the production of renewable energy--first, the 
deployment of anaerobic digesters and, second, energy crop 
production for electric generation.
    For those not familiar with digester technology, the system 
is designed to capture the methane that is produced as manure 
decomposes and to convert it to a fuel that can be used either 
for pipeline quality gas, transportation or for on-farm 
electric generation. By capturing and burning this methane, it 
prevents the release into the atmosphere of greenhouse gases 20 
times more potent than carbon dioxide is. It is a domestic 
renewable fuel source. The process eliminates odor associated 
with traditional manure management systems and produces a by-
product that can be put to profitable use as fertilizer for 
crops or in the lawn and garden industry.
    At Alliant, we have a partner thus far with four farm 
customers in our service territory to implement digester 
systems and have identified the following barriers to expanded 
use of manure digester systems.
    First, there is no standard manure digester design. We need 
to have these systems be more "plug and play." additional 
funding for research development and demonstration projects 
could help. Grants to manufacturers to develop standardized 
systems would be useful.
    Second, there are issues of scale. For example, a herd of 
at least 500 head is required today to make sure such a system 
is economic. It does not provide a solution for the smaller 
family farm. Appropriate investments in research and 
development can help make these systems more scalable. 
Alternatively, we could attempt to create cost-effective 
methods for farms to transport manure to a central digester. 
Here again, the specific grant to develop such a system would 
be appropriate.
    Third, for most farm customers of any size, making the 
capital investment represents the largest single barrier. 
Grants, low or no-interest loans would go a long way toward 
addressing the issue. We have found that tax credits are not as 
beneficial to most farmers unless they could potentially be 
sold to generate cash.
    Lastly, on a more technical front, in order to make the 
system as efficient as possible, one does need to achieve the 
right mix of enzymes and microbes in the digester. This is not 
always a simple task. Further research and development funding 
could help make this potentially complex part of the equation 
more of an off-the-shelf solution.
    I now want to move to energy crops. Alliant Energy is 
currently in the process of seeking regulatory approval to 
build two new coal-fired power plants. Both will be designed to 
co-fire biomass. In order to accomplish this goal, we need 
farmers within 50 miles or so of the proposed plant sites to 
agree to grow these crops. While this is potentially very 
attractive to farmers, we are discovering certain barriers.
    Corn prices have risen as the current and projected demand 
for corn-based ethanol has grown. Because there is a limit to 
what we can pay for an energy crop and still make co-firing 
economic at these new plants, we need to make growing energy 
crops attractive as well.
    Switchgrass can grow in fields that may not be fertile 
enough to grow corn or is highly erodible. In many cases, these 
fields are currently enrolled in the Conservation Reserve 
Program, or CRP. Changing the rules governing CRP land will 
allow farmers to grow or move switchgrass for biomass without 
suffering the financial penalties they currently face when 
harvesting hay from the CRP land, and it would go a long ways 
toward addressing this issue. By allowing 80 to 90 percent of 
switchgrass on the CRP land to be harvested once per year, it 
would continue to be a benefit to wildlife, would maintain 
reduced erosion, and would allow for the production of a 
beneficial crop without increasing the Federal price tag of 
CRP. Once established, switchgrass is a relatively easy crop to 
grow and maintain. It is, however, difficult to get started, 
and it typically takes 2 to 3 years to become established. 
Grants, low or no-interest loans could help farmers defray 
upfront expenses and the potential loss of income as the crop 
is being established.
    Switchgrass and other energy crops can be used as fuel in 
power plants or as the feedstock for the future production of 
cellulosic ethanol. Both are beneficial, and whatever 
incentives are established for one should be generally equal to 
the other.
    We look forward to working with our farm and other small 
business customers to make the expanded use and the production 
of renewable energy a reality, and we welcome your support in 
meeting this goal.
    Thank you very much.
    [The prepared statement of Mr. Zuhlke may be found in the 
Appendix on page 44.]

    ChairmanBraley. Thank you, Mr. Zuhlke.
    For our last witness, I will yield to the ranking member 
for the introduction.
    Mr.Davis. Thank you, Mr. Chairman.
    I would like to introduce Mr. John Hutchinson. John is a 
graduate of West Virginia University. He already spent 50 years 
of his life in the heart of West Virginia's coalfields. He has 
over 38 years of experience in the coal industry, working with 
the construction of underground slopes and ventilation shafts, 
aboveground with the construction of coal preparation plants 
and material handling and conveying systems. Currently, Mr. 
Hutchinson serves as the Vice President of Finance at Powell 
Companies right in the heart of my district in Johnson City, 
Tennessee. He also serves on the Board of Directors for the 
Johnson City, Jonesboro, Washington County Chamber of Commerce.
    John, thank you for being with us today.

STATEMENT OF JOHN HUTCHINSON, VICE PRESIDENT - FINANCE, POWELL 
             CONSTRUCTION, JOHNSON CITY, TENNESSEE

    Mr.Hutchinson. Thank you, Mr. Braley, Mr. Davis, the 
committee. It is an honor to be here this morning from east 
Tennessee to speak with you.
    Our companies engineer, construct and automate coal 
preparation facilities in the Eastern and Central U.S. 
bituminous coalfields. We also manufacture and rebuild solid 
liquid separation centrifuges widely used in coal preparation 
throughout the world. With huge fleets of trucks, large mobile 
cranes, hundreds of units dependent on petroleum fuels and an 
annual fuel budget of over $1 million, we are certainly 
concerned about energy prices and its stable availability, but 
I am not here today to talk about our individual problems. I am 
here today to speak with you regarding one of America's 
greatest and most abundant sources of energy for yesterday, 
today and the future, that being coal.
    U.S. energy sources today consist of oil, approximately 39 
percent natural gas, approximately 24 percent coal, 23 
percent--or 1 billion tons--per year, nuclear 8, hydropower 3, 
and other 3. These same percentages are also very similar on a 
worldwide basis. As Mr. Davis said, coal is indispensable for 
the production of electricity and steel. Other key uses include 
cement, paper, limestone industries, and industrial heating.
    The technology is now in place for coal gasification, a 
process whereby coal is converted into a syngas and is itself a 
fuel. In this process, coal is reacted with oxygen at high 
temperatures with the advantage that more of the energy in the 
fuel is extracted. It may then be burned in internal combustion 
engines used to produce methane gas or to convert it into a 
synthetic fuel. Today, I would encourage all possible tax 
incentives to promote increased research and development in 
this area.
    U.S. coal reserves stand at 275 billion tons, an amount 
that is greater than any nation's in the world. This includes 
reserves at active mines and estimated recoverable coal 
reserves. Our Federal Government is, by far, the largest owner 
of the Nation's coal beds, particularly in the West. To 
emphasize, these reserves are available right here at home in 
38 U.S. States not dependent on importation. These reserves are 
capable of meeting domestic demand for more than 285 years at 
the current rates of consumption.
    In addition to this nearly 300-year supply, there are 
additional demonstrated reserves of approximately 250 billion 
tons available for future mining. Coal reserves at existing 
mines by selected States include, in the West, Wyoming, almost 
8 billion tons; West Virginia, almost 2 billion tons; Montana, 
1 billion tons; Kentucky, 1 billion tons; also, Alabama, 
Illinois, Indiana, Ohio, Pennsylvania, Tennessee, Virginia, and 
obviously others.
    In the U.S., coal-fired power plants account for over 56 
percent of the electricity generated. In recent years, 90 
percent of U.S. coal is consumed for the generation of 
electricity. As I said, this is, roughly, 1 billion tons per 
year. 9 percent of U.S. coal is exported to 40 foreign 
countries. In the Southeastern U.S., the Tennessee Valley 
Authority operates 11 coal-fired power plants, producing 60 
percent of TVA's power, providing a capacity of 33,000 
megawatts of electricity to 158 locally owned distributors in 
seven States and serving 9 million customers.
    During World War II, our Appalachian coal mines, 
specifically mines in southern West Virginia, provided abundant 
metallurgical coal supplies for the production of steel that 
were used to make guns, planes, tanks, et cetera, that were 
required for the war effort and that were significant to the 
outcome of that conflict.
    Other coal reserves throughout the world: U.S., 275 
billion; Russia, 173 billion; China; India; and Australia.
    Coal is also widely used throughout the world for the 
production of chemicals and fertilizers. The types of coal 
mining include underground mining that is predominant in the 
Eastern U.S. and surface mining that is predominant in some 
Appalachian areas but more so in the West.
    Coal use has grown in recent years because of secure, 
abundant domestic reserves and relatively low prices. Demand 
has been maintained through increasing mine productivity, 
larger mines, technology for more efficient systems, and fewer 
mine personnel. Also, great advances in clean coal technology 
have been accomplished since 1985 with contributions from the 
Federal Government and also from the coal industry, itself.
    Giant strides have also been accomplished in the area of 
miner safety. Currently, development is underway for 
underground safe houses and GPS location devices. Tax 
incentives for development of these systems would certainly aid 
this effort.
    Nationwide, currently, there are approximately 90,000 coal 
mining jobs. These mining jobs support another 250,000 
additional jobs. The coal mining industry, as a whole, provides 
many jobs directly or indirectly to east Tennessee, southwest 
Virginia and eastern Kentucky. These jobs are in the form of 
not only coal mine jobs but also in construction, 
manufacturing, engineering, sales, marketing, and consulting. 
The Powell Companies alone with whom I am associated, 
headquartered in Johnson City, Tennessee, provides over 500 
jobs regionally to the coal industry.
    History indicates that each significant action of 
government was accomplished with an immediate and negative 
effect on coal production. However, the reverse is also true. 
That is, positive governmental encouragement will likely result 
in the capital investment necessary to sustain future 
production at or above current levels. That is what we should 
all strive for.
    Thank you all for this opportunity to speak to you today 
regarding the coal industry. No matter what the future holds 
for America's energy needs, coal must be there along with oil, 
water, wind, natural gas, nuclear, and biofuels. In my final 
statement, I will say, "Why not coal?"
    Thank you very much.
    [The prepared statement of Mr. Hutchinson may be found in 
the Appendix on page 51.]

    ChairmanBraley. Thank you, Mr. Hutchinson.
    Before we get to the questioning of witnesses, we have been 
joined by our colleague from Brooklyn, New York, Yvette Clarke, 
and I will just ask if you have any opening remarks you would 
like to offer.
    Ms.Clarke. Not at this time, Mr. Chairman.
    ChairmanBraley. Thank you.
    For the questioning of witnesses, each member will have 5 
minutes for questioning. We may do more than one round of 
questions, and I will begin the questioning at this time.
    Mr. Breitbach, you spoke about the importance of tax 
incentives in spurring growth in biofuels. We know that the 
biodiesel tax incentive was first established in the Jobs 
Creation Act in October 2004 and was extended in 2005 and will 
expire in 2008.
    Can you provide the committee with some idea of the state 
of your industry prior to the passage of this biodiesel tax 
incentive?
    Mr.Breitbach. Chairman Braley, that tax incentive created 
the legs to get the biodiesel program going. We need to 
continue that as feedstock costs have risen from the industry 
start-up date, the feedstock industry 10-year average. Bean 
oil, 18 cents today, 41-1/2 cents per pound. If we could get 
the feedstock under control and get our product marketed and 
sold, we may not need it, but as of right now we need it to 
keep our legs and to keep our stride going.
    ChairmanBraley. One of the follow-up questions I had for 
you is how this tax incentive has impacted biodiesel growth and 
demand in Iowa.
    Mr.Breitbach. Oh, it is huge, sir, huge.
    Without that tax incentive, our group in Farley, Iowa would 
have not pursued this matter. We could not have done it without 
it. We need it to keep our industry going, to keep our legs 
under us, and again, with the rising cost of feedstock, it is 
either we have help or we are going to have a dying industry 
before we even start.
    ChairmanBraley. One of the things that people often do not 
appreciate is the interplay between a number of these 
incentives in various sectors of the renewable fuel economy in 
Iowa where crop rotation between corn and soybeans has been a 
fact of life for years. We have seen the phenomena where, as 
ethanol prices create demand for corn, it leads to the planting 
of more acres of corn, which impacts the price of corn. It also 
impacts the price of beans as fewer acres are planted in 
soybeans, and then that has an impact on your business.
    So can you talk a little bit about the interplay of the 
policies that are set here in Washington and how that affects 
long-term planning for your industry?
    Mr.Breitbach. Absolutely, Congressman Braley.
    With that saying, farmers--again, staying in the crop 
rotation, farmers normally plant soybeans and then the 
following year plant corn. Soybeans are a natural nitrogen. 
With the price of corn going up, farmers are stepping away from 
the crop rotation of beans and are putting corn on corn acres 
and are putting more nitrogen in the ground, nitrogen 
fertilizer of course. With that saying, it is shrinking our 
soybean market, or soy oil market, which is driving up costs. 
So that is--again, I hope I am clear on this as to why we need 
the tax incentive, because the corn-on-corn market is just 
taking away our cropland for the soybeans and oil industries.
    ChairmanBraley. Thank you.
    Mr. Kelly, one of my first encounters with photovoltaic 
energy was when my family and I--our kids were much younger--
did a lot of hiking and camping out West, and a lot of, for 
lack of a better term, the outhouses in national parks and in 
national forests have a decomposition that is sometimes fueled 
by solar panels.
    As you look at the future of solar energy, can you talk to 
us about some of the unique applications you see on the 
horizon? I know you have shared some of those innovations with 
us, but as we look toward providing incentives for the next 
generation of Americans, what do you see on the horizon as 
being impacted by the decisions we are making here?
    Mr.Kelly. There has been a sea change, if I may use such an 
expression, in the attitudes of solar expectations. We are 
acquiring a company called InTech in Keller, Texas. It is a 
high-tech supplier of solar technology for space probes and 
space shots. We are going to take their space technology and 
bring it down to earth. We are utilizing this new technology to 
build farms.
    Before 18 months or so ago, there was not the idea of solar 
farms because everything was just too big. You had to have too 
much space that was required. You could not create the big 
numbers of megawatts. The largest projects were 1 megawatt. We 
just have assigned an LOI for 130 megawatts, 130 megawatts in 
Spain. We are in discussions with others in Texas and in 
California and Nevada for huge megawatts. I am talking 50 
megawatts solar. This was unheard of.
    The reason that it is happening is because there has--
through such tax incentives that you are talking about here, 
through the interest that Congress does show in the renewable 
energy and in solar, there is now concentrated interest on 
developing new technology capabilities. We have just had 
another company invest in our company, a company called EMCORE. 
They are another solar, high-tech supplier to NASA for the 
space shuttles, and the American satellites that are being 
propelled in space are run by this company's cells, okay? 
EMCORE has a little bit of a dot. I am telling you it is not 
more than an eighth of an inch in diameter. Well, you can 
concentrate this 500 to 1,000 times. They are moving in with us 
now in our R&D. We are taking much larger quarters next week as 
a matter of fact.
    The R&D from EMCORE and the R&D from InTech and the R&D 
from WorldWater are all going to be working together. We are 
going to have this three-legged stool. We are going to take the 
cell that is used in space, this tiny, little dot. We are going 
to use the optics that have been developed which are 
unsurpassed by the InTech group down in Texas. Those two will 
combine to create 1,000 times the energy that would be in a 
standard cell. We, with our conversion devices, are able to 
then--and control devices--able to translate that energy, that 
concentrated energy, into working power. We will be able in a 
matter of 2 or 3 years to generate all the power required for a 
city of 10,000, 20,000 or even more, and it will not be this 
huge amount of space. We could do a city of 20,000 with this 
new technology that exists, okay? We need to do just a little 
bit more shining on it, but it would take, maybe, 10 acres, 10 
acres to do a city of 20,000. This is a transformation. This is 
the future of power, I believe.
    ChairmanBraley. Thank you.
    Mr. Zuhlke, with all the data that has recently been 
released on global climate change and the importance of green 
energy production that has increased correspondingly, as 
Congress debates the details of carbon control programs, can 
you share with the Subcommittee what your company is doing 
proactively to generate electricity from alternative sources?
    Mr.Zuhlke. On the renewable front, we have been involved 
with what I will call the growing up of the wind industry in 
the Upper Midwest for a period of time. We will invest in wind 
between now and year end 2010, nearly $1 billion in wind 
technology in our service territory.
    I talked a little bit about the on-farm digesters. Again, 
the wind does not always blow, so we are looking for resources 
that are a little more reliable on a 24-by-7 basis. So, as to 
the on-farm digesters, we think there is potential. As I 
discussed today, we have four in the portfolio today. We think 
that could exceed over 30 or 40 in the next couple of years 
given the right environment to overcome some of these barriers.
    ChairmanBraley. Can I just follow up on your on-farm 
digesters comment?
    Mr.Zuhlke. Yes.
    ChairmanBraley. With a lot of new technologies that can 
benefit individuals or small businesses--in the case you are 
talking about, we are talking about a lot of small farm 
operations or mid-sized farm operations--sometimes there is a 
reluctance to move to adapting new technologies that may offer 
a lot of potential.
    So, when you are talking to farmers about digesters that 
are going to be a part of your energy portfolio, can you share 
with us what type of feedback you are getting, what kind of 
response you are getting, what type of challenges you face in 
convincing them to look at adapting to some of these new 
technologies?
    Mr.Zuhlke. Envision yourself going in to your banker and 
saying, "I want to invest in an anaerobic digester," and they 
want to know and understand what that technology is and how 
does it work, and what we really need is a John Deere 100 on-
farm digester, meaning, a recognized brand with a recognized, 
proven technology that plugs in. I think that--
    ChairmanBraley. Since I have about 60 percent of the John 
Deere production in my district, I will make sure I mention 
that to them. They are probably going to be very interested.
    Mr.Zuhlke. Clearly, it is one of the technologies that they 
are indeed interested in, and the on-farm digesters solve a 
number of problems for farmers, nonpoint pollution issues, the 
control of nutrient odor, et cetera.
    So what happens is, when you have a technology that is 
solving multiple problems and has multiple benefits, it takes a 
while for people to get their minds around what it is going to 
take to get it done.
    The bottom line is, someday, somebody is going to put some 
money down and take a risk because, if it is still in the early 
adapter stages, we end up with fits and starts, and we need to 
make sure that people are encouraged to take that risk in 
making those investments.
    ChairmanBraley. Thank you.
    For the sake of time, I am going to move to Mr. Woolsey and 
follow up on some of those points.
    Mr. Woolsey, it has been very exciting to me. Iowa 
currently ranks third in the per capita generation of wind 
energy. Actually, it ranks in the top 10 in wind energy 
potential. Waverly, Iowa is in my district, and there has been 
a great partnership between Wartburg College and the City of 
Waverly, which has been one of the municipalities at the 
forefront in adapting to wind technology. They have just built 
a green wellness center that the city and the college are going 
to share, and the college made a gift of a new wind turbine to 
the city as part of that partnership. But I also know from 
talking to a lot of people that one of the major challenges in 
wind energy production right now is the accessibility of wind 
turbines, and we have seen a lot of companies moving into this 
market.
    So can you talk a little bit about how the supply and 
demand of the generation production equipment is impacting what 
is happening in the industry that you are talking about?
    Mr.Woolsey. Yes. The demand for wind generation equipment 
has been rising very rapidly, 25-30 percent per year. There is 
a shortage of equipment worldwide. That makes your selection 
more limited. You know, I think the industry is ramping up 
right now. We are seeing some new players come into the 
industry. The predominant reason is the Federal production tax 
credit that is driving the U.S. market, and because it has been 
extended, you know, 1 year or 2 years at a time, large players 
have been reluctant to make the large capital investments 
needed to start new wind turbine manufacturing facilities, and 
I think that has been the holdup for bringing new players into 
that manufacturing business.
    One of the constraints right now is on sub component 
manufacturers. There are over 800 individual components in a 
wind turbine, and it takes a while for those industrial 
manufacturers to ramp up, but I think we are seeing it happen 
rapidly. I think there are some new technologies in the wind 
generation business that are going to be exciting, and a lot of 
them are seen in Iowa right now and the Midwest.
    The U.S. is a very good marketplace for wind. Basically, in 
the European market, they are starting to run into NIMBY 
problems. Offshore applications have a lot of potential, but 
they are expensive. So the U.S. is going to continue, I think, 
to see a large demand. I suspect that we will start seeing wind 
energy move into supplying electricity and to our 
transportation sector in the not-too-distant future.
    ChairmanBraley. Thank you.
    Mr. Hutchinson, I live in Waterloo, Iowa. There is a large 
L.S. coal-fired plant on the drawing boards there. It is 
generating a lot of concern on a lot of different fronts.
    What I would like you to do is to talk about some of the 
things that the coal industry is doing to respond to some of 
the concerns about global warming and how your technology is 
adapting some of the things you were talking about in terms of 
coal gasification and other innovations. Just from your 
industry's perspective, if you would be good enough to share 
with us some of the innovations you see that are responding to 
those concerns and that are a proactive approach on behalf of 
the coal industry.
    Mr.Hutchinson. Okay. Well, first of all, I guess, in the 
mining process, in the preparation plant end of it, there is 
quite a bit of new technology involved in removing some of the 
harmful things there. That is in the preparation plant. When it 
gets to the coal-fired power plant, obviously, there are 
scrubbers, and so forth, who remove the particulates and the 
sulfurs, and also, they are gearing more toward the low sulfur 
coal in certain areas where that is possible, but with the 
mixture of limestone and water into the flue gas that comes off 
of these power plants, they are able to reduce most of those 
emissions by somewhere in the 98 percent range.
    ChairmanBraley. Thank you.
    At this time, I will yield to the ranking member. Please 
feel free to take the time you need. Given the turnout today, 
we want to give everybody on the panel an opportunity to 
respond to some of the issues, the important issues that 
brought us all here today.
    So thank you, Mr. Davis.
    Mr.Davis. Thank you, Mr. Chairman. I would like to thank 
the panel again. You have offered some great insight, and I 
appreciate that.
    I would like to start with Mr. Zuhlke if I could.
    Has the USDA offered any indication lately that they will 
review their conservation reserve program so that more crops, 
such as switchgrass, can be grown for production?
    Mr.Zuhlke. Well, we have certainly had those discussions, 
and the proposal that I have just described has surfaced. I do 
not know where that is going to go, and I do not know what the 
final answer is going to be, but our concern is that, since we 
have all of these thousands of acres in CRP today and we are 
going to see a lot of that torn up and go into row crop 
production, we just see an opportunity to maximize it. In the 
coal-fired coal plants that we are proposing, both of those 
could utilize between 50,000 and 100,000 acres of switchgrass. 
So, when we describe the potential here, it has a material 
impact to the local economy and to the local water quality, et 
cetera.
    Mr.Davis. I have met with and have received a great deal of 
information from Dr. Kelly Tiller, from the University of 
Tennessee, on the subject of switchgrass. She has done a lot of 
research on that.
    In your part of the country, how close are you to actually 
using switchgrass as an energy source?
    Mr.Zuhlke. We are doing it today, and we have been for 
about 3 or 4 years in a coal-fired plant that was never 
intended for switchgrass. We did a retrofit on a baseload 
plant, and we basically have a proof of concept that it can 
work even in a retrofit sort of situation.
    We think what will happen is we will go into a coal-firing 
basis now in these new plants from day one, design day one, and 
then we suspect, as we create switchgrass markets, we will 
probably transition from the cellulose being burned in the 
power plant to, maybe, a liquid fuel later on with the 
conversion of cellulose to ethanol.
    Mr.Davis. Thank you.
    Mr. Hutchinson, I am a strong supporter of expanding our 
renewable energy fuel base. I think we have to look at all 
options and not take anything off the table.
    That being said, I feel like coal has to be in the mix, 
personally. How has the coal industry changed recently in terms 
of national economics and even worldwide economics, and where 
do you see coal going in the future?
    Mr.Hutchinson. Well, I think here in the past 3 to 5 years, 
the demand for energy, new energy sources, has increased very 
late, and coal has stepped up to the plate and has been able to 
satisfy the demand. Actually I believe right now that demand 
has dropped a little bit. If you look at the coal prices, they 
have dropped in the past year. But the coal was able through 
these larger mines to increase preparation facilities in order 
to meet the demand that arose here in the past 2 to 3 years.
    Mr.Davis. What do you think happens to our economy if 
Congress makes decisions that actually harms coal production in 
the future?
    Mr.Hutchinson. Well, you can go back to my report and look 
at some of the statistics. Right now we have no substitute for 
electricity that is being produced in this country. This coal 
is here. It is available. It is readily mined. It is being 
mined, and it is here to satisfy our needs, particularly on the 
electricity side and steel manufacturing side. Right now I know 
of no substitute in the immediate future.
    Mr.Davis. Do you believe that we can go from a coal-based 
economy basically if we are looking at domestic fuels to only 
renewable, and if so, how long do you think that would take?
    Mr.Hutchinson. Personally, I don't think you could. I 
think, with the availability and the relatively low price of 
coal, that coal will always be a big player. And I am listening 
to all of these other alternatives today. I am very interested 
in all of those, but I think the bottom line is for the future, 
we need all types of energy in this country we can achieve. 
Obviously, if something drastic happens in the Middle East, and 
our foreign oil supplies are shut off, we are going to be--we 
are going to be in serious trouble in this country and looking 
to all sources, including coal, to supply our needs.
    Mr.Davis. That is a great segue.
    You talked about our dependence on foreign oil. I served on 
Homeland Security Committee as well, and that is something that 
is at the top of mind for me is our dependence on foreign oil. 
I appreciate everyone on the panel doing everything that we can 
to becoming energy independent and using domestic supplies.
    With that being said, you mentioned coal gasification and 
actually being able to take coal and take it into a gasoline-
type product. I think they were doing that in Germany as early 
as World War II. Can you expand on that?
    Mr.Hutchinson. That is true. That has been in effect for a 
lot of years, but the increase of it is now, and I think there 
is actually some large coal gasification plans on the tables 
right now for the Appalachian regions. So it will be a bigger 
player in the future, hopefully.
    Mr.Davis. When you look at OPEC, I see them being able to 
adjust prices, so it affects everyone on the panel, I think. To 
manipulate our markets, is there some level that we need to 
make sure that energy prices stay at so each one of you are 
protected from foreign oil, Mr. Hutchinson? And then I will let 
everybody else take a stab at that, too.
    Mr.Hutchinson. I am not sure I follow your question. Some 
level of what?
    Mr.Davis. Basically is there some level of pricing--because 
I have seen OPEC since the 1970s, when I see the economy, when 
they say some other type of alternative fuels start to come on, 
coal, switchgrass, wind, water, whatever, OPEC has the ability 
to regulate prices, we go from $3 a gallon to 97 cents a 
gallon.
    Is there some floor that we need to help as a Congress that 
when you put those dollars in investments, that your 
investments are protected for the future?
    Mr.Hutchinson. I am not sure I am qualified to answer that 
question. Maybe someone else on the panel is.
    Mr.Davis. Okay. Thank you.
    Mr.Zuhlke. I don't know as though I have a number that I 
could respond to, but I would give you a real-life example of 
the way we would view the impact.
    We have a very large fleet that is dedicated to keep the 
energy flowing in Iowa. We use a lot of diesel fuel to keep 
that fleet rolling. We are in the middle of transitioning to--
our fleet to the use of biodiesel. I look at West Dubuque 
Biodiesel in terms of our ability to utilize that fuel depends 
upon those incentives they are producing.
    Right now our barrier is not proof of concept, it is not 
whether or not it works in our trucks, it is just getting the 
supply, and then we will be using it.
    Mr.Kelly. I would make reference to kilowatt hour pricing, 
I think. And, yes, what you are saying is absolutely true. The 
manipulation can be easily demonstrated from--you know, by OPEC 
and so forth.
    Your kilowatt hours ultimately that the people pay, whether 
it is commerce or residential, is the key feature. We in the 
solar business are bringing that number down to what I was 
talking about a few minutes ago when I was speaking about this 
three-legged stool of the new technologies of three small 
businesses.
    But we will be able to come in with kilowatt hour prices 
that are every bit as good within a short period of time as 
the--as what prevails, and I am talking--you know, your prices 
may run all the way from 5 or 6 cents a kilowatt hour up to 15 
or 20 or more. We recently--we are actually bidding on a job 
now at 6 cents.
    So, I mean, solar is coming in to be a big boy here and a 
big-time player. If you can come in at numbers like that, you 
are able to compete, and that has significance, I think, with 
respect to oil prices.
    Mr.Davis. Thank you. That is all I have.
    Mr.Braley. At this time I would like to recognize the 
gentlewoman from New York.
    Ms.Clarke. At this time I would like to thank the 
distinguished chairman for holding this hearing today as we 
examine the impact of the energy tax policy on small 
businesses.
    As has already been stated, I am from Brooklyn, New York. 
You may wonder why is a city gal sitting on this panel? As the 
granddaughter of a sugar cane farmer, I am intrigued by the 
renewable energy movement that is now taking root in our 
Nation. I am excited about this next wave of industrial 
manufacturing in pursuit of sustainable renewable energy, and I 
want to do all that I can in my capacity to serve as a catalyst 
to generate as much incentive as possible to get us into the 
renewable energy age in this generation, or at least in my 
lifetime. God willing that will be long.
    I just learned this morning from the Associated Press that 
in the great State of New York, a renewable energy task force 
has identified several barriers to developing renewable energy 
technology. This task force has confirmed that the complex 
local governments, their regulations, lack of resources and 
strong competition from neighboring States has contributed to 
some of the problems as to why New York may face some 
difficulty achieving its goal of generating 25 percent 
renewable energy by 2013.
    As of now, the 41.3 million funding in the renewable 
portfolio standard is not sufficient to change New York's 
energy use.
    I want to ask you gentlemen if the RPS program was created 
to improve energy security, help diversify the State's 
electricity options and increase economic opportunities in the 
renewable energies industry, how can I help my State to create 
a vision to develop policies that will make us more competitive 
with States such as California, Connecticut, Massachusetts and 
Pennsylvania for businesses attracted to alternative energy 
sources?
    Did you get that? It was kind of long.
    Basically, what would a State like New York, who is really 
struggling right now to really galvanize its industry, do at 
this stage to help create a vision and help develop policies 
that will make it competitive, that would attract business to 
the State that many of you already are involved in--with the 
exception of coal; I don't think we have any coal in the 
State--to really attract businesses that would generate 
alternative energy sources?
    Mr.Kelly. If I may speak for a moment on that. We are 
talking to some of the larger developers in New York City now, 
and the idea being that with the new technologies, you can 
build in your construction in the buildings, the big buildings 
in New York. You have got so much opportunity. For example, 
again, I am obviously speaking about solar, but the impact that 
you can have on the economics is getting to be rather strong, 
and that would be a draw, I think.
    If there were--you are in New York, and you are able to get 
some benefits for--particular benefits for solar in the 
construction of new buildings, I am talking some of the bigger 
buildings, too, which we are discussing about in Jersey City 
right now and out on Long Island, I think that would have 
significant, you know, impact.
    Mr.Woolsey. You have got the--carrot-and-the-stick 
approach. You have got a very good RPS in place right now. If 
you put some teeth into that RPS for nonperformance, you will 
have compliance at some cost.
    The other idea is to use the carrot and providing term 
contracts at sufficient prices to get developers to come in and 
sign agreements, sign long-term power purchase agreements for 
clean electricity or the purchase of cellulosic ethanol or 
sustainable biodiesel, with the State doing that or entity that 
has deep enough pockets that a developer can take that 
contract, and go to the bank and get money, put those plants up 
and start the production. That is the other option.
    So I think you guys are on the right track.
    Mr.Zuhlke. My only thought would be whatever you use, try 
to extend it for--give it a certain time, certain length of 
period of time. If we have any lessons learned in this 
industry, it is the on again, off again on tax credits, or the 
on again, off again on terms of incentives.
    The people who build the equipment just can't figure us--
this industry out, and they just don't have time to design, 
build and get it into the pipeline. So longer-term signals on 
purchase power agreements is extremely valuable to getting 
something done.
    Ms.Clarke. Thank you, gentlemen.
    I wanted to ask when the House focused on energy 
independence day initiatives, it was this committee's goal to 
provide financial assistance for programs such as the Small 
Business Development Center, to provide support to small 
businesses to evaluate energy efficiency and green buildings 
opportunities, securing financing to achieve energy efficiency 
and to help these businesses improve environmental performance.
    Can you tell us how the increased loan limits of small 
businesses will help these companies reduce their energy costs 
and become more energy efficient?
    Mr.Kelly. I am sorry. The reduced loan charges to whom?
    Ms.Clarke. For small businesses.
    Mr.Kelly. In other words, if I am a small business, if I 
could--if it was easier for me to get a loan?
    Ms.Clarke. Exactly.
    Mr.Kelly. Sure. But in the banking, I can tell you that we 
have tried to get a line of credit, for example, never. No 
matter what, we could not get lines of credit.
    I now have millions of dollars in the bank, and only now 
are they ready to start giving us a line of credit.
    So, yes.
    Ms.Clarke. Why would you say this is? What is the mentality 
out there in the lending community when it comes to renewable 
energy in particular with small business?
    Mr.Kelly. I think that the bankers ultimately will not 
write any checks for something that they consider is not really 
mainstream, and renewable energy is not mainstream.
    So we are working our way in there. We are really muscling 
our way in, and I have seen that difference in the last year 
now, but it is because we are growing and getting forceful in 
what we are doing on all renewable.
    And solar I will speak for, but the banks, I mean--
    Ms.Clarke. Do you see venture capital being attracted to 
this area?
    Mr.Kelly. Venture capital is clearly coming in, and that is 
where there has been a major attitudinal change. They are now 
coming in, and I am getting a lot of requests for people to buy 
our stocks. I get two, three investment groups a week saying, 
we will buy your stock. But the banks aren't doing it. I want a 
line of credit. I don't want to give away my stock.
    Ms.Clarke. Thank you very much, Mr. Chairman.
    Mr.Braley. Let me follow up on that, Mr. Kelly.
    One of the questions that Ms. Clarke raised was the whole 
issue of the 25-by-13 incentive program in New York, and a lot 
of us are familiar with a lot of different variations of that.
    There is a group called 25-by-25 here in Washington 
advocating that 25 percent of our energy be derived from 
renewable energy resources by 2025.
    Has your industry been involved with any of these efforts, 
and can you tell us what you believe the contributions your 
industry can be to achieving that goal, assuming that the 
proper energy tax incentives are afforded and extended beyond 
the current law?
    Mr.Kelly. I think one quick way would be what I think you 
have in your bill, that utilities, electric utilities, be given 
this 30 percent Federal tax credit availability.
    In New Jersey we have a--an RPS of 90 megawatts before, I 
think, the end of 2008 or 2009, and it is a struggle to get 
there. The utilities would, I think, would jump on something 
like this, and I do think you have this as a part of your new 
bill. That is very important. I think that will open up a whole 
lot of new business. Just as I was talking about what the tax 
credit did for--to really jump-start everything through PPAs 
for us, the power purchase agreements, you would have the same 
thing with the utilities. So I think that is very important.
    In conjunction with that, if I may actually kind of put our 
oar in here. The tax credits need to have that extension of 
time. You have got to have a minimum of 8 years, or the 
investors will not--they don't like to come. They will come if 
they know that there is some stability there, at least 8 years 
on that tax credit.
    If you--the other subjects, very fast, that I would just 
put across to you, Mr. Chairman. The interconnection, okay, 
with the distribution lines, very important.
    The Federal procurement mandates. We are now talking to 
HUD. HUD has--we demonstrated. We spoke to HUD and had a very 
nice response from them. And I basically said, we can present 
the whole power spectrum to you from your heating, your hot 
water, your HVAC, your electricity, and we will run all of the 
motors and pumps in your projects, and we will save you 25 
percent. And that is now--you know, it is going through a 
process. But that is very real.
    So the government is the biggest owner and the biggest 
builder and the biggest energy buyer. There should be something 
there. And that would really have very visible and palpable 
impact.
    Then also in your grants to the States for infrastructure. 
If you would say some of that needs to be renewable, that would 
also do.
    Mr.Braley. Thank you.
    Mr. Breitbach, one of the earlier hearings we had in this 
Committee on renewable energy and its impact on small 
businesses, Bob Deneen from the Renewable Fuel Association came 
in here and identified the renewable energy production in every 
member of the full committee's congressional district, and that 
was a very impressive performance. And one of the things he did 
was point to Ms. Clarke and talk about the use of recycled 
cooking oil as a component of the renewable fuels industry. And 
we know that one of the things that does has potential, 
especially in biodiesel production.
    Can you share with us some of the innovative things that 
are being done in biodiesel beyond just the derived biodiesel 
production from soy beans?
    Mr.Breitbach. Biodiesel can be made of other oils and also 
white grease, white cooking grease. Animal fats can create 
biodiesel. At this time the soy bean oil is the most 
economical, best product to use in making biodiesel.
    The inputs on the animal fat side is a little tougher, a 
little tougher to work with to get your ASTM standards 
biodiesel out of. That is why the choice is the oils.
    Referring back to Ms. Clarke's question on going to the 
bank and getting the money, we are seeing a slowdown or a 
stoppage of biodiesel plants, as you well know, Mr. Braley, 
because of the prices of our feedstock, because of the return 
on investments. The investors aren't coming out. The banks 
aren't jumping on board because we don't have a standard. You 
know, as these gentlemen on the panel say, 2 years, nobody 
wants to take a chance on a 2-year program.
    So as I must say, we sure need a renewable fuel standard so 
we can get these investors out so we can get the banking and 
the financial institutes behind us.
    On biodiesel, Congressman Braley, yes, there is all kinds 
of new technology coming out. They are talking about corn oil, 
the back side of a corn oil, TDG, making biodiesel out of that. 
There are all kinds of new technology coming out.
    Ms. Clarke, as you were saying, how can we push New York? A 
standard. A renewable fuel standard that mandates New York uses 
2 percent biodiesel to get that State in the renewable fuels 
program.
    Mr.Braley. One of the things that I hear when I talk to 
people who are on some of the cutting edges of wind energy 
technology is the problem of storage and retrieval of 
electricity generated from wind production so that you can get 
it back onto the grid during peak demand times. And I have 
heard a lot of the innovative ideas that are out there on how 
we can accomplish that; but, as you know, and listening to 
every member on the panel, the research and development that 
goes into that technologies that leads to actual cost-effective 
ways of delivering that type of a result is what is a big 
challenge facing the people in your industry, especially small 
business owners.
    Can you talk a little bit about some of the issues that 
relate to not just the production of wind energy, but the 
storage and retrieval to meet these peak demand periods?
    Mr.Woolsey. There is, of course--the wind doesn't blow at 
one location all the time. However, when you look at the 
weather patterns coming across the plains or across the United 
States, if you diversify the location of your wind generation, 
you will have wind blowing and supplying electricity at almost 
any point at a time. You will be able to have electricity and--
provided you can transport it to where you need it.
    The idea of putting a disbursed generation pattern out 
there on the land allows you to use the smaller lines, the 
distribution grid more readily. The existing capacity that is 
available on that versus the transmission lines, the larger 
lines that transport larger amounts of electricity, you locate 
that generation closer to where the loads are, closer to where 
you need the electricity, and consequently you save a lot of 
line losses in electricity and transporting that--a product.
    Right now some very exciting things are going on right now 
with making--turning electricity into ammonia, anhydrous 
ammonia, actually capturing nitrogen from the atmosphere and 
fixing it and using that as your storage system. NH3 is one of 
our most densest hydrogen carriers that we have. We now have 
irrigation engines that have been converted over from diesel 
fuel over to anhydrous ammonia running those pumps. This 
technology will also be able to be used in cars.
    We have a pump storage compressed air project that is under 
way right now where they take electricity when they don't need 
it and pump it and turn big compressors, pump the air down into 
the subhorizons of the Earth's strata. And then when they do 
need it, they can pull that air back up, turn the turbines 
again, and use that as a very significant storage medium. You 
can also use that electricity to make hydrogen and use that as 
a storage medium.
    As it becomes more clear to people and company corporations 
that this is going to be a very necessary technology for the 
future, we are seeing some very innovative and very exciting 
technologies move in that direction. And I think this small 
business aspect of this is critical for you folks to take a 
lead on this. I think it will be the determining factor on 
whether the industry is all owned by the old Big Oil folks or 
whether we tap the entrepreneurial creativity and ingenuity of 
America.
    Mr.Braley. Thank you.
    At this time, I will yield to the Ranking Member for any 
additional comments or questions he wishes to share.
    Mr.Davis. I want to thank you for being here today. It is 
very helpful for us to know that we have great minds working on 
our energy independence. Thank you for your willingness to 
travel to Washington.
    Mr.Braley. Ms. Clarke, any further questions?
    Ms.Clarke. No.
    Mr.Braley. One of the things that we know is that the 
consumers and small business owners all over the country are 
very interested in what we are talking about here today. We 
want to thank you for taking time from your busy lives to join 
us today, and we do have votes pending, but I would like to 
give each one of you a minute to make any closing comments or 
any additional remarks that you would care to share with us.
    Mr.Kelly. First of all, I would like to say thank you one 
more time. We need to have an audience such as yourselves. We 
go back to our respective locales, and we can rage, if you 
will, but not get anything done, and where you get it done is 
here and with you.
    There are ways to really, I believe--I will use a pun here, 
but to electrify what we can accomplish through--it is through 
you to give the true encouragement through tax incentives. They 
work. And if you can do some of the things that I was saying, 
from our point of view, that would be hugely helpful not just 
to world order, but to all solar companies and certain other 
renewables, too.
    Mr.Braley. Mr. Breitbach.
    Mr.Breitbach. I would like to thank the committee as well 
for taking the time to listen to us and listen to our concerns 
and voice our concerns.
    As Mr. Kelley said, it is up to you guys. We look to you to 
help us out. In any way we can help you out, we sure would.
    Ranking Member Mr. Davis, you asked a question, and I 
didn't get a chance to get in on it, but you said what could we 
do, is there a number on it? Well, me and my constituents, we 
put together a countercyclical payment program that I am going 
to get copies out to everybody, and it puts a floor on it for 
biodiesel. It is a great countercyclical payment program, and I 
will get that out to you gentlemen.
    Thank you very much again.
    Mr.Braley. Thank you.
    Mr.Woolsey. I thank you all also.
    I think in using the tax policy to internalize the external 
costs and benefits of the industry that we are working in I 
think is vitally important. You know, the costs associated with 
health care, with the military, with carbon--fossil carbon 
additions, you know, to be able to use the tax policy, to 
actually start to quantify those is going to become a much more 
complicated and, I think, important task as we go forward.
    The biofuels, I think, is going to be especially 
interesting to see that accomplished. There are so many 
different criteria that go into producing something like 
biofuels or any of the other renewable energies. It is a 
complex process, and tax policy, I think, is probably the 
appropriate place to be able to nuance the benefit and the 
value that we count on these products.
    Mr.Zuhlke. Mr. Chairman, you asked earlier about global 
warming, and I would just comment from the standpoint you 
probably heard the expression before there is no silver bullet; 
but we are going to need to use silver buckshot, and there is 
going to be many, many answers, and a diverse fuel supply and a 
diverse solution is in indeed in the offing.
    You have every reason to be optimistic. When we touch--from 
coal gasification to sequestration, to solar applications, to 
energy storage, to converting the way we do our transport, 
there are tremendous amounts of energy and human capital going 
on in this business, and you have every reason to be very, very 
optimistic. There is many, many technologies that makes your 
job in your committee hard because there are so many things 
going on. But there are lots of reasons to be optimistic about 
the future.
    Mr.Braley. Thank you.
    Mr. Hutchinson?
    Mr.Hutchinson. Thank you again. Thank you very much for 
inviting me here today.
    Just to wrap up the coal presentation, as I said, I think 
it is a major player for years to come. There are billions of 
tons of reserves right here in the country that we don't have 
to worry about the foreign world situation or anything of such. 
And the prices are competitive; the mining is available. 
Working in conjunction with some of these new alternative 
fuels, I am sure you guys will come up with some methods that 
benefit all of these industries that we have talked about here 
today. And certainly don't forget coal for what it has done and 
for what it will do for us in the future.
    Thank you.
    Mr.Braley. I ask unanimous consent that Members have 5 
legislative days to enter statements into the record.
    Without objection, so ordered.
    Mr.Braley. I want to thank the witnesses again, and the 
hearing is now adjourned.
    [Whereupon, at 11:07 a.m., the subcommittee was adjourned.]



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