When it comes to energy and greentech, technology and financing are crucial.  But without a favorable and stable policy climate, renewable energy doesn't stand a chance against the entrenched incumbent energy sources -- even if advanced technology is in place.

Richard Goldstein, Partner at Nixon Peabody, offered some perspective on the rules of the political game at a recent IPED solar financing event in East Palo Alto, Ca.

He said, "There's gridlock in Congress."  Republicans are forcing "more cloture votes than ever"; cloture requires 60 votes while the Democrats have only 59.  (And the Democrats tend to have a few defectors from their own party.)  Goldstein added that there is a $13 trillion national debt, $1 trillion of which is held by China and $800 billion of which is held by Japan.  All told, foreign governments hold $5 trillion of the $13 trillion debt, according to Goldstein's figures.  Both parties see this as a huge issue in the upcoming elections and are trying to portray themselves as deficit hawks, meaning that Republicans and Democrats alike are going to be less inclined to offer financial breaks to the renewable energy industry.

Derek Dorn, the Staff Director and Senior Counsel for Senator Bingaman (D-NM), made a few salient points on the current legislative process.  Bingaman is the Chairman of the Senate Finance Subcommittee on Energy, Natural Resources and Infrastructure, although Dorn made sure to tell me that he spoke only for himself.  He's a Washington insider with a perspective that we don't normally get from greentech CEOs and entrepreneurs.

A Brief History of Tax-Based Incentives

Fossil fuels have received tax-based incentives since 1912.  Federal tax-based subsidies for fossil fuels in the years 2002 to 2008 were cumulatively $72 billion, versus corn ethanol at $16.8 billion and all other renewables at $12.2 billion, according to the Environmental Law Institute.  

Expiring Energy Tax Incentives

There are significant expirations approaching, as well.  

Section 1603 is going to expire on New Year's Eve, 2010. Section 1603 is the program that provides cash grants in lieu of tax credits for renewable energy projects, a key incentive for recent wind and solar project financing.

Sen. Maria Cantwell, D-Wash., has proposed an amendment to the pending tax extenders bill that would extend Section 1603 through the end of 2012.  Supporters of the extension estimate that it would create at least 65,000 jobs in the solar energy sector.  The amendment would also make not-for-profit power producers eligible for the Section 1603 program.  The amendment was co-sponsored by Sens. George LeMieux, R-Fla., Dianne Feinstein, D-Calif., Debbie Stabenow, D-Mich., Jeff Merkley, D-Ore., and Ben Nelson, D-Neb.   According to Cantwell, extending the program now would prevent a slow-down in the rate of project development in anticipation of its expiration.

The more controversial area, according to Dorn, is that the ethanol blender's credit, the ethanol tariff, and the small-producer credit are all set to expire at the end of this year.  A cellulosic credit expires at the end of 2012, as well.  According to Dorn, the tax credit for ethanol blenders now costs the government about $7 billion per year, more than any other renewable energy tax incentive.

Obviously, corn states want the ethanol credit extended.  And political interests tend to want to keep farmers happy and early-voting states like Iowa placated.  

According to Dorn, small items like 1603 never come up separately on the Senate floor; instead, they all get tacked on to a larger legislative “vehicle.”  For example, the vehicles for a 1603 extension could be a broad energy bill, a climate bill, Spill Bill, or the annual "tax extenders" package.  Currently, there is some confusion over whether the climate bill will come before or after the energy bill.

California and the Energy Storage Bill

AB 2514 (the California energystoragebill) passed through the California Assembly on June 3rd and is currently making its way through the Senate. 

AB 2514 requires the development of storage procurement plans by all California utilities and was encouraged by the efforts of Ed Cazalet of MegaWatt Storage Farms.  California Attorney General (and Democratic gubernatorial candidate) Jerry Brown and Assemblymember Nancy Skinner were involved in the passage of the bill, which proposes to require utilities to meet energy storage goals, just as they are now required to meet RPS requirements. 

According to Cazalet, "AB 2514 has no state tax subsidy and would provide state and local sales tax and local property tax revenues in California."

Shifts in the energy market need disruptive policy changes as much as disruptive technology.