Further reflection on state budget machinations

Posted on July 2, 2009. Filed under: Energy Policy, Solar |


RENEW Wisconsin along with many of its members and friends asked Governor Doyle to veto a budget provision that delayed a sales tax exemption for renewable energy equipment. He did not veto the provision, so the exemption is scheduled to begin July 1, 2011.

Michael Vickerman reacts to the governor’s (in)action:

As you know, the current state budget defers the effective date of the sales tax exemption on renewable energy systems by two years. The original exemption date of July 1, 2009, had been established in the previous biennial budget.

How much of an impact the implementation delay will have on the Focus on Energy renewable energy program is anyone’s guess, though the nonprofit sector, a sizable segment of our target market, will not see any impact at all. There is likely to be a short-term impact on the private side, however. When word got out several months ago that the sales tax on RE systems was set to expire today, a few prospective system owners adjusted their installation timetables to take advantage of that change.

Longer term, I believe some renewable energy sectors are going to be more adversely affected than others. The sectors I worry about the most are the >20 kW wind market and the thermal markets (commercial solar water heating and biomass). The sales tax on a 35 kW wind turbine is going to run between $10K and $15K, and $27K on a 100 kW Northwind. These are substantial sums that will certainly affect return on investment. Moreover, the limited number of turbine models greater than 20 kW reduces a prospective system owner’s options for downsizing. As for the two thermal sectors identified above, the implementation delay comes at a time when natural gas prices are sinking to levels not seen since the 1990’s (when adjusted for inflation). The sales tax decision intensifies the already unfavorable economic headwinds that thermal renewable energy sectors must contend with.

I am less worried about PV because of its modularity and its popularity among nonprofit owners, and I believe biogas will not be materially affected because of the agricultural exemption. I don’t recall ever reviewing a biogas grant application that identified sales tax in the cost breakouts.

Given the weak labor picture and the sharp slowdown in business investments, the likelihood that revenues flowing into the state treasury will come in at or above current budget projections is very remote. The factors that resulted in the implementation delay through this budgetary cycle are not going away any time soon. It would be unrealistic to expect a different outcome in 2011. The only difference would be that another implementation delay in 2011 wouldn’t come as a rude surprise.

With the state budget experience behind us, I would like to suggest that installers and contractors proceed as though the sales tax exemption will not take place as prescribed in current law. Even if it was allowed to take effect in 2011, there’s no guarantee that an exemption will be continued after 2013. It will always be subjected to the perpetual tug-of-war between good intentions and budget realities, much like the federal Renewable Energy Production Incentive (REPI) of yesteryear that proved utterly ineffectual in stimulating non-profit ownership of wind turbines.

Policymakers must bear in mind that that an inconsistent policy framework for building up emerging markets may be more harmful to the intended beneficiaries of such intervention than having no policy at all. The 11th hour withdrawal of the sales tax exemption cannot help but erode installer and contractor confidence in the long-term viability of the markets they participate in.

The only way out of this predicament is to establish a stable and enduring policy environment for nurturing growth in the renewable electric and thermal markets. Implementing the pro-renewable energy policy initiatives recommended by the Governor’s Global Warming Task Force would greatly help matters. The most effective actions would:

• Establish Advanced Renewable Tariffs to support distributed renewable generation sources;
• Extend renewable energy incentives to include propane and heating fuel users;
• Increase the Renewable Energy Standard and modify resource eligibility standards to include solar hot water and biomass heating systems.

Finally, regarding the excerpt below issued by the Governor’s Office, it’s worth noting that the state budget authorized millions of dollars to various building trade unions to provide training and education to members looking to break into the renewable energy industry. I commend state officials for recognizing the value of training and educating Wisconsin’s workforce to build up a renewable energy infrastructure serving businesses and communities across the state. At the same time, if the plan is to invest millions of dollars in workforce development to serve a vibrant renewable energy marketplace, then it behooves the state to implement policies that would generate legitimate work opportunities for these skilled workers. To increase the likelihood that the training and education that occurs today will lead to the jobs of tomorrow, the state must take stronger steps today to develop a renewable energy marketplace attractive enough to entice existing and new businesses to make a long-term commitment to it. In my mind that means a stronger commitment to distributed renewable resources, starting with incentives like Advanced Renewable Tariffs to create investment certainty and predictability. If the state fails to give equal weight to the market side of the equation, we will wind up exporting much of Wisconsin’s skilled renewable energy labor force to other states that can employ them.

Michael Vickerman
RENEW Wisconsin
Wisconsin Wind Working Group
mvickerman@renewwisconsin.org
http://www.renewwisconsin.org

+++++++++++++++++++++++++++++

From the Governor’s Office:

Clean Energy Wisconsin and Job Training
Through Wisconsin Act 2, the Governor provided $2,630,000 in grants from the Wisconsin Development Fund to specific organizations (unions) in the building trades to provide job training and retraining programs, including training in green building and the installation of alternative energy systems.
a. $1 million to the Wisconsin Regional Training Partnership/Building Industry Group Skilled Trades Employment Program (BIG STEP)
b. $150,000 to the Painters and Allied Trades, District Council 7 to train workers on the construction industry on the LEED certification process
c. $175,000 to the Painters and Allied Trades, District Council 7 to train to certify individuals to provide instruction to workers in the construction industry on standards established by the National Association of Corrosion Engineers International, and by the Society for Protective Coatings
d. $175,000 to the Wisconsin State Council of Carpenters to train carpenters in the installation of windmills and other alternative energy systems.
e. $72,000 to the Wisconsin State Council of Carpenters to train carpenters in sustainable green building practices.
f. $248,000 to the Wisconsin Pipe Trades Association, Local 75 to build, using green building practices, a mobile training facility to be used in connection with training programs for workers in the pipe trades.
g. $265,000 to the Wisconsin Laborers’ District Council
h. $275,000 to the Wisconsin Operating Engineers to train workers in the construction of geothermal energy and wind energy systems.
i. $210,000 to the International Brotherhood of Electrical Workers to purchase equipment for three laboratories to be established in the state for training workers in the installation of solar electricity systems
j. $60,000 to the International Brotherhood of Electrical Workers for instructor training and start−up costs in connection with the laboratories that will be established by this group

The budget also provides nearly $2 million to the Wisconsin Technical College System to support efforts to re-train individuals and prepare them for available jobs in industries across the state.

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