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United States

Wind loses out to hydrogen in budget -- Wind's tax credit escapes Senate's cuts but R&D budget static

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Congressional jitters over a soaring deficit make it unlikely that the wind industry can win any increase in research funding in the United States beyond the "status quo" request contained in President George Bush's proposed fiscal year 2005 budget. The president's proposal for wind energy research totals $41.6 million, essentially what the administration sought in 2004 and only slightly more than was actually appropriated.

"It is better than a cut," says Jaime Steve, legislative director for the American Wind Energy Association (AWEA). "But it doesn't show a tremendous increased commitment, which we would like to see."

Few renewable technologies fared better in Bush's $2.4 trillion budget plan, which includes big spending increases for defence and homeland security while projecting a record $521 billion deficit. Biomass research was slashed by about $14 million, while solar energy suffered a $3 million hit. Hydropower and geothermal research received slight increases, but the big winners in Bush's budget are clean coal and hydrogen. The spending plan calls for $287 million for research into clean coal technology, a 60% percent increase from last year. Hydrogen and fuel cell research totals $228 million, up 43% over last year. About $2.7 million of the increase will be used for research designed to lower the cost of hydrogen production from renewables.

The Sustainable Energy Coalition, of which AWEA is a member, calls the administration's approach to renewable energy research "penny-wise and pound-foolish." It points out that demand for renewable energy technology is booming, to the extent that on a percentage measurement it is the fastest growing source of energy worldwide. "However, lukewarm domestic support for incentives and research means that market share, technical expertise and thousands of new jobs in this sector are increasingly moving overseas," it says.

Limited research funds, the coalition argues, should be spent on "proven clean energy technologies' with the greatest potential to increase supply, reduce imports and reduce emissions.

Budget discipline

The coalition wants to see a 50% boost in renewable energy and energy efficiency research funding over five years and has vowed to mount an intensive campaign to get Congress to increase the 2005 allotment. It has the support of 105 members of the House of Representatives, who are urging Bush to support "robust funding levels" for renewables. Steve, however, says the record deficit is going make it hard to find the money.

"People are trying to impose budget discipline, which has not been imposed now for at least the last two or three years," he says. "That puts pressure on all discretionary domestic spending programs. So it is going to be really difficult to increase those numbers."

In fact, rising concerns over the deficit have led Senator Pete Domenici, the chief sponsor of the far-reaching energy bill which is now stalled in the Senate, to slash the legislation's $31 billion price tag to less than $14 billion. The stripped down bill was introduced in the Senate in mid-February, before lawmakers left for a week long holiday.

As expected, the bill's three year extension of the federal wind production tax credit (PTC) escaped the knife. "Of any tax items that are contained in the energy bill, the wind production tax credit is, by far and away, one of the most popular with everybody," says Steve. A three-year PTC extension, expiring at the end of 2006, is also included in the president's 2005 budget proposal. Despite the PTC's broad support, just when it will be passed into law is another matter. "We're going to get it done. It is a question of when," says Steve.

Although Senate Democrats and Republicans promised a swift vote on the measure following their return to work February 23, the bill was expected to face an uphill path to passage in the House of Representatives. House Republicans have warned that the Senate's move to drop legal liability protection for makers of a water-polluting gasoline additive could kill the whole bill.

PTC supporters have been looking at other routes to passage, including attaching the extension to must-pass legislation currently before Congress. "Our message to the Hill is: however you figure out how to do this, we need it done as soon as possible because it is costing people's jobs. We've got to get people back to work," says Steve.

One tax break that Bush is not looking to extend in his 2005 budget allows wind developers, as well as other US industries, to accelerate the rate they can depreciate new equipment, which lowers the cost of wind $3-5/MWh. The temporary provision, which expires at the end of this year, was enacted in 2002 as a way to spur economic growth after the economic slump resulting from the September 11, 2001 terrorist attacks.


Bush does, however, propose to spend $91 million to modernise and expand the nation's transmission infrastructure, up 12.5% over last year. It is an investment that could be "vitally important" to wind growth, says Steve.

"There are vast portions of the country where you can produce wind power, but if you don't have the transmission availability to deliver your product to market, then those wind projects are never going to get built."

Bush's budget proposal is only the first step in a long budgetary process, complicated by the fact that this is an election year. The focus now shifts to Congress, which must negotiate the appropriations bills that will determine the actual levels of funding for the various government programs.

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