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Overview:

The California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) finances projects that develop renewable energy (e.g. solar panels and wind turbines) or increase energy efficiency, and transportation and manufacturing projects (e.g. electric cars) that conserve energy, reduce air pollution and promote economic development and jobs. Financial assistance includes loans, loan guarantees, bonds, tax exclusions and credit enhancement. The authority is a separately-governed division of the state Treasurer’s Office.

 

The California Alternative Energy & Advanced Transportation Financing Authority (pdf)

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History:

The state Legislature created the California Alternative Energy Source Financing Authority in 1980 with an authorization of $200 million to finance projects using alternative forms of energy. The authority issues revenue bonds, whose debt is paid by the companies that borrow the money.

One of the projects it supported was a German-designed plant to produce electricity by burning tires near Modesto. The plant was financed in 1987 with $38 million worth of 30-year interest-free bonds and built to plow through the “Modesto Pile,” 20 years worth of tires hauled to the site by Ed Filbin, who collected the discarded rubber by the truckload and deposited up to 20,000 tires a day in the foothills near Interstate 5. It was estimated that if a fire ever broke out at the tire dump, it could burn for seven years. Despite burning up to 6 million tires a year in the new plant, the pile continued to grow and caught fire in 1999. The plant closed the next year.

In 1993, the authority financed construction of the Arroyo Energy co-generation facility near San Diego with $55 million worth of bonds. The owner, Paul Gerst, built a complex in a tax-haven enterprise zone to produce electricity, steam and . . . hockey rinks. Although several co-generation plants had been built in tandem with ice-making businesses or cold storage, the Icefloe plant produced 50 megawatts of power and was the first to include two Olympic-size hockey rinks, a fitness center, a swimming pool and a restaurant. Gerst said it was profitable from day one.

In 1994 the state added “advanced transportation” to the type of projects the authority would fund, and renamed the agency to its current name. By 1996, $174.8 million in bonds had been sold to fund 19 projects.

California attempted to deregulate its electricity market in 1996 with passage of The Electric Utility Industry Restructuring Act, which allowed electric utility service areas to choose their own electric generation supplier. It failed spectacularly in 2000 when wholesale prices skyrocketed and during the ensuing energy crisis—and re-regulation of the market—the scope of the authority broadened to give public and independent power companies, and other entities, funds to develop renewable energy sources and “clean” distribution methods. Still, the agency essentially lay dormant until 2008 when Treasurer Bill Lockyer named a new executive director, Jan McFarland, in February.

That year, CAEATFA refashioned its policies to pass an existing sales tax break for equipment used to manufacture advanced transportation products to entice Tesla Motors to California. Tesla had just produced a limited number of high-end electric sports cars called the Roadster and wanted to expand its operations to include mass-production of an electric sedan. The change allowed CAEATFA to take advantage of California’s zero emissions vehicle (ZEV) law, which allowed Tesla to sell emission credits to other manufacturers, generating what amounted to a $5,000 per vehicle subsidy for its sedan.

In 2010, SB 71 expanded the Authority’s ability to exempt green manufacturers from paying sales and use taxes on manufacturing equipment. Projects must be targeted at high unemployment areas and have a net tax benefit to the state at least equal to the tax benefit of the manufacturer.

In November 2010, Lockyer announced approval of CAEATFA tax exemptions for 12 green projects worth $71.5 million. He said they would create 4,914 jobs and generate $31 million in net fiscal and environmental benefits.

 

Senate Bill 771 (California Legislative Information)

Minutes of Meetings (CAEATFA website)

Massive Pile of Tires Fuels Controversial Energy Plan (by Ronald B. Taylor, Los Angeles Times)

Westley Tire Pile Chronology (Modesto Bee)

Engineer's Ice Plant Helps Power County (by Dean Nelson, New York Times)

Treasurer Lockyer Announces Financial Incentive to Encourage Zero-Emission Vehicle Manufacturing in California (CAEATFA website) (pdf)

Tesla to Build Electric Sedan in California; State Introduces New Incentive for ZEV Manufacturers (Green Car Congress)

Advanced Transportation and Alternative Sources Manufacturing Sales and Use Tax Exclusion Program (SB 71 Program) (CAEATFA website)

California Establishes Tax Break for Clean Tech Manufacturing Companies (by Sanjay Ranchod, Stay Current) (pdf)

Treasurer Lockyer Announces Approval of Sales and Use Tax Exemptions for 12 Green Projects (CAEATFA website) (pdf)

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What it Does:

Since 1980, the Alternative Energy and Advanced Transportation Finance Authority (CAEATFA) has overseen many of the incentives California has offered. The authority is a separately-governed division of the California Treasurer’s Office. It finances projects that develop renewable energy (e.g. solar panels and wind turbines) or increase energy efficiency, and transportation and manufacturing projects that conserve energy, reduce air pollution and promote economic development and jobs. It is authorized to issue up to $1 billion in bonds.

CAEATFA’s five-member board is chaired by the state treasurer and includes the state controller, the Department of Finance director, the Energy Commission chairman and the Public Utilities Commission president, or their representatives. The treasurer chooses an executive director.

The authority has offered both taxable and tax-exempt bonds, loans, credit, tax exemptions and other financial benefits to eligible projects that promote the use of alternative energy or energy conservation. Energy manufacturers, local governments, public agencies, non-profit organizations and even private property owners develop these projects. As of early February 2012, the only active program was the Sales Tax Exclusion program.

 

Sales Tax Exclusion Program

This program, created in 2010, allows manufacturers of products that help develop alternative energy sources to pay less sales tax than they would otherwise on any equipment they purchase to create their products. This program is currently open only to manufacturers of alternative energy components and systems, but may be expanded in 2012 to companies that generate forms of alternative energy.

A total of 30 projects are currently approved for a total of $80.3 million potential savings to the participating companies. So far, the current participants have received a benefit of $13.3 million in sales tax they weren’t required to pay. These projects are expected to generate $65.2 million more than the loss of sales tax revenue, and to create 5,174 new jobs.

One previously approved company, Solyndra Corporation of Fremont, has since gone out of business. Solyndra, a solar panel manufacturer, received $25.1 million in sales tax exemptions, and would have qualified for almost $10 million more if it hadn’t gone bankrupt.

The authority approved eight other projects that never got off the ground, and were withdrawn before their developers actually received any sales tax exemptions. If these projects were still on board, they would have collectively received another $16 million in sales tax exemptions.

Of the 30 projects currently approved through this program, nine create solar panels and one project creates solar fuel. Another 11 projects involve capturing and using methane gas, which is produced naturally in places where organic materials are decomposing, such as landfills, dairies and sewer treatment plants. One project focuses on “fuel cell” technology, which is designed to more efficiently turn fuel into energy. Another three projects focus on converting biomass (organic solids) into fuel. Two projects manufacture lithium batteries. There are single projects focusing on geothermal fuel, hydrogen fuel and manufacturing electronic vehicles.

Most projects are located in or near the Bay Area. There are 10 projects in Santa Clara County and five in Alameda County. San Joaquin County is home to three projects. There are two projects each in Kern, Monterey, Los Angeles and Imperial counties, and one each in Orange, Butte, Fresno and San Diego counties.

 

Report of SB 71 Sales and Use Tax Exclusion (STE) Financing Applications Considered and Approved (pdf)

 

There are several other programs the authority hopes to begin offering in 2012.

Qualified Energy Conservation Bonds

These bonds will provide low-interest tax-exempt 10-year loans for projects designed to promote use of alternative energy, or to reduce energy consumption. Most money will be allocated to cities and counties with populations of more than 100,000, although some will go to tribal governments and some to state agencies. Any public agency receiving financing through these bonds can also make up to 30% of the funds available to private owners of buildings.

Federal funds finance these bonds. The state received a $381 million allocation from the federal government, and has already allocated this amount, but will reallocate more if it becomes available.

 

Private Activity Bonds

These bonds will provide up-to-30-year tax-exempt loans for “district” heating and cooling projects. These heating and cooling systems are for any public spaces, such as commercial buildings, multi-family housing structures including condominiums, hotels, sports venues, schools and government complexes. District heating and cooling systems heat, steam or chill water, then distribute this water through underground pipes to each individual unit (hotel room, classroom, etc.) within the system. The water provides for not only the users’ water needs, but also to heat space or for air conditioning.

Since district heating and cooling systems are not yet widely used, and since the authority is still fine-tuning how it would select projects to qualify for these bonds, the state is not yet offering private activity bonds for this purpose.

Currently, the state offers private activity bonds for other purposes. Although the state issues these bonds, the agencies involved merely oversee the program. A bank or investor is actually funding these bonds, and the recipients of them will repay that bank or investor.

 

Clean Energy Upgrade Financing Program

This program will give financial incentives to banks that finance loans to homeowners and small business owners retrofitting for alternative energy distribution systems, electronic vehicle charging stations, and projects designed to conserve energy or water. The two-stage program was created in 2011 and expects to be operational in 2012.

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Where Does the Money Go:

The authority’s 2011-2012 fiscal year budget of $3.2 million spends more than two-thirds of its money ($2.2 million) on salaries, benefits and other costs of operating the authority’s programs, and $1 million is set aside to fund the Clean Energy Upgrade Financing program’s startup costs. In the proposed 2012-2013 budget, $23.45 million will finance all of the cash-based incentives the authority plans to offer, and $2.05 million will pay for personnel and operating costs.

The Sales Tax Exclusion program is not part of the budget, as it represents taxes that weren’t paid by the participating manufacturers, and therefore never became revenue for the state. The program is lucrative for the manufacturers that have received this tax exemption. The top beneficiary was the now-bankrupt Solyndra Corporation of Fremont, which had been promised $34.7 million in sales tax exemptions for building solar panels, and had already received $25.1 million in exemptions when it declared bankruptcy on September 6, 2011.

There are several other manufacturing companies who will be exempt from paying millions of dollars in sales tax. The amount of the exemptions granted by the authority is determined by the estimated cost of their project, and the amount of exemption received is determined by how much they purchase in materials to create their projects.

After Solyndra, the largest exemptions approved as of February 2012 are:

  • Obsidian Energy, a Texas-based company that plans to build three geothermal plants in Imperial County. It was granted $14.1 million in sales tax exemptions. (As of February 2012, it had not started construction and had received no sales tax exemptions.)

  • Nanosolar of San Jose, a solar panel manufacturer, granted $12.8 million in sales tax exemptions. (As of February 2012, it had received $3.9 million.)

  • Simbol Materials, Inc. of Pleasanton. It opened a production plant in September 2011 in Brawley, where it produces lithium carbonate for use in batteries. It was granted $3.9 million in sales tax exemptions. (As of February 2012, it had received $117,212.)

  • Alta Devices, Inc., which opened a solar panel manufacturing plant in Sunnyvale in 2011. It was granted $3.7 million in sales tax exemptions. (As of February 2012, it had received $448,156.) Alta Devices is completing renovations to its building in Sunnyvale.

  • First Solar, an Arizona-based company, renovated a building in Santa Clara, where it now conducts research into solar panel development. It was granted $3.4 million in sales tax exemption. (As of February 2012, it had received all but $21,133 of this.) First Solar, which had been using technology similar to that used by Solyndra, has experienced financial difficulties as well.

  • Bloom Energy Corporation of Sunnyvale, which manufactures fuel cell systems and in 2011 completed an expansion quadrupling the size of its plant. It was granted $3.4 million in sales tax exemptions. (As of February 2012, it had received $807,488.)

  • Mia Solé of Sunnyvale, a manufacturer of solar panels, granted $2.4 million in sales tax exemptions. (As of February 2012, it had received $782,095.)

  • NuvoSun Incorporated of Milpitas, a solar panel manufacturer that relocated its headquarters to Milpitas in 2010, It was granted $1.8 million in sales tax exemptions. (As of February 2012, it had received $756,150.)

  • Zero Waste Energy Corporation of San Jose, which is expanding its plant there and is developing a project to capture natural gas to develop new alternative fuel. It was granted $1.4 million in sales tax exemptions. (As of February 2012, it had not received any.)

 

3-Year Budget (pdf)

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Controversies:

Solyndra

After cruising to victory in the California Democratic primary for governor in June 2010, Jerry Brown kicked off his formal campaign with a visit to Solyndra Corporation, an up and coming Silicon Valley solar panel manufacturer. Solyndra had promised to hire more than 700 people on a permanent basis, and 1,363 people to construct its solar panel manufacturing plant in Fremont.

The federal government was encouraged by Solyndra’s potential and loaned the company $528 million as part of the 2009 stimulus package meant to help revive the struggling economy. CAEATFA followed in November 2010 with a $34.7 million award of sales and use tax exemptions, $25.1 million of which Solyndra ended up using before declaring bankruptcy on September 6, 2011.

The authority attempted to recover some of the sales tax revenue, but since Solyndra technically did not owe the state money, the authority is not a creditor in Solyndra’s ongoing bankruptcy hearings.

Solyndra apparently had an idea for solar panel manufacturing that looked better on paper than it really was. The company was designing cylindrical solar panels instead of the traditional flat panels. It estimated the cost of designing and producing the first of these panels at more than $400 million. It had planned on cutting production costs by developing a solar panel that does not use silicon, which was much more expensive in 2008 than it was in 2011. The lighter weight was also supposed to have made these panels less expensive to manufacture and install than traditional panels.

In 2011, the market was already saturated with solar panels, many made less expensively by Chinese manufacturers. The Chinese and many American companies used processes relying on silicon, and these companies could sell their product for much less once the price of silicon dropped. To be competitive, Solyndra had resorted to pricing its panels below what it had cost to develop them.

Because of questions about what it was doing with the federal money, the Federal Bureau of Investigation and the U.S. Department of Energy were already investigating Solyndra when it went out of business. Since Solyndra’s bankruptcy, Congress has been much less supportive of providing financial incentives for other alternative energy producers.

Solyndra’s bankruptcy also resulted in an investigation by the California State Senate, during which it considered eliminating the Sales Tax Exclusion program. Senator Alex Padilla, who had authored the legislation creating the program, is the one who called for the hearing after learning of the bankruptcy.

After learning of the bankruptcy, Treasurer Secretary and CAEATFA chairman Bill Lockyer asked his fellow authority members in September 2011 to consider voluntarily suspending the Sales Tax Exclusion program. The authority immediately temporarily suspended the program to new applicants, but after Lockyer and both Democratic and Republican senators defended the program at Padilla’s hearing, the board decided it didn’t need to continue the suspension.

 

Jerry Brown Kicks Off Campaign with Visit to Solar Company Solaria (by Jim Witkin, Triple Pundit)

Solyndra's Collapse Is a Tale of Too Much Dazzle (by Ken Bensinger, Stuart Pfeifer and Neela Banerjee, Los Angeles Times)

Solyndra (New York Times)

Solyndra’s $25 Million California Tax Break Defended by Lockyer (by James Nash, Bloomberg)

Meeting Minutes about Solyndra Bankruptcy (CAEATFA website) (pdf)

Alternative Energy Manufacturing Sales and Use Tax Exclusion (SB 71) Program (Legislative Analyst’s Office) (pdf)

 

First Solar

First Solar, the nation’s largest solar company, received a $3.4 million sales tax exemption from the CAEATFA to help with the costs of expanding a research and development center in Santa Clara, and in February 2012 had already spent enough money on the project to receive most of the entitlement.

Yet, First Solar appears to struggling to meet the Sales Tax Exclusion program’s goal of stimulating California’s economy by creating “green jobs.” In December 2011, First Solar laid off 110 employees in California, including two-thirds of those in Santa Clara, and more than half at a solar farm in the Antelope Valley.

One type of panel First Solar was looking into developing uses the same silicon-free, cylindrical technology that brought Solyndra down. In December 2011, it scrapped those plans. It also laid off 60 of the 100 employees at the research and development center in Santa Clara, and 40 more at its operations in other states.

At the end of 2011, First Solar laid off 50 of its 96 employees at the solar farm it was building in the Antelope Valley community of Fairmont. It had started building a solar generation plant there in July 2011, amid community concerns about the effect it would have on the desert environment. It had intended to increase its workforce to about 350 jobs during construction, and hire 20 permanent employees once the plant opened.

In September, First Solar sold the property to another company, Exelon, but apparently plans to still build the solar generation plant for Exelon.

First Solar is in even larger debt to the U.S. Department of Energy than Solyndra was. It received about $680 million in loans to construct the Fairmont plant, $1.46 billion for a plant in Blythe, and $967 million to construct one in Yuma, Arizona. Although it has sold each of these properties, they are expected to create 1,300 construction jobs and at least 45 permanent jobs.

In 2010, Forbes had named First Solar as one of the 25 fastest growing companies. The value per share of company stock in the company peaked at $175 in February 2011, but as of January 2012 had dropped to $33, making it the worst performer in Standard & Poor’s stock index for 2011.

In December 2011, Warren Buffett announced he was pumping $2 billion into First Solar with the purchase of the 550-megawatt thin-film photovoltaic solar energy development called TopazSolar Farm in Tempe, Arizona, through his MidAmerican Energy Holdings. The value of the solar industry in the U.S. is estimated at $6 billion, according to Michelle Kinman, a clean energy advocate for the group Environment California. Kinman also said around 100,000 people are employed in the industry, with about one-third of the jobs in California. Another 25,000 jobs were expected to be added in 2012, she said.

First Solar gave more than $150,000 to political campaigns in California in 2011, and has spent $2.2 million on lobbyists in Washington since 2007.

 

Buffett Investment in California Solar Farm Could Boost Industry (by Ronald D. White, Los Angeles Times)

First Solar Drops ‘Holy Grail’ Technology that Sank Solyndra (by Christopher Martin, Bloomberg Business Week)

First Solar Reportedly Slashes Work Force (The Mountain Enterprise)

First Solar Boosts Political Donations, Wins Favor (by James Nash and Jim Snyder, Bloomberg News)

Taxpayers Take Hit as Solar Industry Implodes (by Paul Chesser, National Legal and Policy Center)

 

Tesla and the Electric Car

Electric cars have struggled to gain a foothold in the automobile market. The first mass-produced electric vehicle, General Motors’ EV1, inspired the documentary “Who Killed the Electric Car?” when it died after a brief 1996-1999 production run. A second go at it by GM ended in failure as other car companies cautiously advanced their own projects.

In January 2007, GM unveiled the Chevy Volt prototype and Tesla Motors began serious work on a high-end Roadster it hoped would kick start and industry and lead to lower-priced cars for a mass market. The company also produced an innovative lithium-ion battery pack that powered their cars and were of interest to other car manufacturers.

The Roadster went into production in 2008 and Tesla sold about 2,000 of the sleek cars, built from parts made at outsourced facilities. But the company set its sights on having its own factory to mass-produce a sedan and the factory it wanted was in California. Toyota and GM had been sharing the Nummi plant in Fremont since 1984 and it was known to be on the market. But the $1 billion asking price seemed beyond the reach of Tesla, that had about $40 million to spend.

California, always a leader in encouraging technological innovation through environmental initiatives, began passing regulations mandating future energy-efficient automobiles while offering financial incentives to facilitate their development in the 1990s. In mid-2008, amid the financial collapse that dried up investment money worldwide, the state of California struck a deal with Tesla The company would make its second-generation electric vehicle, the Model S sedan, in California and receive assistance from CAEATFA sales-lease-back agreements that allow the program to pass along a tax break for purchasing equipment.

The Model S prototype was completed in March 2009 and two months later the German company Daimler AG paid $50 million for 10% of the company as part of a deal to use Tesla battery technology in its Smart cars. In June, Tesla scored some federal stimulus money, $465 million, as part of the $8 billion federal Advanced Technology Vehicles Manufacturing Loan Program. (Ford got $5.9 billion and Nissan got $1.6 billion.) The money was contingent on finding a factory.

The financial crisis took its toll on General Motors, which was in bankruptcy by the end of 2009, and in April 2010 the Nummi plant was shuttered. But within a month, Toyota and Tesla announced a purchase agreement at Tesla’s price and Model S had a home.

Lockyer was ecstatic. “This development also puts the lie to claims that California’s tough, trailblazing laws to fight global warming and foster energy independence threaten businesses and jobs,” he said in a release that estimated 25,000 jobs would be lost if Nummi stayed closed.

In addition to the CAEATFA tax break, Tesla benefits from other California subsidies. The state Air Resources Board established a zero emissions vehicle (ZEV) mandate 20 years ago that set up a market for trading emissions credits among auto manufacturers. It attempts to encourage auto companies to develop their own electric cars by requiring companies selling more than 60,000 cars in California annually who haven’t met the state’s emission standards purchase credits from companies that have.

As of 2008, the only company that qualified was Tesla. Sales of ZEV credits to other automakers amounted to 85% of the company’s total gross margin. Analysts determined that ZEV credits were worth $5,000 per Model S car to Tesla. But by August 2010, General Motors, Toyota, Nissan, Honda and Volkswagen were all getting in the game and indications were that they wouldn’t need Tesla’s ZEV credits for long.

In January 2012, California set a requirement that 15% of new cars sold in the state had to meet its near-zero emissions requirement by 2015.

Meanwhile, critics of electric cars were sniping at the vehicles and predicting that once their drawbacks were made clear, the market would crumble. Ozzie Zehner, author of Green Illusions, argued that “Electric vehicles don’t eliminate the negative side effects of vehicular travel. They simply move the problems elsewhere—often to contexts where they become more opaque and difficult to address.” He predicted that even if the price of the vehicle becomes reasonable, the cost of batteries will be problematic. “The battery-construction step, not the ‘fuel’ step, is the expensive part of driving an electric vehicle.”

In June 2011, GM’s Chevy Volt caught fire during a crash test by federal regulators. Five months later, a Volt battery pack caught fire after federal officials purposely damaged the car. Another battery pack started smoking and sparking after a similar test.

Nissan sold 8,000 all-electric Leafs in the first 10 months of 2011 and GM had sold around 5,300 Volts in a year’s time. Total 2011 U.S. vehicle sales were 10.5 million through October.

 

How Elon Musk Turned Tesla Into the Car Company of the Future (by Joshua Davis, Wired Magazine)

Tesla Subsidy Vanishing Amid Electric Vehicle Boom (by Darryl Siry, Wired Magazine)

Tesla SUV With Wings or Not, We Should Kill the Electric Car (by Ozzie Zehner, Christian Science Monitor opinion)

Investors Flock to "Clean" Tech, So Why the Subsidies? (by Paul Chesser, National Legal and Policy Center)

Zero-Emission Vehicle Regulations Get Tougher for 2012 (by Keith Barry, Car & Driver)

Treasurer Lockyer Announces Financial Incentive to Encourage Zero-Emission Vehicle Manufacturing in California (CAEATFA website) (pdf)

A Setback for Electric Cars (by Bill Vlasic and Nick Bunckley, New York Times)

 

PACE Program

Property Assessed Clean Energy (PACE) was a popular program promoting energy efficiency, supported by the White House and authorized for use in 20 states (including California), until it ran headlong into bank regulators and the troubled mortgage industry.

PACE allows state and local governments to issue bonds that finance energy efficiency and alternative energy projects for homes and small businesses. There were already California cities and counties offering the program to their residents, with the support of federal stimulus money from the American Recovery & Reinvestment Act of 2009, when the Legislature authorized creation of the state program in April 2010. Three early participants were Berkeley, Sonoma County and Palm Desert.

Property owners who receive PACE loans pay the money back through a lien on their property taxes. When a foreclosed home is sold, government agencies with liens against the property usually get paid first, before the lender.

Just as the state was launching its outreach program to develop the program in mid-2010, mortgage giants Fannie Mae and Freddy Mac announced they would no longer purchase mortgages on properties with outstanding PACE loans. Most residential PACE programs were put on hold as the Federal Housing Finance Authority (FHFA), conservator of struggling Fannie and Freddy, challenged the legality of the program in court. The FHFA contended PACE liens posed a risk to banks and other lenders.

Energy Independence America, a private organization that advocates for PACE, contends these property tax assessments aren’t much different than when a government agency imposes a property tax on an entire community. The only difference, as Energy Independence America sees it, is that having a property tax assessment to fund a PACE project is voluntary; only those who want the energy improvements pay additional tax for them.

Thefederal authority, which regulates the lending programs offered by Freddie Mac, Fannie Mae and the Federal Home Loan banks, contends these loans are issued without consideration of the homeowners’ ability to repay. The federal authority also maintains certain consumer protection measures, such as the Truth in Lending Act, aren’t followed when issuing these loans. Furthermore, it contends the program offers no guarantees the energy improvements actually increase the home’s value.

Since the housing market had many other problems in 2010, the Housing Finance Authority didn’t want PACE adding to them. This position brought all residential PACE programs to a halt.

California took no further action to develop its PACE program, but along with the city of Palm Desert and six other entities, sued the Housing Finance Authority. A U.S. District Court ruled in January 2012 that the Housing Finance Authority violated federal procedures when it ordered Fannie Mae and Freddie Mac to stop buying mortgages with PACE assessments. The federal authority then set about drafting new regulations to direct Fannie Mae and Freddie Mac’s handling of PACE assessments while appealing the decision.

California has moved on. A new program, Clean Energy Upgrade Financing, was created with the same goals, but instead of issuing bonds that would be paid back through property tax assessments, the state authority will offer financial incentives to banks that directly lend money to property owners for these projects. In August 2011, $25 million in federal appropriations were moved from PACE to the new program.

Although the authority is moving on from PACE, many local agencies involved in PACE continue to approve these loans for retrofitting small businesses.

 

Senate Bill (SB) 77: Property Assessed Clean Energy (PACE)-Bond Reserve Fund (CAEATFA website)

FHFA Statement on Certain Energy Retrofit Loan Programs (Federal Housing Finance Agency) (pdf)

Proposed Rules (Federal Housing Finance Agency) (pdf)

Outlook Dims for Popular Energy-Efficiency Loans (by John McChesney, National Public Radio)

Recent Court Ruling Favors White House-Backed Home Energy Efficiency Program (by Lawrence Hurley, New York Times)

PACE-ing in Purgatory: Outlook for Property Assessed Clean Energy Financing (by Jordan M. Collins, Mintz Levin law firm)

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Suggested Reforms:

Targeting Subsidies

Some industry experts, whether generally for or against subsidies, would like them more if they were specifically to help companies develop innovative ways to provide alternative energy.

No one can predict which current and future technologies will bring the most benefit, so subsidizing one over another is ineffective, and may in fact slow progress in efforts to convert to all forms of alternative energy, according to Doug Koplow, founder of Earth Track, Inc. Rather than offering subsidies to manufacturers and producers of specific types of energy, Koplow advocates tying the subsidy to an established track record of reducing energy consumption without harming the environment in the process.

Others would take risks on companies that have no established track record, but merely a good idea.

Government should act like a “limited venture capitalist” when investing in alternative energy subsidies, according to Matthew Stepp, a clean energy policy analyst at the Information Technology and Innovation Foundation in Washington, D.C. Like a venture capitalist, the government should support new energy innovations that sound promising instead of “propping up” struggling companies.

Stepp also argues government can better afford to invest in risky capital ventures than the private sector. And, until private venture capitalists investing in alternative energy come up with enough money to get new ideas from concept to market, government should invest as well.

Solyndra was one of those companies with a great idea that would have revolutionized the solar industry had it worked. Stepp maintains it wasn’t wrong for the United States (or California) to invest in this company, simply because it was so innovative. With great ideas, there is risk of failure.

Severin Borenstein, director of the University of California’s Energy Institute at the UC Berkeley campus, would like to see California’s energy subsidies be used to help companies develop and sell cost-effective solar panel technology.

Even with the already declining prices of solar panels and the partial subsidies the state offers, Borenstein notes, installing them is still too expensive for most homeowners. If new technology makes solar panels more affordable, homeowners will likely see the environmental benefits, and join in the state’s effort to increase solar energy consumption.

Terry Tamminen, founder of Seventh Generation Advisers energy consulting firm in Santa Monica, argues against Borenstein’s position. He supports continuing subsidies as they are, to help every interested home and business in California to have solar power.

In his former position as secretary of the California Environmental Protection Agency, Tamminen wrote the Million Solar Roofs Initiative. Literally translated, the initiative’s goal is to have 1 million homes in California with solar power. The initiative’s actual intent, says Tamminen, is to lower the cost of solar panels by stimulating mass production.

He notes solar power companies Solar City and Sun Power already offer installations with no up-front costs to homeowners, and both companies’ revenues have grown substantially in the last five years. He credits that to the current initiatives’ ability to help manufacturers lower their costs, and property owners to buy solar panels.

 

So Which Forms of Energy Should We Subsidize? (by Doug Koplow, Earth Track)

California's Solar Scorecard (New York Times)

Solyndra: Bad Bet or Tip of the Iceberg? (by Amy Harder, National Journal)

 

Setting Standards

Besides offering tax breaks to manufacturers and small loans to property owners, California has another way to ensure the Golden State becomes more reliant on alternative energy. State law requires investor-owned electric power companies to obtain one-third of their energy from renewable sources by 2020. As of February 2012, the three largest—Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric—were collectively obtaining 17% of their power from renewable sources.

The United States doesn’t have a standard for how much the entire country will come to depend on renewable energy. Some experts, such as the Center for American Progress, say it should, as such a standard will do more to spur growth in the industry than handing out subsidies. Standards also don’t require government intervention in the free market, and means it wouldn’t have to “pick winners.”

 

A “Green Bank”

The Center for American Progress also supports the idea of a publicly-funded but independent bank that would focus on financing alternative energy projects, such as wind, solar power, geothermal plants and biofuels, but also on projects to increase energy efficiency. Although the government would contribute to this bank, it would also attract private investors.

With the government’s contribution, this bank could offer loans to manufacturers and power generators even when other banks found the investment too risky. It could also finance loans with PACE program assessments, which would open that program back to residential customers.

 

Overview of California’s Renewable Energy Standard (California Public Utilities Commission)

The Clean Energy Investment Agenda (Center for American Progress) (pdf)

 

Fixing PACE

CAEATFA is developing a new program promoting energy-efficient retrofits for homes and small businesses to replace its Property Assessed Clean Energy (PACE) program that never got off the ground.

Other government jurisdictions want to keep their PACE programs. Besides being on the favorable end of a recent court decision, PACE proponents also have support in Congress, which is considering legislation that would prohibit Freddie Mac, Fannie Mae and federal commercial lending regulators from discriminating against states or local governments with established PACE programs, or on any property subject to a PACE lien. The new legislation would also require states and local governments to disclose the risks involved with a PACE loan. The legislation would put other requirements on participants, such as having at least 15% equity in their home and taking out a loan worth no more than 10% of its assessed value, and using contractors only from a pre-approved list.

 

H.R. 2599: PACE Assessment Protection Act of 2011 (Congressional Research Service)

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Debate:

Should Government Subsidize Alternative Energy?

To help develop ways to reduce energy consumption and keep their costs down, the federal government offers subsidies to all types of energy producers. In 2012, developing renewable energy sources such as solar power and wind power usually requires more intensive capital outlay than do traditional power generation sources, so the subsidy level is higher for them than for those manufacturing energy from oil, coal and other fossil fuels.

Most people acknowledge the world must decrease its consumption of non-renewable energy sources, which pollute the environment and won’t last forever. The International Energy Agency calls for the world to reduce greenhouse gas emissions by at least 80% by 2050 to prevent global warming. But world-wide demand for energy is expected to double in the same time period.

President Barack Obama, in his 2012 State of the Union address, called for the United States to double the amount of renewable energy produced in the country by 2035, and would back that up with loan guarantees and other subsidies. He also wants to end tax breaks and other subsidies now offered to oil producers.

California law calls for one-third of the state’s energy consumption to come from alternative energy sources by 2020. California created its Alternative Energy and Advanced Financing Authority (CAEATFA) with the goal of reducing reliance on non-renewable energy. Outside of the authority’s scope, California also has other programs to promote alternative energy, including a program giving property tax credits to homeowners who install alternative energy systems and a requirement that utility companies obtain an increasing percentage (which will be one-third in 2020) of their energy from renewable sources.

As CAEATFA’s experience has proven, renewable energy in California often means solar power. Its largest sales tax exemption grants are for solar panel manufacturers, and once its residential assistance program is up and running, that program likely will mostly help its recipients install solar panels. Two existing state programs overseen by the California Energy Commission also help homes add solar systems, one to help finance upgrades added by existing homes’ owners, the other to help builders incorporate solar systems into new homes.

Yet, in the wake of problems experienced by companies like Solyndra, many question the appropriateness of government subsidizing alternative energy projects.

 

RPS Program Overview (Public Utilities Commission)

Renewables Debate (The Economist)

Should the United States Subsidize Alternative Energies? (ProCon.org)

 

The Argument in Favor

Alternative energy, especially renewable forms of energy, are better for the environment, argue those in favor of subsidies like those offered or being developed by CAEATFA. But to be competitive in the energy industry, and the global alternative energy industry, American alternative energy sources need government assistance.

While fossil fuel providers also receive some government subsidies, these amount to about 44 cents per watt for coal, and about 25 cents per watt for gas, notes Michael Levi, an energy and climate change analyst at the Council on Foreign Relations. Wind and solar energy subsidies are $23 to $24 per watt. If all government subsidies were eliminated, the fossil fuel providers would stay competitive, but renewable energy providers wouldn’t be as successful. He calls eliminating all subsidies “a recipe for cementing the dominance of traditional fossil fuels against their competitors.”

Wind and solar power have been shown to reduce greenhouse gas emissions by at least 90%, according to Mattias Fripp, a research fellow at the Environmental Change Institute of Oxford University in Great Britain. But to meet the International Energy Agency’s goals, production of renewable energy must increase by 150%. He argues renewable energy providers can’t increase their production that much without some help from governments.

The most effective incentives, according to Fripp, are incentives a manufacturer or producer can “take to the bank.” These are direct subsidies, either cash, loans or other means (such as exemptions from sales tax) that reduce the company’s capital outlay. These incentives will help them invest more into the economy, and create jobs.

Renewable energy will become more profitable as renewable energy providers plow their profits back into the production of more products like solar panels and wind turbines, Fripp says. He compares this to computer manufacturers being able to substantially drop their prices on computers as more are sold.

Phyllis Cutino, director of the Washington D.C. – based Pew Environment Group’s Clean Energy Program, said in 2011, of $243 billion invested in the solar energy industry worldwide, only $34 billion was in the United States. That’s less than either China or Germany invested in their country’s solar energy industry. Pew’s research shows the global investment could increase to $2.3 trillion over the next 10 years, giving companies in the industry great opportunities to attract private investors, hire people and export their products. That means America cannot sit on the sidelines.

Center for American Progress, in its pamphlet The Clean-Energy Investment Agenda, makes a case that government subsidies for renewable energy will provide new ideas with a needed “kick-start.” Without the government subsidies, innovations would “sit on the shelf,” because the production costs for new models would be too high. But as the market becomes more familiar with these new products, and as the company can feed its sales profits back into developing more of them, prices will come down. Then private sector investments will drive far more growth than the initial government sector ever had.

 

The Clean-Energy Investment Agenda (by John D. Podesta, Kate Gordon, Bracken Hendricks, and Benjamin Goldstein, Center for American Progress) (pdf)

California's Solar Scorecard (New York Times)

So Which Forms of Energy Should We Subsidize? (by Doug Koplow, Earth Track)

 

The Argument Against

Consumers, not government, should decide whether renewable or non-renewable energy is best, critics argue. These critics maintain that energy subsidies, which the United States and many countries also already give to producers of non-renewable sources of energy, are an unnecessary debt.

Various energy subsidies—for oil, coal, natural gas, ethanol, nuclear energy and renewable energy—cost the United States about $20 billion a year, according to Jeffrey Leonard, chief executive officer of the Global Environmental Fund in Washington, D.C. Without these subsidies, Leonard argues, all energy producers will have to make sure their costs don’t exceed what consumers will pay. Some current ones will succeed, others will fail and new energy providers will rise up to the challenge. He believes many of these will be the less toxic forms of energy, be that natural gas, ethanol or renewable energy, while others will continue to produce energy from oil and coal.

The world had relied on renewable energy until a few centuries ago, notes Robert Bradley Jr., founder and chief executive officer of the Institute for Energy Research in Houston, Texas. But in the industrial age, it has been possible to mine fossil fuels, which are more reliable and easier to store for future use than renewable energy. As Bradley sees it, giving subsidies only to the sources of energy currently in the government’s favor gives them an unfair advantage when consumers may benefit from all forms of energy.

David Kreutzer, a research fellow in energy economics and climate change for the Washington, D.C. think tank Heritage Foundation, facetiously suggests the Department of Energy should also loan him money for lottery tickets. On winning tickets only, he offers to pay back the entire $1 the department spent on the ticket, plus a small amount of interest. But not a share of the winnings.

That’s exactly what the Department of Energy did with Solyndra and other energy innovators who may or may not be able to pay back their loans, Kreutzer asserts. He argues it is not government’s place to finance private ventures, whether they are solid or risky, or even if they promise to share some of their equity.

The Department of Energy’s two main criteria for which companies receive the loans seem to contradict each other, says Kreutzer. One criterion is the project must be commercially viable. The other is that it cannot obtain private financing. If it can’t obtain private financing, it’s because there’s too much risk, Kreutzer maintains. The government could lose billions on these ventures, with nothing to show for it but a bigger deficit.

 

Obama, DOE Betting $4 Billion+ on California Green (by John Schwada, LA Observed)

Renewable Energy: Not Cheap, Not “Green” (by Robert L. Bradley, Jr., Cato Institute)

Get the Energy Sector off the Dole (by Jeffrey Leonard, Washington Monthly)

Should We Eliminate All Energy Subsidies? (by Michael Levi, Council on Foreign Relations)

Solyndra: Bad Bet or Tip of the Iceberg? (by Amy Harder, National Journal)

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Former Directors:

Melissa Jones, 2009 – 2010

Jan E. McFarland, 2008 – 2009

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Founded: 1980
Annual Budget: $25.5 million (Proposed FY 2012-2013)
Employees: 8
California Alternative Energy and Advanced Transportation Financing Authority
Solich, Christine
Executive Director

With more than 20 years in finance, Christine Solich was appointed CAEATFA executive director on July 14, 2010 by State Treasurer Bill Lockyer, and confirmed by the rest of the authority’s governing board two weeks later.

Solich was born and raised in Sacramento, obtaining a bachelor’s degree in business administration and an MBA, both from California State University, Sacramento. She joined the State Treasurer’s Office in 1990 as an analyst for the Local Agency Investment Fund.

Solich has worked under three state treasurers, and previously represented them on the governing boards of the California Public Employees’ Retirement System and the State Teachers’ Retirement System

At the time of her appointment as executive director, Solich was the assistant director of investments for the State Treasurer’s Office. She was the senior securities trader and supervised a staff handling market activity, operations and pension fund support.

 

Treasurer Lockyer Names Christine Solich Executive Director of California Alternative Energy and Advanced Transportation Financing Authority (Press release) (pdf)

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Overview:

The California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) finances projects that develop renewable energy (e.g. solar panels and wind turbines) or increase energy efficiency, and transportation and manufacturing projects (e.g. electric cars) that conserve energy, reduce air pollution and promote economic development and jobs. Financial assistance includes loans, loan guarantees, bonds, tax exclusions and credit enhancement. The authority is a separately-governed division of the state Treasurer’s Office.

 

The California Alternative Energy & Advanced Transportation Financing Authority (pdf)

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History:

The state Legislature created the California Alternative Energy Source Financing Authority in 1980 with an authorization of $200 million to finance projects using alternative forms of energy. The authority issues revenue bonds, whose debt is paid by the companies that borrow the money.

One of the projects it supported was a German-designed plant to produce electricity by burning tires near Modesto. The plant was financed in 1987 with $38 million worth of 30-year interest-free bonds and built to plow through the “Modesto Pile,” 20 years worth of tires hauled to the site by Ed Filbin, who collected the discarded rubber by the truckload and deposited up to 20,000 tires a day in the foothills near Interstate 5. It was estimated that if a fire ever broke out at the tire dump, it could burn for seven years. Despite burning up to 6 million tires a year in the new plant, the pile continued to grow and caught fire in 1999. The plant closed the next year.

In 1993, the authority financed construction of the Arroyo Energy co-generation facility near San Diego with $55 million worth of bonds. The owner, Paul Gerst, built a complex in a tax-haven enterprise zone to produce electricity, steam and . . . hockey rinks. Although several co-generation plants had been built in tandem with ice-making businesses or cold storage, the Icefloe plant produced 50 megawatts of power and was the first to include two Olympic-size hockey rinks, a fitness center, a swimming pool and a restaurant. Gerst said it was profitable from day one.

In 1994 the state added “advanced transportation” to the type of projects the authority would fund, and renamed the agency to its current name. By 1996, $174.8 million in bonds had been sold to fund 19 projects.

California attempted to deregulate its electricity market in 1996 with passage of The Electric Utility Industry Restructuring Act, which allowed electric utility service areas to choose their own electric generation supplier. It failed spectacularly in 2000 when wholesale prices skyrocketed and during the ensuing energy crisis—and re-regulation of the market—the scope of the authority broadened to give public and independent power companies, and other entities, funds to develop renewable energy sources and “clean” distribution methods. Still, the agency essentially lay dormant until 2008 when Treasurer Bill Lockyer named a new executive director, Jan McFarland, in February.

That year, CAEATFA refashioned its policies to pass an existing sales tax break for equipment used to manufacture advanced transportation products to entice Tesla Motors to California. Tesla had just produced a limited number of high-end electric sports cars called the Roadster and wanted to expand its operations to include mass-production of an electric sedan. The change allowed CAEATFA to take advantage of California’s zero emissions vehicle (ZEV) law, which allowed Tesla to sell emission credits to other manufacturers, generating what amounted to a $5,000 per vehicle subsidy for its sedan.

In 2010, SB 71 expanded the Authority’s ability to exempt green manufacturers from paying sales and use taxes on manufacturing equipment. Projects must be targeted at high unemployment areas and have a net tax benefit to the state at least equal to the tax benefit of the manufacturer.

In November 2010, Lockyer announced approval of CAEATFA tax exemptions for 12 green projects worth $71.5 million. He said they would create 4,914 jobs and generate $31 million in net fiscal and environmental benefits.

 

Senate Bill 771 (California Legislative Information)

Minutes of Meetings (CAEATFA website)

Massive Pile of Tires Fuels Controversial Energy Plan (by Ronald B. Taylor, Los Angeles Times)

Westley Tire Pile Chronology (Modesto Bee)

Engineer's Ice Plant Helps Power County (by Dean Nelson, New York Times)

Treasurer Lockyer Announces Financial Incentive to Encourage Zero-Emission Vehicle Manufacturing in California (CAEATFA website) (pdf)

Tesla to Build Electric Sedan in California; State Introduces New Incentive for ZEV Manufacturers (Green Car Congress)

Advanced Transportation and Alternative Sources Manufacturing Sales and Use Tax Exclusion Program (SB 71 Program) (CAEATFA website)

California Establishes Tax Break for Clean Tech Manufacturing Companies (by Sanjay Ranchod, Stay Current) (pdf)

Treasurer Lockyer Announces Approval of Sales and Use Tax Exemptions for 12 Green Projects (CAEATFA website) (pdf)

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What it Does:

Since 1980, the Alternative Energy and Advanced Transportation Finance Authority (CAEATFA) has overseen many of the incentives California has offered. The authority is a separately-governed division of the California Treasurer’s Office. It finances projects that develop renewable energy (e.g. solar panels and wind turbines) or increase energy efficiency, and transportation and manufacturing projects that conserve energy, reduce air pollution and promote economic development and jobs. It is authorized to issue up to $1 billion in bonds.

CAEATFA’s five-member board is chaired by the state treasurer and includes the state controller, the Department of Finance director, the Energy Commission chairman and the Public Utilities Commission president, or their representatives. The treasurer chooses an executive director.

The authority has offered both taxable and tax-exempt bonds, loans, credit, tax exemptions and other financial benefits to eligible projects that promote the use of alternative energy or energy conservation. Energy manufacturers, local governments, public agencies, non-profit organizations and even private property owners develop these projects. As of early February 2012, the only active program was the Sales Tax Exclusion program.

 

Sales Tax Exclusion Program

This program, created in 2010, allows manufacturers of products that help develop alternative energy sources to pay less sales tax than they would otherwise on any equipment they purchase to create their products. This program is currently open only to manufacturers of alternative energy components and systems, but may be expanded in 2012 to companies that generate forms of alternative energy.

A total of 30 projects are currently approved for a total of $80.3 million potential savings to the participating companies. So far, the current participants have received a benefit of $13.3 million in sales tax they weren’t required to pay. These projects are expected to generate $65.2 million more than the loss of sales tax revenue, and to create 5,174 new jobs.

One previously approved company, Solyndra Corporation of Fremont, has since gone out of business. Solyndra, a solar panel manufacturer, received $25.1 million in sales tax exemptions, and would have qualified for almost $10 million more if it hadn’t gone bankrupt.

The authority approved eight other projects that never got off the ground, and were withdrawn before their developers actually received any sales tax exemptions. If these projects were still on board, they would have collectively received another $16 million in sales tax exemptions.

Of the 30 projects currently approved through this program, nine create solar panels and one project creates solar fuel. Another 11 projects involve capturing and using methane gas, which is produced naturally in places where organic materials are decomposing, such as landfills, dairies and sewer treatment plants. One project focuses on “fuel cell” technology, which is designed to more efficiently turn fuel into energy. Another three projects focus on converting biomass (organic solids) into fuel. Two projects manufacture lithium batteries. There are single projects focusing on geothermal fuel, hydrogen fuel and manufacturing electronic vehicles.

Most projects are located in or near the Bay Area. There are 10 projects in Santa Clara County and five in Alameda County. San Joaquin County is home to three projects. There are two projects each in Kern, Monterey, Los Angeles and Imperial counties, and one each in Orange, Butte, Fresno and San Diego counties.

 

Report of SB 71 Sales and Use Tax Exclusion (STE) Financing Applications Considered and Approved (pdf)

 

There are several other programs the authority hopes to begin offering in 2012.

Qualified Energy Conservation Bonds

These bonds will provide low-interest tax-exempt 10-year loans for projects designed to promote use of alternative energy, or to reduce energy consumption. Most money will be allocated to cities and counties with populations of more than 100,000, although some will go to tribal governments and some to state agencies. Any public agency receiving financing through these bonds can also make up to 30% of the funds available to private owners of buildings.

Federal funds finance these bonds. The state received a $381 million allocation from the federal government, and has already allocated this amount, but will reallocate more if it becomes available.

 

Private Activity Bonds

These bonds will provide up-to-30-year tax-exempt loans for “district” heating and cooling projects. These heating and cooling systems are for any public spaces, such as commercial buildings, multi-family housing structures including condominiums, hotels, sports venues, schools and government complexes. District heating and cooling systems heat, steam or chill water, then distribute this water through underground pipes to each individual unit (hotel room, classroom, etc.) within the system. The water provides for not only the users’ water needs, but also to heat space or for air conditioning.

Since district heating and cooling systems are not yet widely used, and since the authority is still fine-tuning how it would select projects to qualify for these bonds, the state is not yet offering private activity bonds for this purpose.

Currently, the state offers private activity bonds for other purposes. Although the state issues these bonds, the agencies involved merely oversee the program. A bank or investor is actually funding these bonds, and the recipients of them will repay that bank or investor.

 

Clean Energy Upgrade Financing Program

This program will give financial incentives to banks that finance loans to homeowners and small business owners retrofitting for alternative energy distribution systems, electronic vehicle charging stations, and projects designed to conserve energy or water. The two-stage program was created in 2011 and expects to be operational in 2012.

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Where Does the Money Go:

The authority’s 2011-2012 fiscal year budget of $3.2 million spends more than two-thirds of its money ($2.2 million) on salaries, benefits and other costs of operating the authority’s programs, and $1 million is set aside to fund the Clean Energy Upgrade Financing program’s startup costs. In the proposed 2012-2013 budget, $23.45 million will finance all of the cash-based incentives the authority plans to offer, and $2.05 million will pay for personnel and operating costs.

The Sales Tax Exclusion program is not part of the budget, as it represents taxes that weren’t paid by the participating manufacturers, and therefore never became revenue for the state. The program is lucrative for the manufacturers that have received this tax exemption. The top beneficiary was the now-bankrupt Solyndra Corporation of Fremont, which had been promised $34.7 million in sales tax exemptions for building solar panels, and had already received $25.1 million in exemptions when it declared bankruptcy on September 6, 2011.

There are several other manufacturing companies who will be exempt from paying millions of dollars in sales tax. The amount of the exemptions granted by the authority is determined by the estimated cost of their project, and the amount of exemption received is determined by how much they purchase in materials to create their projects.

After Solyndra, the largest exemptions approved as of February 2012 are:

  • Obsidian Energy, a Texas-based company that plans to build three geothermal plants in Imperial County. It was granted $14.1 million in sales tax exemptions. (As of February 2012, it had not started construction and had received no sales tax exemptions.)

  • Nanosolar of San Jose, a solar panel manufacturer, granted $12.8 million in sales tax exemptions. (As of February 2012, it had received $3.9 million.)

  • Simbol Materials, Inc. of Pleasanton. It opened a production plant in September 2011 in Brawley, where it produces lithium carbonate for use in batteries. It was granted $3.9 million in sales tax exemptions. (As of February 2012, it had received $117,212.)

  • Alta Devices, Inc., which opened a solar panel manufacturing plant in Sunnyvale in 2011. It was granted $3.7 million in sales tax exemptions. (As of February 2012, it had received $448,156.) Alta Devices is completing renovations to its building in Sunnyvale.

  • First Solar, an Arizona-based company, renovated a building in Santa Clara, where it now conducts research into solar panel development. It was granted $3.4 million in sales tax exemption. (As of February 2012, it had received all but $21,133 of this.) First Solar, which had been using technology similar to that used by Solyndra, has experienced financial difficulties as well.

  • Bloom Energy Corporation of Sunnyvale, which manufactures fuel cell systems and in 2011 completed an expansion quadrupling the size of its plant. It was granted $3.4 million in sales tax exemptions. (As of February 2012, it had received $807,488.)

  • Mia Solé of Sunnyvale, a manufacturer of solar panels, granted $2.4 million in sales tax exemptions. (As of February 2012, it had received $782,095.)

  • NuvoSun Incorporated of Milpitas, a solar panel manufacturer that relocated its headquarters to Milpitas in 2010, It was granted $1.8 million in sales tax exemptions. (As of February 2012, it had received $756,150.)

  • Zero Waste Energy Corporation of San Jose, which is expanding its plant there and is developing a project to capture natural gas to develop new alternative fuel. It was granted $1.4 million in sales tax exemptions. (As of February 2012, it had not received any.)

 

3-Year Budget (pdf)

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Controversies:

Solyndra

After cruising to victory in the California Democratic primary for governor in June 2010, Jerry Brown kicked off his formal campaign with a visit to Solyndra Corporation, an up and coming Silicon Valley solar panel manufacturer. Solyndra had promised to hire more than 700 people on a permanent basis, and 1,363 people to construct its solar panel manufacturing plant in Fremont.

The federal government was encouraged by Solyndra’s potential and loaned the company $528 million as part of the 2009 stimulus package meant to help revive the struggling economy. CAEATFA followed in November 2010 with a $34.7 million award of sales and use tax exemptions, $25.1 million of which Solyndra ended up using before declaring bankruptcy on September 6, 2011.

The authority attempted to recover some of the sales tax revenue, but since Solyndra technically did not owe the state money, the authority is not a creditor in Solyndra’s ongoing bankruptcy hearings.

Solyndra apparently had an idea for solar panel manufacturing that looked better on paper than it really was. The company was designing cylindrical solar panels instead of the traditional flat panels. It estimated the cost of designing and producing the first of these panels at more than $400 million. It had planned on cutting production costs by developing a solar panel that does not use silicon, which was much more expensive in 2008 than it was in 2011. The lighter weight was also supposed to have made these panels less expensive to manufacture and install than traditional panels.

In 2011, the market was already saturated with solar panels, many made less expensively by Chinese manufacturers. The Chinese and many American companies used processes relying on silicon, and these companies could sell their product for much less once the price of silicon dropped. To be competitive, Solyndra had resorted to pricing its panels below what it had cost to develop them.

Because of questions about what it was doing with the federal money, the Federal Bureau of Investigation and the U.S. Department of Energy were already investigating Solyndra when it went out of business. Since Solyndra’s bankruptcy, Congress has been much less supportive of providing financial incentives for other alternative energy producers.

Solyndra’s bankruptcy also resulted in an investigation by the California State Senate, during which it considered eliminating the Sales Tax Exclusion program. Senator Alex Padilla, who had authored the legislation creating the program, is the one who called for the hearing after learning of the bankruptcy.

After learning of the bankruptcy, Treasurer Secretary and CAEATFA chairman Bill Lockyer asked his fellow authority members in September 2011 to consider voluntarily suspending the Sales Tax Exclusion program. The authority immediately temporarily suspended the program to new applicants, but after Lockyer and both Democratic and Republican senators defended the program at Padilla’s hearing, the board decided it didn’t need to continue the suspension.

 

Jerry Brown Kicks Off Campaign with Visit to Solar Company Solaria (by Jim Witkin, Triple Pundit)

Solyndra's Collapse Is a Tale of Too Much Dazzle (by Ken Bensinger, Stuart Pfeifer and Neela Banerjee, Los Angeles Times)

Solyndra (New York Times)

Solyndra’s $25 Million California Tax Break Defended by Lockyer (by James Nash, Bloomberg)

Meeting Minutes about Solyndra Bankruptcy (CAEATFA website) (pdf)

Alternative Energy Manufacturing Sales and Use Tax Exclusion (SB 71) Program (Legislative Analyst’s Office) (pdf)

 

First Solar

First Solar, the nation’s largest solar company, received a $3.4 million sales tax exemption from the CAEATFA to help with the costs of expanding a research and development center in Santa Clara, and in February 2012 had already spent enough money on the project to receive most of the entitlement.

Yet, First Solar appears to struggling to meet the Sales Tax Exclusion program’s goal of stimulating California’s economy by creating “green jobs.” In December 2011, First Solar laid off 110 employees in California, including two-thirds of those in Santa Clara, and more than half at a solar farm in the Antelope Valley.

One type of panel First Solar was looking into developing uses the same silicon-free, cylindrical technology that brought Solyndra down. In December 2011, it scrapped those plans. It also laid off 60 of the 100 employees at the research and development center in Santa Clara, and 40 more at its operations in other states.

At the end of 2011, First Solar laid off 50 of its 96 employees at the solar farm it was building in the Antelope Valley community of Fairmont. It had started building a solar generation plant there in July 2011, amid community concerns about the effect it would have on the desert environment. It had intended to increase its workforce to about 350 jobs during construction, and hire 20 permanent employees once the plant opened.

In September, First Solar sold the property to another company, Exelon, but apparently plans to still build the solar generation plant for Exelon.

First Solar is in even larger debt to the U.S. Department of Energy than Solyndra was. It received about $680 million in loans to construct the Fairmont plant, $1.46 billion for a plant in Blythe, and $967 million to construct one in Yuma, Arizona. Although it has sold each of these properties, they are expected to create 1,300 construction jobs and at least 45 permanent jobs.

In 2010, Forbes had named First Solar as one of the 25 fastest growing companies. The value per share of company stock in the company peaked at $175 in February 2011, but as of January 2012 had dropped to $33, making it the worst performer in Standard & Poor’s stock index for 2011.

In December 2011, Warren Buffett announced he was pumping $2 billion into First Solar with the purchase of the 550-megawatt thin-film photovoltaic solar energy development called TopazSolar Farm in Tempe, Arizona, through his MidAmerican Energy Holdings. The value of the solar industry in the U.S. is estimated at $6 billion, according to Michelle Kinman, a clean energy advocate for the group Environment California. Kinman also said around 100,000 people are employed in the industry, with about one-third of the jobs in California. Another 25,000 jobs were expected to be added in 2012, she said.

First Solar gave more than $150,000 to political campaigns in California in 2011, and has spent $2.2 million on lobbyists in Washington since 2007.

 

Buffett Investment in California Solar Farm Could Boost Industry (by Ronald D. White, Los Angeles Times)

First Solar Drops ‘Holy Grail’ Technology that Sank Solyndra (by Christopher Martin, Bloomberg Business Week)

First Solar Reportedly Slashes Work Force (The Mountain Enterprise)

First Solar Boosts Political Donations, Wins Favor (by James Nash and Jim Snyder, Bloomberg News)

Taxpayers Take Hit as Solar Industry Implodes (by Paul Chesser, National Legal and Policy Center)

 

Tesla and the Electric Car

Electric cars have struggled to gain a foothold in the automobile market. The first mass-produced electric vehicle, General Motors’ EV1, inspired the documentary “Who Killed the Electric Car?” when it died after a brief 1996-1999 production run. A second go at it by GM ended in failure as other car companies cautiously advanced their own projects.

In January 2007, GM unveiled the Chevy Volt prototype and Tesla Motors began serious work on a high-end Roadster it hoped would kick start and industry and lead to lower-priced cars for a mass market. The company also produced an innovative lithium-ion battery pack that powered their cars and were of interest to other car manufacturers.

The Roadster went into production in 2008 and Tesla sold about 2,000 of the sleek cars, built from parts made at outsourced facilities. But the company set its sights on having its own factory to mass-produce a sedan and the factory it wanted was in California. Toyota and GM had been sharing the Nummi plant in Fremont since 1984 and it was known to be on the market. But the $1 billion asking price seemed beyond the reach of Tesla, that had about $40 million to spend.

California, always a leader in encouraging technological innovation through environmental initiatives, began passing regulations mandating future energy-efficient automobiles while offering financial incentives to facilitate their development in the 1990s. In mid-2008, amid the financial collapse that dried up investment money worldwide, the state of California struck a deal with Tesla The company would make its second-generation electric vehicle, the Model S sedan, in California and receive assistance from CAEATFA sales-lease-back agreements that allow the program to pass along a tax break for purchasing equipment.

The Model S prototype was completed in March 2009 and two months later the German company Daimler AG paid $50 million for 10% of the company as part of a deal to use Tesla battery technology in its Smart cars. In June, Tesla scored some federal stimulus money, $465 million, as part of the $8 billion federal Advanced Technology Vehicles Manufacturing Loan Program. (Ford got $5.9 billion and Nissan got $1.6 billion.) The money was contingent on finding a factory.

The financial crisis took its toll on General Motors, which was in bankruptcy by the end of 2009, and in April 2010 the Nummi plant was shuttered. But within a month, Toyota and Tesla announced a purchase agreement at Tesla’s price and Model S had a home.

Lockyer was ecstatic. “This development also puts the lie to claims that California’s tough, trailblazing laws to fight global warming and foster energy independence threaten businesses and jobs,” he said in a release that estimated 25,000 jobs would be lost if Nummi stayed closed.

In addition to the CAEATFA tax break, Tesla benefits from other California subsidies. The state Air Resources Board established a zero emissions vehicle (ZEV) mandate 20 years ago that set up a market for trading emissions credits among auto manufacturers. It attempts to encourage auto companies to develop their own electric cars by requiring companies selling more than 60,000 cars in California annually who haven’t met the state’s emission standards purchase credits from companies that have.

As of 2008, the only company that qualified was Tesla. Sales of ZEV credits to other automakers amounted to 85% of the company’s total gross margin. Analysts determined that ZEV credits were worth $5,000 per Model S car to Tesla. But by August 2010, General Motors, Toyota, Nissan, Honda and Volkswagen were all getting in the game and indications were that they wouldn’t need Tesla’s ZEV credits for long.

In January 2012, California set a requirement that 15% of new cars sold in the state had to meet its near-zero emissions requirement by 2015.

Meanwhile, critics of electric cars were sniping at the vehicles and predicting that once their drawbacks were made clear, the market would crumble. Ozzie Zehner, author of Green Illusions, argued that “Electric vehicles don’t eliminate the negative side effects of vehicular travel. They simply move the problems elsewhere—often to contexts where they become more opaque and difficult to address.” He predicted that even if the price of the vehicle becomes reasonable, the cost of batteries will be problematic. “The battery-construction step, not the ‘fuel’ step, is the expensive part of driving an electric vehicle.”

In June 2011, GM’s Chevy Volt caught fire during a crash test by federal regulators. Five months later, a Volt battery pack caught fire after federal officials purposely damaged the car. Another battery pack started smoking and sparking after a similar test.

Nissan sold 8,000 all-electric Leafs in the first 10 months of 2011 and GM had sold around 5,300 Volts in a year’s time. Total 2011 U.S. vehicle sales were 10.5 million through October.

 

How Elon Musk Turned Tesla Into the Car Company of the Future (by Joshua Davis, Wired Magazine)

Tesla Subsidy Vanishing Amid Electric Vehicle Boom (by Darryl Siry, Wired Magazine)

Tesla SUV With Wings or Not, We Should Kill the Electric Car (by Ozzie Zehner, Christian Science Monitor opinion)

Investors Flock to "Clean" Tech, So Why the Subsidies? (by Paul Chesser, National Legal and Policy Center)

Zero-Emission Vehicle Regulations Get Tougher for 2012 (by Keith Barry, Car & Driver)

Treasurer Lockyer Announces Financial Incentive to Encourage Zero-Emission Vehicle Manufacturing in California (CAEATFA website) (pdf)

A Setback for Electric Cars (by Bill Vlasic and Nick Bunckley, New York Times)

 

PACE Program

Property Assessed Clean Energy (PACE) was a popular program promoting energy efficiency, supported by the White House and authorized for use in 20 states (including California), until it ran headlong into bank regulators and the troubled mortgage industry.

PACE allows state and local governments to issue bonds that finance energy efficiency and alternative energy projects for homes and small businesses. There were already California cities and counties offering the program to their residents, with the support of federal stimulus money from the American Recovery & Reinvestment Act of 2009, when the Legislature authorized creation of the state program in April 2010. Three early participants were Berkeley, Sonoma County and Palm Desert.

Property owners who receive PACE loans pay the money back through a lien on their property taxes. When a foreclosed home is sold, government agencies with liens against the property usually get paid first, before the lender.

Just as the state was launching its outreach program to develop the program in mid-2010, mortgage giants Fannie Mae and Freddy Mac announced they would no longer purchase mortgages on properties with outstanding PACE loans. Most residential PACE programs were put on hold as the Federal Housing Finance Authority (FHFA), conservator of struggling Fannie and Freddy, challenged the legality of the program in court. The FHFA contended PACE liens posed a risk to banks and other lenders.

Energy Independence America, a private organization that advocates for PACE, contends these property tax assessments aren’t much different than when a government agency imposes a property tax on an entire community. The only difference, as Energy Independence America sees it, is that having a property tax assessment to fund a PACE project is voluntary; only those who want the energy improvements pay additional tax for them.

Thefederal authority, which regulates the lending programs offered by Freddie Mac, Fannie Mae and the Federal Home Loan banks, contends these loans are issued without consideration of the homeowners’ ability to repay. The federal authority also maintains certain consumer protection measures, such as the Truth in Lending Act, aren’t followed when issuing these loans. Furthermore, it contends the program offers no guarantees the energy improvements actually increase the home’s value.

Since the housing market had many other problems in 2010, the Housing Finance Authority didn’t want PACE adding to them. This position brought all residential PACE programs to a halt.

California took no further action to develop its PACE program, but along with the city of Palm Desert and six other entities, sued the Housing Finance Authority. A U.S. District Court ruled in January 2012 that the Housing Finance Authority violated federal procedures when it ordered Fannie Mae and Freddie Mac to stop buying mortgages with PACE assessments. The federal authority then set about drafting new regulations to direct Fannie Mae and Freddie Mac’s handling of PACE assessments while appealing the decision.

California has moved on. A new program, Clean Energy Upgrade Financing, was created with the same goals, but instead of issuing bonds that would be paid back through property tax assessments, the state authority will offer financial incentives to banks that directly lend money to property owners for these projects. In August 2011, $25 million in federal appropriations were moved from PACE to the new program.

Although the authority is moving on from PACE, many local agencies involved in PACE continue to approve these loans for retrofitting small businesses.

 

Senate Bill (SB) 77: Property Assessed Clean Energy (PACE)-Bond Reserve Fund (CAEATFA website)

FHFA Statement on Certain Energy Retrofit Loan Programs (Federal Housing Finance Agency) (pdf)

Proposed Rules (Federal Housing Finance Agency) (pdf)

Outlook Dims for Popular Energy-Efficiency Loans (by John McChesney, National Public Radio)

Recent Court Ruling Favors White House-Backed Home Energy Efficiency Program (by Lawrence Hurley, New York Times)

PACE-ing in Purgatory: Outlook for Property Assessed Clean Energy Financing (by Jordan M. Collins, Mintz Levin law firm)

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Suggested Reforms:

Targeting Subsidies

Some industry experts, whether generally for or against subsidies, would like them more if they were specifically to help companies develop innovative ways to provide alternative energy.

No one can predict which current and future technologies will bring the most benefit, so subsidizing one over another is ineffective, and may in fact slow progress in efforts to convert to all forms of alternative energy, according to Doug Koplow, founder of Earth Track, Inc. Rather than offering subsidies to manufacturers and producers of specific types of energy, Koplow advocates tying the subsidy to an established track record of reducing energy consumption without harming the environment in the process.

Others would take risks on companies that have no established track record, but merely a good idea.

Government should act like a “limited venture capitalist” when investing in alternative energy subsidies, according to Matthew Stepp, a clean energy policy analyst at the Information Technology and Innovation Foundation in Washington, D.C. Like a venture capitalist, the government should support new energy innovations that sound promising instead of “propping up” struggling companies.

Stepp also argues government can better afford to invest in risky capital ventures than the private sector. And, until private venture capitalists investing in alternative energy come up with enough money to get new ideas from concept to market, government should invest as well.

Solyndra was one of those companies with a great idea that would have revolutionized the solar industry had it worked. Stepp maintains it wasn’t wrong for the United States (or California) to invest in this company, simply because it was so innovative. With great ideas, there is risk of failure.

Severin Borenstein, director of the University of California’s Energy Institute at the UC Berkeley campus, would like to see California’s energy subsidies be used to help companies develop and sell cost-effective solar panel technology.

Even with the already declining prices of solar panels and the partial subsidies the state offers, Borenstein notes, installing them is still too expensive for most homeowners. If new technology makes solar panels more affordable, homeowners will likely see the environmental benefits, and join in the state’s effort to increase solar energy consumption.

Terry Tamminen, founder of Seventh Generation Advisers energy consulting firm in Santa Monica, argues against Borenstein’s position. He supports continuing subsidies as they are, to help every interested home and business in California to have solar power.

In his former position as secretary of the California Environmental Protection Agency, Tamminen wrote the Million Solar Roofs Initiative. Literally translated, the initiative’s goal is to have 1 million homes in California with solar power. The initiative’s actual intent, says Tamminen, is to lower the cost of solar panels by stimulating mass production.

He notes solar power companies Solar City and Sun Power already offer installations with no up-front costs to homeowners, and both companies’ revenues have grown substantially in the last five years. He credits that to the current initiatives’ ability to help manufacturers lower their costs, and property owners to buy solar panels.

 

So Which Forms of Energy Should We Subsidize? (by Doug Koplow, Earth Track)

California's Solar Scorecard (New York Times)

Solyndra: Bad Bet or Tip of the Iceberg? (by Amy Harder, National Journal)

 

Setting Standards

Besides offering tax breaks to manufacturers and small loans to property owners, California has another way to ensure the Golden State becomes more reliant on alternative energy. State law requires investor-owned electric power companies to obtain one-third of their energy from renewable sources by 2020. As of February 2012, the three largest—Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric—were collectively obtaining 17% of their power from renewable sources.

The United States doesn’t have a standard for how much the entire country will come to depend on renewable energy. Some experts, such as the Center for American Progress, say it should, as such a standard will do more to spur growth in the industry than handing out subsidies. Standards also don’t require government intervention in the free market, and means it wouldn’t have to “pick winners.”

 

A “Green Bank”

The Center for American Progress also supports the idea of a publicly-funded but independent bank that would focus on financing alternative energy projects, such as wind, solar power, geothermal plants and biofuels, but also on projects to increase energy efficiency. Although the government would contribute to this bank, it would also attract private investors.

With the government’s contribution, this bank could offer loans to manufacturers and power generators even when other banks found the investment too risky. It could also finance loans with PACE program assessments, which would open that program back to residential customers.

 

Overview of California’s Renewable Energy Standard (California Public Utilities Commission)

The Clean Energy Investment Agenda (Center for American Progress) (pdf)

 

Fixing PACE

CAEATFA is developing a new program promoting energy-efficient retrofits for homes and small businesses to replace its Property Assessed Clean Energy (PACE) program that never got off the ground.

Other government jurisdictions want to keep their PACE programs. Besides being on the favorable end of a recent court decision, PACE proponents also have support in Congress, which is considering legislation that would prohibit Freddie Mac, Fannie Mae and federal commercial lending regulators from discriminating against states or local governments with established PACE programs, or on any property subject to a PACE lien. The new legislation would also require states and local governments to disclose the risks involved with a PACE loan. The legislation would put other requirements on participants, such as having at least 15% equity in their home and taking out a loan worth no more than 10% of its assessed value, and using contractors only from a pre-approved list.

 

H.R. 2599: PACE Assessment Protection Act of 2011 (Congressional Research Service)

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Debate:

Should Government Subsidize Alternative Energy?

To help develop ways to reduce energy consumption and keep their costs down, the federal government offers subsidies to all types of energy producers. In 2012, developing renewable energy sources such as solar power and wind power usually requires more intensive capital outlay than do traditional power generation sources, so the subsidy level is higher for them than for those manufacturing energy from oil, coal and other fossil fuels.

Most people acknowledge the world must decrease its consumption of non-renewable energy sources, which pollute the environment and won’t last forever. The International Energy Agency calls for the world to reduce greenhouse gas emissions by at least 80% by 2050 to prevent global warming. But world-wide demand for energy is expected to double in the same time period.

President Barack Obama, in his 2012 State of the Union address, called for the United States to double the amount of renewable energy produced in the country by 2035, and would back that up with loan guarantees and other subsidies. He also wants to end tax breaks and other subsidies now offered to oil producers.

California law calls for one-third of the state’s energy consumption to come from alternative energy sources by 2020. California created its Alternative Energy and Advanced Financing Authority (CAEATFA) with the goal of reducing reliance on non-renewable energy. Outside of the authority’s scope, California also has other programs to promote alternative energy, including a program giving property tax credits to homeowners who install alternative energy systems and a requirement that utility companies obtain an increasing percentage (which will be one-third in 2020) of their energy from renewable sources.

As CAEATFA’s experience has proven, renewable energy in California often means solar power. Its largest sales tax exemption grants are for solar panel manufacturers, and once its residential assistance program is up and running, that program likely will mostly help its recipients install solar panels. Two existing state programs overseen by the California Energy Commission also help homes add solar systems, one to help finance upgrades added by existing homes’ owners, the other to help builders incorporate solar systems into new homes.

Yet, in the wake of problems experienced by companies like Solyndra, many question the appropriateness of government subsidizing alternative energy projects.

 

RPS Program Overview (Public Utilities Commission)

Renewables Debate (The Economist)

Should the United States Subsidize Alternative Energies? (ProCon.org)

 

The Argument in Favor

Alternative energy, especially renewable forms of energy, are better for the environment, argue those in favor of subsidies like those offered or being developed by CAEATFA. But to be competitive in the energy industry, and the global alternative energy industry, American alternative energy sources need government assistance.

While fossil fuel providers also receive some government subsidies, these amount to about 44 cents per watt for coal, and about 25 cents per watt for gas, notes Michael Levi, an energy and climate change analyst at the Council on Foreign Relations. Wind and solar energy subsidies are $23 to $24 per watt. If all government subsidies were eliminated, the fossil fuel providers would stay competitive, but renewable energy providers wouldn’t be as successful. He calls eliminating all subsidies “a recipe for cementing the dominance of traditional fossil fuels against their competitors.”

Wind and solar power have been shown to reduce greenhouse gas emissions by at least 90%, according to Mattias Fripp, a research fellow at the Environmental Change Institute of Oxford University in Great Britain. But to meet the International Energy Agency’s goals, production of renewable energy must increase by 150%. He argues renewable energy providers can’t increase their production that much without some help from governments.

The most effective incentives, according to Fripp, are incentives a manufacturer or producer can “take to the bank.” These are direct subsidies, either cash, loans or other means (such as exemptions from sales tax) that reduce the company’s capital outlay. These incentives will help them invest more into the economy, and create jobs.

Renewable energy will become more profitable as renewable energy providers plow their profits back into the production of more products like solar panels and wind turbines, Fripp says. He compares this to computer manufacturers being able to substantially drop their prices on computers as more are sold.

Phyllis Cutino, director of the Washington D.C. – based Pew Environment Group’s Clean Energy Program, said in 2011, of $243 billion invested in the solar energy industry worldwide, only $34 billion was in the United States. That’s less than either China or Germany invested in their country’s solar energy industry. Pew’s research shows the global investment could increase to $2.3 trillion over the next 10 years, giving companies in the industry great opportunities to attract private investors, hire people and export their products. That means America cannot sit on the sidelines.

Center for American Progress, in its pamphlet The Clean-Energy Investment Agenda, makes a case that government subsidies for renewable energy will provide new ideas with a needed “kick-start.” Without the government subsidies, innovations would “sit on the shelf,” because the production costs for new models would be too high. But as the market becomes more familiar with these new products, and as the company can feed its sales profits back into developing more of them, prices will come down. Then private sector investments will drive far more growth than the initial government sector ever had.

 

The Clean-Energy Investment Agenda (by John D. Podesta, Kate Gordon, Bracken Hendricks, and Benjamin Goldstein, Center for American Progress) (pdf)

California's Solar Scorecard (New York Times)

So Which Forms of Energy Should We Subsidize? (by Doug Koplow, Earth Track)

 

The Argument Against

Consumers, not government, should decide whether renewable or non-renewable energy is best, critics argue. These critics maintain that energy subsidies, which the United States and many countries also already give to producers of non-renewable sources of energy, are an unnecessary debt.

Various energy subsidies—for oil, coal, natural gas, ethanol, nuclear energy and renewable energy—cost the United States about $20 billion a year, according to Jeffrey Leonard, chief executive officer of the Global Environmental Fund in Washington, D.C. Without these subsidies, Leonard argues, all energy producers will have to make sure their costs don’t exceed what consumers will pay. Some current ones will succeed, others will fail and new energy providers will rise up to the challenge. He believes many of these will be the less toxic forms of energy, be that natural gas, ethanol or renewable energy, while others will continue to produce energy from oil and coal.

The world had relied on renewable energy until a few centuries ago, notes Robert Bradley Jr., founder and chief executive officer of the Institute for Energy Research in Houston, Texas. But in the industrial age, it has been possible to mine fossil fuels, which are more reliable and easier to store for future use than renewable energy. As Bradley sees it, giving subsidies only to the sources of energy currently in the government’s favor gives them an unfair advantage when consumers may benefit from all forms of energy.

David Kreutzer, a research fellow in energy economics and climate change for the Washington, D.C. think tank Heritage Foundation, facetiously suggests the Department of Energy should also loan him money for lottery tickets. On winning tickets only, he offers to pay back the entire $1 the department spent on the ticket, plus a small amount of interest. But not a share of the winnings.

That’s exactly what the Department of Energy did with Solyndra and other energy innovators who may or may not be able to pay back their loans, Kreutzer asserts. He argues it is not government’s place to finance private ventures, whether they are solid or risky, or even if they promise to share some of their equity.

The Department of Energy’s two main criteria for which companies receive the loans seem to contradict each other, says Kreutzer. One criterion is the project must be commercially viable. The other is that it cannot obtain private financing. If it can’t obtain private financing, it’s because there’s too much risk, Kreutzer maintains. The government could lose billions on these ventures, with nothing to show for it but a bigger deficit.

 

Obama, DOE Betting $4 Billion+ on California Green (by John Schwada, LA Observed)

Renewable Energy: Not Cheap, Not “Green” (by Robert L. Bradley, Jr., Cato Institute)

Get the Energy Sector off the Dole (by Jeffrey Leonard, Washington Monthly)

Should We Eliminate All Energy Subsidies? (by Michael Levi, Council on Foreign Relations)

Solyndra: Bad Bet or Tip of the Iceberg? (by Amy Harder, National Journal)

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Former Directors:

Melissa Jones, 2009 – 2010

Jan E. McFarland, 2008 – 2009

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Founded: 1980
Annual Budget: $25.5 million (Proposed FY 2012-2013)
Employees: 8
California Alternative Energy and Advanced Transportation Financing Authority
Solich, Christine
Executive Director

With more than 20 years in finance, Christine Solich was appointed CAEATFA executive director on July 14, 2010 by State Treasurer Bill Lockyer, and confirmed by the rest of the authority’s governing board two weeks later.

Solich was born and raised in Sacramento, obtaining a bachelor’s degree in business administration and an MBA, both from California State University, Sacramento. She joined the State Treasurer’s Office in 1990 as an analyst for the Local Agency Investment Fund.

Solich has worked under three state treasurers, and previously represented them on the governing boards of the California Public Employees’ Retirement System and the State Teachers’ Retirement System

At the time of her appointment as executive director, Solich was the assistant director of investments for the State Treasurer’s Office. She was the senior securities trader and supervised a staff handling market activity, operations and pension fund support.

 

Treasurer Lockyer Names Christine Solich Executive Director of California Alternative Energy and Advanced Transportation Financing Authority (Press release) (pdf)

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