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Sunday, September 25, 2011
Hawaii Wind, Solar projects: Millions for Wall Street, Banks, maybe even Big Tobacco
By Andrew Walden @ 11:05 PM :: 11333 Views :: Energy, Tax Credits

by Andrew Walden

In his New Day Plan, Neil Abercrombie defined energy independence as “retaining a major portion of the billions of dollars that we now spend on imported oil so we can reinvest it here at home.” Barack Obama demands that corporations “pay their fair share” of federal taxes.

Solar and wind energy is touted as a source of energy independence, but it is not free. The costs—which are higher than coal or even diesel generated electricity--are included in the capital expense of installing solar panels and wind turbines. And the soon-to-expire federal and state tax credits behind Hawaii’s wind and solar development bubble are pushing even more money out of the pockets of Hawaii ratepayers and taxpayers and into the coffers of mainland hedge funds, banks, insurance companies, utilities, and even tobacco companies—which are therefore able to legally escape “paying their fair share.”

When these tax credits are exhausted, the cycle will once again enter the ‘bust’ phase. As the five year accelerated depreciation of the capital investment is exhausted, many of the projects will be abandoned because without the depreciation deduction, the projects simply don’t generate enough electricity to make a profit. This is what happened at Ka Lae, South Point of the Big Island, home to the rusting and broken hulks of the Kamaoa wind farm. And it is a fate which awaits most of the industrial scale non-rooftop solar installations and all of Hawaii’s industrial-scale wind farms.

Lawyer Ed Feo is a partner in the law firm Milbank Tweed, a key player in the alternative energy sector. In a 2008 article Feo explains:

Wind, geothermal, solar and biomass projects will qualify for the Production Tax Credit (“PTC”) under Section 45 of the Internal Revenue Code and for five year accelerated depreciation (“MACRS”) under the tax code. Solar projects will qualify for the energy Investment Tax Credit under Section 48 of the Code.

The production tax credit is a two cent per kWh credit and the Investment Tax Credit (“ITC”) is a credit equal to 30% of the invested capital, in each case for projects placed in service before the end of 2008. The combined effect of the Production and Investment Tax Credits and accelerated depreciation is that a significant portion of the value of a renewable energy project is related to tax benefits. For example, the net present value of these benefits in a wind energy project may approximate 60% of the total capital cost.

Hawaii law (HRS 235-12.5) allows for another 35% in state tax credits for many projects -- bringing the total to 95%. State and federal taxpayers are basically giving wind farms and solar installations to giant corporations, banks, and Wall Street brokerages. The “alternative energy” becomes an excuse to jack up electric rates. And the so-called Tax Equity Investors laugh all the way to the bank.

In a presentation to solar contractors representatives of Acumen Capital Japan, Ltd estimate the market for tax equity investments at $3B and growing. A key reason for this year’s big solar and wind push is explained by Acumen:

The American Recovery and Reinvestment Act (2009) and the extension law which was passed in December 2010 allow for a cash grant in lieu of the Investment Tax Credit (“ITC”) for renewable energy projects which start construction by the end of 2011.

This means that Lanai and Molokai residents need to prevent groundbreaking on any wind farm project until after December 31. The loss of the cash grant will sharply reduce development pressure. The underlying Investment Tax Credit (“ITC”) , which only pays off in reduced tax liabilities, not cash, will decline from 30% to 10% of the project cost and then expire at the end of 2016—unless a budget-conscious Congress acts to cut it off sooner.

These tax credits benefit a small group of wealthy corporations which Acumen and several other sources estimate at about 25 “tax equity investors” nationwide. An early player in this market—going back to the 1980s--was tobacco giant Phillip Morris. More recent players listed by Acumen include:

Microsoft, Google, Hitachi, Bank of America, Citibank, Credit Suisse, General Electric Energy Financial Services, JP Morgan, Key Bank, MetLife, Morgan Stanley, Northern Trust, PG&E, PNC Bank, Sun Trust, US Bank, Union Bank, Wells Fargo, HSH Nordbank, New York Life, Sempra Energy, ABN Amro, AIG, Fortis, John Hancock, Lehman Brothers (now defunct), Northwestern Mutual, Prudential, and Wachovia.

Among General Electric’s “investments” is financial backing for Tawhiri Power, LLC, the successor facility to the defunct Kamaoa Wind Farm on the Big Island. So Big Island ratepayers are paying more to line the pockets of the Conglomerate headed by Obama supporter Jeffrey Immelt. The emerging Solyndra scandal is just the tip of a very large iceberg.

South Point is described by GE as “one of the world’s windiest habitable locations” but because of the irregularity and unpredictability of wind, much of its production is “curtailed” – wasted because there is nobody to use it. But Neil Abercrombie’s latest nominee for the Public Utilities Commission, Michael Champley has a “solution”.

As a consultant for the Blue Planet Foundation, Champley has been hard at work to maximize the transfer of wealth from ratepayers to the fat bank accounts of the corporate interests behind wind and solar development. An August 13 Associated Press article explains:

Renewable power producers should be financially compensated for the times when Hawaiian Electric decides it won’t accept their power onto the grid, said Mike Champley, a consultant for Blue Planet Foundation, whose mission is to make Hawaii energy independent.

“Curtailment or the threat thereof is so overwhelming that it makes these projects basically unfinanceable. It causes uncertainty of the revenue stream,” said Champley, a retired executive from Detroit utility DTE Energy who now lives on Maui. “If there were more certainty, one could plan or adjust accordingly.”

Champley is paid to advocate in favor of paying these corporate scammers for their garbage electricity even when it cannot be used. And now, he’s got a vote on your electric rates.

Welcome to the New Day, Hawaii.


PDF: Acumen Capital Japan, US Solar Tax Equity Primer

Related Articles: Wind Energy's Ghosts, Hawaii Wind Developer tied to Largest-ever asset seizure by anti-Mafia police


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