Power Politics

Restrictions on Woody Biomass Must be Removed

By: John Nikoloff, President of ERG

ERG this week joined with 25x'25 and forestry partners in seeking to reverse federal policy that denies the use of a wide variety of woody biomass resources to meet the nation's renewable energy goals. Severely restricting the definition of eligible woody biomass in federal energy legislation makes no sense.  It is a policy that undermines the intent of those in Congress who say they want to create a renewable energy future that promotes energy independence, enhances national security, boosts the economy and improves the environment.

Woody biomass has multiple commercial applications in the battle for a renewable energy future - as a feedstock for cogeneration, as exemplified in Northumberland County by Viking Energy, with its cooperative relationship with  Furman's Foods replacing natural gas in the company's canning operations; as a thermal heating source, as at the Elk Regional Health Center; as fuel for business heating systems, as with the Dillon Floral Corporation in Columbia County; cofiring in coal to electric generating facilities; and as feedstock for cellulosic ethanol production, just to name a few.

Yet Pennsylvania has no state economic incentives specifically targeted to biomass included in the Alternative Energy Investment Act passed last summer.  Even the Energy Harvest Grant Program in DEP has been revised by the Department so that businesses are no longer eligible for those funds. 

At the federal level, despite almost a decade of interagency study and promotion, this potentially valuable piece of the future energy tapestry has been largely overlooked as the big battles center around coal, oil, ethanol and taxes - and in the case of the Waxman-Markey bill, it is precluded from the mix entirely in considering a national Renewable Electricity Standard.

Congress is considering wide-ranging energy and climate change legislation, including provisions that would require a significant percent of the nation's electricity to come from renewable resources by the year 2025. Yet, the Waxman Markey proposal would limit the renewable fuel feedstocks eligible to meet that mandate, picking up the extremely restrictive definition of eligible biomass contained in the Energy Independence and Security Act of 2007, which mandates 21 billion gallons of second-generation biofuels by 2022.

Neither EISA nor the Waxman-Markey draft proposal include such common sense feedstocks as thinning materials and woody residues from federal forests; most woody material from non-plantation, native or naturally occurring forest land; or the wide array of feedstocks from municipal solid waste. Furthermore, Waxman-Markey excludes all material from federal land, except that removed from within 200 feet of any man-made structure or campground. It is incredibly short-sighted to not include as a renewable energy resource the millions of acres of dead and dying trees that, with one spark, could go up in wildfires, releasing billions of tons of greenhouse gases.

This week, 68 national organizations joined together in an effort to bring sanity to this debate. The Chesapeake Bay Commission, 25 x '25, the American Farm Bureau Association, the American Forest Resource Council, the Environmental and Energy Study Institute and the National Association of Conservation Districts are among the dozens of groups telling policy makers that applying EISA's restrictions on the "use of most renewable forest biomass negates the many benefits of this critical energy source, including its contributions to lower carbon emissions, and jeopardizes our renewable energy goals."

Those of us who support the use of woody biomass as a renewable fuel are not looking to turn our forests into "fuel farms." In fact, many of us have consistently been telling lawmakers that strict rules and oversight on biomass harvesting and environmental concerns are necessary to ensure a sustainable biomass industry. The 25 x '25 letter lays out a set of principles to insure woody biomass policy will meet "our renewable energy needs, maintain forest sustainability and garner the support of a broad range of interests."

It is time for policy makers to correct this ill-conceived restriction and capitalize on the clean energy solutions America's forests can provide. Through sustainably managed forests we can provide much needed energy feedstocks while simultaneously improving soil, water and air quality.

California Air Resources Board sets Controversial Low Carbon Fuel Standard. Northeast States and PA to follow?

By: John Nikoloff

With much fanfare, the California Air Resources Board (CARB) finalized its Low Carbon Fuel Standard (LCFS), which is designed to reduce the carbon intensity of California's passenger vehicle fuels by at least 10 percent by 2020. The LCFS is the world’s first global warming standard for transportation fuels, and will require fuel providers in California to ensure that the mix of fuel they sell into the California market meet a declining standard for GHG.

On January 5, Pennsylvania joined the ten Mid Atlantic and Northeast States in seeking to develop a similar Low Carbon Fuel Standards in the region. ERG has talked with state and regional officials and learned that the Northeast States hope to draft a plan by the time they establish a MOU in late 2009. They have told ERG that they are “trying to be consistent with the system recently announced in California,” which has come under public fire.

The US House’s Waxman-Markey draft proposal would incorporate a LCFS into federal policy, an issue which is already generating opposition among Congressional rank and file.

Lack of a consistent policy for planning purposes could create havoc in the state’s refining, blending and distribution industries and markets, which are already facing unfunded mandates that require major capital expenditures to meet the needs of state and federal mandates for biofuels.

With a low carbon fuel standard, the government is trying to reduce GHGs in transportation fuels using a system equivalent to the state’s Alternative Energy Portfolio Standard for electric generation, using credits as equalizers. The net effect will likely be to promote biodiesel, cellulosic ethanol, renewable diesel from oilseeds, CNG, LNG and other advanced biofuels over ethanol.

But the LCFS is based on concepts that remain controversial, and scientists as well as the biofuels industry are pushing back, already getting concessions from CARB.

Under California’s LCFS, fuel refiners, importers, and blenders are required to ensure that the mix of fuel they sell meets, on average, a declining standard for GHG emissions measured in CO2-equivalent grams per BTU. CARB told Energy Resources Group that it expects this will decrease GHGs from transportation fuels by 10 percent by 2020, and would replace 20 percent of on-road gasoline and diesel consumption with lower carbon fuels.

To accomplish this, each fuel provider has to demonstrate, on an annual basis, that the fuel mix provided to the market met the established state standard, if necessary, by using credits purchased from others, similar to the cap and trade concept. Under the California LCFS, fuel providers will have at least three different options for compliance: blend or sell an increasing amount of low-carbon fuels; use previously banked credits; and purchase credits from fuel providers who have earned credits by exceeding the performance levels required.

Fuel providers have flexibility to choose what types of fuels in what volumes they sell as long as their sales-weighted average meets the standard. In this way, the theory is that the market will determine the least-cost and most consumer-responsive outcome for the fuel mix while ensuring decreasing GHG emissions.

However, there is significant concern in the biofuels industry about the standards that California adopted, and CARB’s use of the theory of indirect land use change (ILUC) in the carbon score of ethanol in particular to set the C02 equivalencies. With ILUC included in their regulation, average ethanol produced from corn goes from 30 percent fewer greenhouse gas emissions than gasoline to roughly equivalent.

The logic behind ILUC is that increased demand for corn for ethanol will lead, through increased prices, to more crops being planted elsewhere - and that the planting of these crops can cause land clearing and subsequent GHG release. These hypothetical crops are not part of the actual biofuels life cycle, but are part of the life cycle of other products. ILUC theory proposes that these crops become part of the biofuels life cycle.

The federal Energy Independence and Security Act of 2007 requires that life cycle methods be used to determine the GHG performance of renewable fuels. But these methods have strict standards regarding technical issues and the concept of ILUC may not meet these standards.

The California Air Resources Board acknowledged the significant uncertainty in their indirect land use change penalty, and did commit to more study using an expert panel that includes industry representatives, and agreed to assess the indirect effects of other fuels before the California LCFS goes into effect in late 2011.

When CARB looked at the direct effects of all fuels, it found that ethanol emits about 30% fewer greenhouse gas emissions than gasoline. CARB decided to look at only one indirect carbon effect and assesses it only on ethanol, while ignoring the significant indirect effects of all other fuels, including petroleum. When you include CARB's creative accounting, ethanol essentially has a carbon score equal to gasoline.

The new CARB regulation is expected to boost biofuels production and usage and is aimed at diversifying the variety of fuels used for transportation. CARB told ERG that to produce the more than 1.5 billion gallons of biofuels that will be needed, more than 25 new biofuel facilities will have to be built, creating more than 3,000 new jobs, mostly in the state’s rural areas. Seeking to enhance private sector and federal investment into alternative fuel production and distribution, California is also providing funding to assist in the early development and deployment of the most promising low-carbon fuels.

The policy is intended to drive the production of advanced biofuels, most of which are not through the pilot and demonstration process, and are unavailable to the commercial marketplace. This is a case of government regulating in anticipation of scientific and economic breakthroughs, which remains to be realized. We expect a significant battle with individual states should the Northeast consortium decide to include ILUC as part of their estimating process. That has yet to be determined.

ERG will continue to work with state and federal officials to monitor the development of legislation, regulations and standards, and will seek to establish consistency to avoid serious market dislocation.

Past Time for America to shift to NEW WEALTH INDUSTRIES

By: Bill Holmberg, Chairman of the Biomass Coordinating Council, American Council on Renewable Energy (ACORE)

In these troubling times, it is critical to recognize the irreplaceable value of "new wealth industries" (NWI).  NWI are based on natural resources - mining (oil gas, coal, minerals, metals); agriculture; aquaculture; silvaculture  (forestry); all renewable technologies (biofuels, biopower and biothermal energy), solar, wind, geothermal, hydro and water power, and renewable hydrogen; recycling/reuse; Energy Efficiency; and human creativity.

The importance of NWI was recognized by President Lincoln when building the transcontinental railroad (rails manufactured in the US) and by President Roosevelt during World War II.  Neglect set in during the Truman Administration when the concept of parity for agriculture (one of America's most important NWIs) was set aside while US oil production dominated the world with major NWI benefits.

New Wealth Industries are vital to the reconstruction of America, given their economic multipliers (generally more than  three, whereas service industries are generally limited to one plus).  These industries produce new commodities in a sustainable manner, whereas service industries do not produce goods.  NWI are an investment in the future while creating new basic industries and quality jobs; they have ready markets - many are "shovel ready," and they encourage positive nation and community oriented consumption, while contributing to national, energy, homeland, economic and environmental security.  These industries also combat the effects of greenhouse gas emissions.

In our haste to recover economically, we are wisely using stimulus dollars to support important service industries, bankers, police, fire fighters, teachers, public servants, marketers of goods and services to stimulate consumption.  It is also important to direct adequate stimulus funds toward generating new wealth.  As valuable as these service professions are, they are in fact dependent on new wealth industries for their own long term sustainability.

America cannot recover without focusing on sustainable new wealth industries.
Biofuels, biopower, and biothermal energy play critical roles in our future, and will succeed because they are products of American agriculture and silvaculture industries with significant support from aquaculture, hunting and open stream fishing, renewable energy, recycling and reuse, energy efficiency and human creativity.  These industries are driving forces that also demand a nationwide focus on health, education, creativity and community involvement.

The low hanging fruit - energy efficiency (weatherization of low-income housing, schools, public buildings, etc.) should be our first order of business, followed by advancing all renewable energy industries!

For more information on NWI, email biorefiner@aol.com.

Federal Stimulus Package Signed Into Law

By: John Nikoloff

The federal stimulus package presents a significant opportunity for Pennsylvania, including the funding and expansion of clean energy and technology projects. As such, look for additional blogs and information from Energy Resources Group to be posted in the near future further exploring the potential impacts the recovery act may have on the energy industry in Pennsylvania.

"What does it mean for me?" is the big question for many alternative and renewable energy companies in the wake of President Obama's signing of the $787 billion American Recovery and Reinvestment Act (the stimulus bill). ERG's phones and email accounts have been busy this week, as midAtlantic companies work through the 1,071 page bill, and the 420 page "executive summary."

The act specifies that 34% of the package is to be devoted to tax cuts of $286 billion, and a further $120 billion will be used to fund infrastructure projects. About $41 billion is dedicated to energy projects. More information on the projections of where your money will go, broken down by state, is available on the web at a White House site, www.Recovery.gov.

In signing the bill, the President called it "an investment that will double the amount of renewable energy produced over the next three years." He noted that "Today… does mark the beginning of the end - the beginning of what we need to do to create jobs for Americans…and to set our economy on a firmer foundation, paving the way to long-term growth and prosperity." The full text of Obama's statement is available on ERG's web site.

The act creates a series of tax credits for businesses and residential consumers, for energy production, conservation and energy efficiency. The package also carves out money for state energy programs, research and development and alternative fuels. There's where things get murky. Time frames for spending the funds have been compressed, and Acting DEP Secretary John Hanger told ERG that the state expects the first wave of funding within 30 days, and the strings on the funding call for the money to be committed within 120 days.

According to Sen. Robert P. Casey's office, Pennsylvania stands to receive $258.8 million dollars in weatherization assistance funding, $100.8 million through the State Energy Programs, and $114.6 million in Energy Efficiency and Conservation Block Grants. Another $343.7 million in funds will go for transit programs, $61.6 million for Community Development Block Grants, and PA's share of the Earned Income Tax Credits will be increased by more than $160 million dollars. Provisions in the energy portion of the bill allow ITCs to be converted to grants. Click here to view a more detailed breakdown of the stimulus package.

ERG is working closely with state government to monitor these programs and funds, and can provide additional information. As state programs are defined, we will provide information and links on our website at http://www.pa-erg.com.

Mixing Apples and Biodiesel

By: John Nikoloff

Last month, Governor Rendell announced that initial biodiesel production targets had been reached and that the process would begin to require B2 blends be sold in Pennsylvania. And almost immediately, ERG received dozens of calls about what biodiesel is, what it means, how it will be handled, and a few calls asking if biofuels were really good for the environment. Over the next few months, ERG will try to provide some background on biodiesel as a means to "clear the air."

For now, we want to respond to some of the calls, which were apparently generated by comments in a wire story on the mandate which disputed the effects of alternative fuels like biodiesel. The "expert" quoted in the story claimed that biofuels' environmental and economic impacts are still unclear, and he went on suggest that biodiesel "seems to have some kind of impact on food prices since you're using some land that would be used for food."

These kinds of comments demonstrate a lack of understanding of agriculture, renewable energy production and biofuels. Having been lucky enough to work with agriculture and agribusiness for more than three decades, and to work daily in renewable energy sector, I was surprised and disappointed by the lack of basic knowledge of these industries. All biofuels can't be lumped in one basket - and any "experts" who do so, are only proving that they don't know apples from oranges, or ethanol from biodiesel. 

For the record: Pennsylvania's biodiesel producers are manufacturing a sustainable fuel that is good for the environment. Biodiesel is nontoxic - ten times less toxic than table salt. It is the only alternative fuel to have a complete evaluation of emission results and potential health effects submitted to the EPA under the Clean Air Act.

Decades of independent testing show that ozone forming potential of biodiesel emissions is 50 percent less than that of diesel fuel. Biodiesel use virtually eliminates sulfur emissions, major components of acid rain. And using biodiesel results in significant reductions of particulate matter (47%), carbon monoxide (48%) and unburned hydrocarbons (67%), along with decreases in various polycyclic aromatic hydrocarbons (PAHs) of from 50 to 95%.

Biodiesel production and use reduces carbon dioxide emissions by 78 percent, from planting the feedstock beans to the pump. And every gallon of B100 that is used instead of petrodiesel reduces Greenhouse Gas Emissions by between 16 and 18 pounds.

Almost 50% of biodiesel production in 2008 was made from feedstock other than soy oil - an industry building on wastes, animal fats and other oils. Several Pennsylvania manufacturers exclusively used animal fats and waste oils in their biodiesel production.

Sustainable production practices for biofuels are important. This week, in San Francisco, Dr. Rob Myers, a director of the Thomas Jefferson Agricultural Institute, and Roger Beachy, President of the Donald Danforth Plant Science Center, said "Biodiesel from a variety of feedstocks can meet contemporary needs for environmental stewardship, economic prosperity, and quality of life without compromising the ability of future generations to meet these needs for themselves."

The Pennsylvania biodiesel industry supports these practices and is proactively engaged in this area, investing in second and third generation feedstocks, such as camelina, canola, jatropha and even algae.

Penn State has conducted years of research in Pennsylvania on canola, which is now being grown for biodiesel use. Lake Erie Biofuels has been working with Northwest PA farmers and Penn State's Extension Service to develop production and processing capabilities for camelina, an oilseed crop that does not compete with corn and soybeans for acreage, and can be grown on marginal lands, including reclaimed minelands.

Second and third generation feedstocks will result in less expensive biodiesel without impacting planting and production or prices for traditional commodities. The oil content of canola and camelina is double that of soybeans, and the oil output per acre is more than double that of soybeans. While an acre of soybeans would yield approximately 50 gallons of oil, canola produced in Pennsylvania the last two years has yielded more than 140 gallons per acre. And crops like jatropha (202 gallons per acre) and algae (15,000 gallons or more per acre) are coming in the near future.

Food Price Impacts?
The food vs. fuel argument is loaded with fallacies and assumptions, even in the case of corn based ethanol. But extrapolating those indefensible numbers about corn, to oilseeds and biodiesel is just plain bad science. Corn and soybeans, like ethanol and biodiesel are, to mix a metaphor, different animals, and subject to very different market pressures.

Soybean MEAL drives soybean demand - the oil is a byproduct. And soybean oil isn't the only product available to fill the position served by it in the food and industrial markets Other vegetable oils - sunflower oil, canola oil, etc. are often more beneficial in biodiesel use than soybean oil.

Historically, two things have driven soybean prices - the demand for soybean meal as protein in livestock rations has been the major driver, and the export markets have been the second. Last year soybean prices soared, but the major drivers were oil prices and speculative investing. The US has surplus soybean stocks and a 400 million gallon soybean oil surplus. Nearly 50 percent of the soybeans produced in the United States are exported in the form of whole beans, meal or oil.

Increasing production of soybeans should lead to a lowering of overall food prices. Soybean meal prices would be more reasonable, and therefore, expenses rearing feedlot cattle or dairy cattle, for example, would be less, and beef milk and butter prices, etc., would follow suit.

With biodiesel you're left with the oilseed cake after the oil has been pressed out. Depending on what seed is used, this is usually a highly nutritious, high-protein livestock feed.

With biodiesel, you CAN have your cake and eat it.

Wind Solutions

By: Melissa Britcher

Pennsylvania has a rich and diverse landscape that lends itself to all forms of renewable energy - including wind. During the Power for the Future: 2008 Pennsylvania Wind Energy Symposium held at Penn State in November, ERG Associate Melissa Britcher met with industry leaders and advocates who are promoting the possibilities for large-scale wind farms, community wind projects and even small wind.

Wind is seen as a critical element in achieving energy independence, and could produce as much as 20 percent of the nation's electricity by 2030, creating many opportunities for wind development in Pennsylvania. As mandated by the state Alternative Energy Portfolio Act, 18 percent of the state's energy production must come from renewable sources, including wind by 2020. Today, electricity makes up 40 percent of energy use in the U.S. and over the next 15 years, the demand is expected to increase by 25 percent. Pennsylvania is the sixth largest consumer of electricity, and third largest producer, with most electricity coming from coal and nuclear and only one percent coming from renewable sources.

To date there are 10 large scale wind farms in Pennsylvania in Somerset, Fayette, Cambria/Blair, Schuylkill, Luzerne and Wayne counties. Pennsylvania has over 300 megawatts of wind power generation installed with several more wind farms planned. It is estimated that Pennsylvania's potential wind power capacity is around 5,120 megawatts, whereas the state's estimated existing wind capacity is at 374 megawatts.

While large turbines and wind farms produce the most bang-for-your-buck, the industry faces many challenges. ERG reported earlier this month on the difficulties, costs and need for an improved grid infrastructure. Large wind producers also discussed  the need for more manufacturing capacity to provide parts and equipment, with needs to increase five fold over the next ten years.  They said that supply chain issues and a shortage of qualified construction workers, engineers and maintenance professionals are also problematic, and all noted that the current economic situation makes funding projects even more difficult.

Communities across the U.S. are partnering to purchase turbines that will provide locally generated energy at a reasonable cost. Community wind projects have great merit and will be a topic of future ERG blogs.

Small turbines are becoming increasingly popular for residential and small business applications. Smaller turbines operate at slower wind speeds, and require less wind.  An average home can get the majority of their power from a 10-kilowatt turbine.

While the up front capital costs can be high, state and federal programs may improve the relative cost and payback times.  The benefit for homeowners and communities to produce their own electricity is simple - the cost becomes fixed. With some Pennsylvanians already experiencing the electric rate increase and others just waiting caps to come off in 2009 and 2010, the potential to relieve to rate increases is catching the attention of many. As a renewable source, wind power provides environmental benefits as well. Wind power lessens the amount of traditional resources required to produce electricity, through coal and fossil fuels.

Over the next several months, ERG will continue to discuss the issues and opportunities facing wind production in the U.S. and in Pennsylvania.

Transmission Infrastructure Improvements Needed - PJM Plans $1.6 Billion in Upgrades

By: John Nikoloff

The PJM Interconnection L.L.C., which operates the region's electrical grid, has approved $1.6 billion in additions and upgrades to the electric-transmission systems for the grid that serves 51 million people in 13 states and the District of Columbia. The upgrades are required to maintain reliability of the power supply and keep the lights on in years ahead, PJM said. To accomplish this 15-year plan, PJM's board has authorized almost $13.3 billion in investments.

"Ensuring the reliability of the power supply infrastructure is a vital role for PJM and our member companies," said PJM President and CEO Terry Boston. "A reliable grid is a lifeline to our homes and critical to our standard of living."

PJM's reliability has been important to development of alternative and renewable energy projects in the region - but projects in other states have had to shut down at times because of congestion on their grids. Lack of transmission capacity has become a major roadblock to further development of wind and solar generation today.

As the promise of renewable energy expands, the limits of our existing national transmission system will become ever more evident. In New York recently, wind farms were forced to shut down because the electric grid was unable to handle the power being generated.

Moving large amounts of power over long distances is a reality if we are to significantly expand our wind and solar generating capacity. Without major capital investment in transmission lines, the national grid's limitations will continue to put a damper on these projects.

The world credit crunch makes funding these projects even more difficult. The major expense for renewable energy generation and transmission projects are upfront capital costs, with limited ongoing operational costs. Even T. Boone Pickens has to put his Texas wind project on hold because he cannot access capital - a fact that speaks volumes about the availability of credit in today's market.

Renewable power standards are one policy to promote development of alternative energy sources, and a national standard may well soon be passed by the new Congress. But we need reasonable expectations of what can be achieved in the short term, and a major federal funding commitment as part of an economic stimulus package to make that happen.

We can only hope that a portion of the national infrastructure funding promised this week by President-elect Obama will be used for improvements in the system, and that state and local siting issues will not preclude development of these projects, which are critical to our renewable energy future.

Election History Made in Pennsylvania and in U.S.

By: Phillip D. McFarren, ERG Partner

We have witnessed a historic political moment which many of us may never witness again. The voters of Pennsylvania joined a broad band of states in America's rural and industrial heartland to send a clear message-Don't count us out-change your ways government so that we have economic security at home.

During the past six weeks I have traveled thru much of this part of the United States meeting public officials, meeting companies and industrialists who have and are continuing the fight for energy independence. They are the investors, the proud workers, government partners and the rural America that some politicians seem to forget in their lust for power and publicity. They responded with Vigor and Vitality yesterday by electing one of their own as the 44th President of the United States. During these past few weeks you could feel the tempo growing not for partisan reasons but for economic reasons.

We toured last week the new processes being developed in partnership with agriculture and industry to greatly enhance the food chain while creating a more competitive product needed to achieve energy independence. We toured the leading manufacturing plant of the needed equipment and we discussed with other companies the most likely technology to be utilized in the future of manufacturing the next generation of biofuels. Political leaders should well consider the same experience for they too will see American entrepreneurship at its best.

Energy independence is the most important goal of Barack Obama after he and others stabilize our financial structure so that financing is once again readily available to quality projects. This is the overriding goal of Midwestern America where the goals of agriculture mesh with the goals of heavy industry and where both have learned to work together for many years regardless of political choice.

The Change in Pennsylvania As Well

Obama won Pennsylvania by some 11% of the votes cast -a modern day record in the past 50 years for a presidential candidate.  The national election brought new waves of voter reaction to the ballot box but in general Pennsylvanians favored those who have been loyal to the interests of their district and who have shown excellence in the administration of their office.

Democrat Auditor General Jack Wagner, an early supporter of Barack Obama, received the highest number of votes cast for any candidate running for any office with 60 percent of the vote, a huge margin, and a big boost to his prospects for further elective success and a possible run for Governor.  Rob McCord, a Democrat, easily won the State Treasurer's job with more than 55 percent of the statewide vote. 

At the same time, Republican Attorney General Tom Corbett, won re-election as voters recognized his statewide accomplishments, thus maintaining the precedent that every elected state Attorney General has been a Republican.

Congressman Phil English, a very influential and brilliant member of the U. S. House Ways and Means Committee, was narrowly defeated by an excellent opposing campaign and by the surge of support for Obama in his Congressional District. All other Pennsylvania Members of Congress were re-elected in spite of the large voter shifts in many areas of the Commonwealth, leaving our delegation at 12 Democrats and 7 Republicans.

Legislators and state government leaders will need to find the same courage and support as exhibited by the Obama campaign which was superbly managed and equally effective.

Energy Investments - State Role Has Changed

The Wall Street debacle has undercut the value of shares in solar and wind power companies, biofuels companies and other renewable energy stocks significantly - in some cases, percentage drops have been even more than the market average. But this decline in market value has no real basis in the records or the potential of renewable and alternative energy companies - it appears to be more driven by the fears of investors in general.  The concern from this end is that the market crisis may create longer term difficulties in getting commitments for ongoing investments in renewable energy.  When there is nationwide - worldwide uncertainty over the ultimate cost of borrowing, investments tend to be even more closely vetted and less easily locked in. 

The current credit crunch is problematic across the economy, particularly so for many renewable energy - whether solar, wind or biofuels - where the vast majority of the cost is upfront capital.  This makes the cost of capital even more important to any kind of reasonable ROI, and that can make the difference between success and failure of an otherwise viable project.

As recently as this summer, with gas and oil prices soaring to near $140 per barrel, wind farms were even more appealing - guaranteed electricity prices appeared to be a sure thing for investors, but more recently, it's a different story - a senior vice president of a major investment firm, FBR Capital Markets, was quoted in the New York Times today: "Natural gas at $6 makes wind look like a questionable idea and solar power unfathomably expensive."

In the renewable and alternative energy field, investments normally come in stages - ERG was formed in recognition of this fact.  Companies involved with advanced technology operations, new processes, community based systems, and facilities have traditionally found early money in their key partners, but then had to find second and third stage funding before qualifying to incur major debt to finish pilot projects, take products commercial, or build facilities that cost hundreds of millions of dollars. 

The volatility in the market has made commitments to future funding difficult, and in the short term, made financial benchmarks for early stage firms difficult to reach. 

Government support can be crucial in getting to the point where investor confidence can take over.  But Pennsylvania government now faces its own financial difficulties - State Senators Vince Fumo (D, Philadelphia) and Gib Armstrong (R, Lancaster) showed bipartisan concern last week, projecting a current year budget deficit of as much as $2.5 billion, and the fear of even more in 2009-2010. 

Traditional state funding programs through DCED or the Commonwealth Financing Agency are based on job creation - but these programs don't consider the multipliers of alternative energy projects in spinoff industries, supply and distribution businesses, so they tend to gravitate to more traditional manufacturing industries.  The Pennsylvania Energy Development Authority was initiated to provide grants and loans guarantees for alternative energy projects and related research referring to deployment projects, manufacturing or research where private funds were unavailable, but this year's grants have focused on energy efficiency and many have been granted to municipalities in recent years. DEP's Energy Harvest program was specifically created to promote new and innovative technologies in the marketplace.  But this year, DEP established guidelines which prohibited for profit entities from even applying for these funds.

And even the $500 million energy investment act bond funding is in limbo today, with officials carefully noting that it will be late winter at the earliest until the state can hope to sell the bonds for the as yet developed programs.  Given the rest of the marketplace, ERG would urge that, if the state is truly interested in generating the energy, the jobs and the economic benefits that can come from these projects, serious consideration be given to programs that provide early stage matching funds for alternative energy companies that demonstrate their own ability to get private investment, and to guaranteed loan programs where minimum state investment can leverage up to 20 times the capital through those loans.

US Senate Reaches Bipartisan Agreement on Energy Tax Credit Package

By: John Nikoloff

US Senate Finance Committee chairs Max Baucus (D, Montana) and Chuck Grassley (R, Iowa) have reached a bipartisan compromise that could result in Senate passage of an agreed-to plan on energy tax credits as part of an overall tax credit package before Congress adjourns for the fall elections. The bill includes $17 billion in renewable energy tax credits, along with other business, disaster relief and other tax provisions.

ERG has been following the process closely and been in contact with the state's Congressional leadership. While there is a very short window of opportunity to secure this package during the fall session, it appears that the amended bill (HR 6049) will pass the Senate. The bill would then go to a conference committee for agreement with the House, which passed a Renewable Energy and Energy Efficiency Production Tax Credits (PTC) package on September 18. All indications from Congressional leadership suggest that both the House and Senate could work together and agree on some energy tax provisions important to the renewable energy industry before the session expires.

The Senate is scheduled to vote on this legislation on Tuesday, September 23rd. The Senate bill includes a one-year PTC extension for wind, a two-year extension for solar, marine, biomass and other technologies, as well as extensions of investment tax credits for renewable energy, new Clean Renewable Energy Bonds, and energy efficiency tax incentives. The bills also include an extension of the biodiesel Production Tax Credit and the establishment of tax incentives for cellulosic biofuels property.

ERG will be reaching out to the Pennsylvania Congressional delegation, contacting them to ask their leadership to support this legislation. We would urge you to become familiar with the bill's provisions, and join in urging our Senators and Congressmen to move the package before Congress adjourns September 26.

Click here for a copy of the Finance Committee Staff Summary of the Energy Provisions in the amendments to HR 6049. (PDF)