Critical Government Tax Credit Threatens Renewable Resource Development

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Texas is poised to become the first state to have renewable energy sources profitably competing with traditional sources. Renewable energy sources, such as wind and solar power, have another decade or so until they are efficient enough to really compete in the energy market. There is currently a production tax credit in place to benefit the investment in wind and solar energy sources. However, this credit is set to expire at the end of 2016, and if it is not renewed then the process of modernizing the energy market will take much longer. This is all according to a report called “Journey to grid parity,” which was published by the Deloitte Center for Energy Solutions. According to the report, “…without dramatic cost declines and improvements in efficiency and utilization, it is unlikely some parts of the U.S. can reach grid parity without federal or state incentives within the next 10 to 15 years.”

One problem is that the areas which are most suited for renewable resource development are flooded by traditional sources of energy, which makes them much cheaper. It is still much less expensive to continue using these established energy sources rather than invest in newer sources. Another issue is that the costs of developing the necessary facilities to harness renewable energy sources are still extremely expensive. However, the tide is slowly but surely changing and, within the next decade or so, fossil fuels will lose substantial market share to cleaner energy sources.

Falling production costs, incentives from the federal government, and the general desire to find clean, sustainable energy sources are the main factors that are compelling companies to invest in renewable resources. It is generally expected that wind energy will become marketable on a massive scale before solar power. Texas generated 22% of the nation’s total wind energy last year, and is planning on growing that number substantially in the future. Certain companies are hopeful that Congress will continue the tax incentives for renewable resource investment, but many will likely continue with or without the tax credit simply because there is a large potential market that could be seized if your company is the first to bring those costs down. Where there is potential for profit, there will be competition, and that competition will eventually bring down the costs of generating renewable sources, which will cause a fundamental shift in the energy industry.

Article written by HEI contributor Timothy McNally.

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