Monday, October 13, 2008

Congress moves on energy

There was big news in the solar industry as recent as last week. This, to me, is an example of how government can promote activity in an area without being heavy handed about it. For the last five years or so, I don't know the exact number, there has been a tax credit offered for anyone installing a solar electric system on their home or business. The tax credit is calculated as 30 percent of the cost of the installation. Remember, this is a tax credit not a deduction. But, the problem has been that the tax credit has been capped at $2,000. So, let's say I put in a $30,000 photovoltaic electrical generating system. I would get a 30 percent tax credit the year I put it in. The problem has been that the tax credit has been capped at $2,000. So, in my example, the $30,000 system would receive a tax credit of $2,000 instead of $10,000. This week the congress approved a new energy bill. It removed the cap on the tax credit for solar systems. That means that the example system costing $30,000 would net the owner a $10,000 tax credit. Now we have a real incentive in place. To carry our example farther, let's say the owner lives in Florida and has installed a 3,000 watt photovoltaic system on his house. Florida gives a $4 a watt rebate for installing a system. Now, the owner gets another $12,000 in cash for his system. The tax credit and the cash rebate total $22,000 leaving the owner with a net cost of $8,000 for a 3 kilowatt electrical generating system. The payoff assuming a benefit of $1,000 a year would be 8 years.

With the world having passed the peak of global oil production based on various calculations, it can be assumed that the price of energy obtained from petroleum is going to continue to climb over the coming years until oil becomes too expensive to extract from the earth. Various other sources of petroleum will enjoy some resurgence as the price of crude oil inexorably climbs due to reduced production all over the world. Sporadic forays into offshore drilling and exploitation of limited domestic sources will yield at best a few years reprieve. The industrialization of China and India will force demand higher in spite of any action the US takes to conserve. Americans are already feeling the pinch. The recent spike in gasoline prices has changed the automobile market at all levels affecting not only the manufacturers but also the dealers and most importantly the owners of gas consuming monsters that we have all been encouraged to buy over the last decade or so. If you own a large SUV and have gone in to trade for a new vehicle you have found that the value of your shiny Chevy Suburban that you cared for over the years has plummeted to near nothing. GM and Chrysler are in negotiations to form a single larger company in the throws of survival. Detroit has based its hopes on the Chevy Volt, an all electric vehicle that will cost over $30,000 and will not go into production until 2010. Meanwhile, Toyota dealers have up to a 10 month waiting list in some areas for the Prius, their much loved 50 mpg hybrid which has been in production for over 12 years. Detroit missed the boat completely.

With the present world wide economic crisis along with the future declining global oil supply, it is good that the USA has now elevated alternate energy production to a higher level of importance. Hydrogen is a very long way off in my opinion. T. Boone Pickens Plan which emphasises natural gas will require the installation of a nation wide refueling infrastructure. I spoke with a representative of our local public utility, the gas company, and asked him where the refueling stations were. He confirmed that there were none in Florida for private vehicles and that the only ones in place are for government vehicles. Florida under Governor Charlie Crist has put in place requirements that government agencies reduce their grid electrical consumption by a set amount by a certain date. One commonly sees Toyota Prius government vehicles in the area where I live.

In this perspective, the approval by congress and the president of the latest energy bill which reduces the cap on solar tax credits and contains a number of other beneficial requirements such as demanding an increase in overall automobile fuel efficiency will provide a boost to new alternate energy industries and has taken a baby step in reducing our bizarre dependency on oil as an energy source. Oil that we must buy from people who hate us but profit greatly from us. We are like drug addicts who pay money to the dealer because of our addiction. We hate the dealer but our addiction ties us to him in a strange pathological way.

I highly recommend James Howard Kunstler's book, "The Long Emergency," from which much of this information was obtained. I alse recommend going to Wikipedia and reading the entry for "Hubbert's Curve" or "Hubbert's Peak." The Kunstler book really puts the present day energy, economic, and political situation in perspective. We do face a "Long Emergency" in the coming years and the faster the US restructures itself to deal with it the better. It is important to understand this change in global politics to survive the coming years and to reposition our country militarily and energy-wise for us to survive as a nation. So, in my opinion and others, reducing our dependency on petroleum is a national defense emergency and the removal of the cap on tax credits for solar systems is on small step that will stimulate movement in the right direction. We are a nation unique in the world because of our creativity and resilience but we have become complacent in our sleepwalking through the last twenty years while under our oil addiction. We can wake up but we had better do it fast.

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