BOISE – Winds of change may sweep through Idaho’s fledgling renewable energy industry this summer.
The rebate program that exempts renewable energy developers from paying the state’s 6 percent sales tax is set to expire on June 30. Meant to give the fledgling industry a foothold in Idaho when it passed the Legislature in 2005, the rebate has become central to the industry’s business plans for the Gem State.
Loss of the rebate would dull Idaho’s competitive edge over other states, developers say, adding they’d be forced to ask for 6 percent more for equipment costs when seeking power purchase agreements from utility companies.
So, lawmakers in Boise face a choice: do nothing – and let the rebate expire in the face of industry objections – or vote to extend a tax break in the face of declining state revenues.
Further complicating the issue are Idaho’s neighboring states, all of which already lure projects with their own incentives.
“The landscape has not changed a bit,” said John Watts, a lobbyist for the industry. “We are the donut hole if we don’t extend this rebate policy that’s in place right now.”
Watts represents Shell Wind Energy, which is planning a wind energy project east of Albion in the southwest Magic Valley.
The project has already started to unfold. Public hearings took place. Permits were obtained, and private landowners were contacted.
“We’re just hoping that rebate’s in place to help offset the costs,” Watts said.
“They were hoping the rebate would be in place for them and now we’re not sure because we’re probably a year and a half, maybe two years to actually starting to do something.”
Rates have already been factored into construction costs and agreements, so the company will have to go back to the drawing board if the rebate expires.
“It’s something that remains to be seen,” Watts said.
Rich Rayhill is a developer with Ridgeline Energy, which has a presence in eastern Idaho.
“We’ve got projects in the permitting process that are unlikely to be in the ground prior to June 30, 2011, and they become economically unfeasible and unviable without the rebate,” he said. “… A project in another state will get to beat us and there could be the ironic situation that wind from Wyoming would be imported into Idaho where (Wyoming) would gain all the advantages: the jobs, the property tax, the income tax.”
Exergy Development Group already has a 183-megawatt project in the Magic Valley and anticipates bringing more wind energy to south-central Idaho.
“Obviously whether or not the rebate continues is going to be a critical factor,” said Roy Eiguren, a lobbyist for Exergy. “If it doesn’t continue then those projects won’t be built.”
Since the rebate became law in 2005, the state’s given up $13.3 million through the rebate program, a figure that includes projects across wind, geothermal and biomass industries.
Industry angst flared earlier this year, when the State Tax Commission attributed $47 million of Idaho’s budget hole to the rebate program. That’s since been retracted, with the rebate now described as a “revenue neutral” program.
In other words, the only money the state gives up equals what it gains through developer purchases.
“It’s still money in and money out,” Watts said.
And wind farms can spread their money to other Idahoans, including private landowners who lease space for wind turbines. Stan Boyd, a lobbyist for Ridgeline and the wool and cattle industries, said that royalties from such leases add stability to ranchers who face volatile livestock prices.
“We really gamble by doing away with that tax rebate,” he said. “… Renewable energy in Idaho has boomed and you can credit one thing – the tax rebate program. Do we dare right now kill that?”
No Idaho lawmaker has introduced a bill yet to extend the rebate.
The issue is still being examined and lawmakers have seen their share of industry studies, said Rep. Dennis Lake, R-Blackfoot and chairman of the House Revenue and Taxation Committee, where any bill would begin.
Lake said he understands there could be consequences if the rebate expires.
“If we allow that to happen, there’s a good chance that we have some projects that are online or in the process that won’t be built,” he said, “so then not only do we not get the sales tax revenue – which we were going to give back to them anyway – but we don’t get all this ancillary benefit of job creation, royalties, things like that.”
Lawmakers acknowledge that the alternative energy industry brings Idaho benefits, but aren’t sure if the rebate should continue in its existing form.
“I think that if we’re saying that wind energy development needs to carry its own weight, if it needs a subsidy to make it work, we need to think about that long and hard,” said Rep. Scott Bedke, R-Oakley, a member of the House Revenue and Taxation Committee.
Senate President Pro Tem Brent Hill, R-Rexburg, was a co-sponsor of the original 2005 legislation that started the rebate. He said he doesn’t have the answer to whether the rebate should continue, and noted the conditions Idaho faced when lawmakers made the decision: Other states offered sales tax breaks or lacked sales tax, allowing them to lure developers facing large startup costs for projects that ultimately would bring in more dollars.
“I don’t think any of us have any regrets about what we did five years ago,” he said.
Rep. Stephen Hartgen, R-Twin Falls, who served as a consultant for wind-farm developer RES Americas before joining the Legislature, said there are a couple of ways to look at the issue.
One is that the state’s budget situation is dire. The other is that the industry has invested hundreds of millions in infrastructure in the state, he said.
“I think you have to weigh it from both directions,” Hartgen said.
Rep. Wendy Jaquet, D-Ketchum, said she’s still looking at the issue, adding that the benefit of the industry is that it brings green jobs.
Educators weigh in
In the Magic Valley, those involved in the wind energy technology program at the College of Southern Idaho are keeping a close eye on the situation.
The program, which began in the fall of 2009, will graduate its first class this spring.
Forty-four students are enrolled in the wind energy program. Another 10 participate in the college’s environmental technology program, which blends wind energy and other renewable technologies.
About 20 percent of the students would be willing to go wherever they can find work, but many have strong ties to the region and would like to work in south-central Idaho if they can, said Mark Goodman, the program’s instructor.
Still, students are also told that it’s a mobile industry.
CSI Instructional Dean Todd Schwarz said wind energy workers follow the projects, which doesn’t necessarily translate into a long-term career close to Twin Falls.
“That type of industry is going to lead people out of state,” he said. “We get students who say, ‘Yeah, I get that. I want to move to Texas.’”
Schwarz said industry trends have little effect on curriculum, but can drive program capacity. As CSI prepares to build its new $7 million Applied Technology and Innovation Center, the Twin Falls college has capacity for 70 renewable energy students.
That capacity isn’t expected to immediately expand with the new building’s completion.
“You don’t want to overtrain,” Schwarz said. “You don’t want too many people heading out into the work force because you’re watering it down at that point.”
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