Alternative Alternative Energy

I’d love to say it’s different elsewhere on the green planet, but even T. Boone Pickens’ favorite alternative energy option – wind power – is in dire straits. Like most other projects that are looking for financing right now, wind and solar projects are finding it tough to get cash. Back in December, Mr. Pickens admitted to being “a little anxious” about where the money for his big Mesa Power project was going to come from, and he has said in the past that in order for wind to be competitive, natural gas needs to be around $9/mm Btu, a long, long way from the $4.68 the EIA reported in last week’s natural gas update. The EIA Short Term Energy Outlook from last week forecasts total natural gas consumption to decrease 1.3% in 2009, with the loss stemming from a 5.1% drop on industrial gas consumption due to the economic downturn.

Not exactly great news if you’re a fan of the Pickens Plan. Not great news if you’re interested in alternatives at all. Companies in both solar and wind industries are laying off workers and seeing demand for their products go down, as consumers and businesses tighten their belts.

Not only are alternatives competing with cheaper fossil fuel energy (and coal, as well) the industry itself has become a victim of the economic downturn – both in terms of tighter credit markets and falling sales.

Stimulus Package to the Rescue?

With the U.S. Economic Stimulus package soon to be signed by President Obama, let's take a look at some of the line-items designed to help the alternative energy industry.

As far as direct investment goes, I count roughly $38.7 billion dollars going toward energy related items – from the largest piece of the pie ($11 billion) earmarked for the updating of the U.S. electricity grid to $2.5 billion dollars going to energy efficiency and renewable energy research. But this isn’t all about alternatives – that fancy new electrical grid, while obviously green, just moves generic energy demand (cars, heating) from other sources to coal, the source of most of this nation’s electricity.

And fossil fuels aren’t left out of the plan anyway – there is a provision for $3.4 billion for research and development of fossil energy. There is some good news though for wind and solar projects. The plan sets aside $6 billion for loan guarantees for renewable energy projects, such as wind or solar – guarantees that might make it easier for projects such as Mr. Pickens' Mesa development to receive financing from the private sector. The rest of the energy allocations go primarily towards conservation efforts.

Beyond direct investment, there are important tax breaks directed at alternative energy. The plan extends existing tax breaks for wind and other renewable energy facilities, along with providing new tax incentives for those facilities. There is authorization for $1.6 billion of new clean renewable energy bonds and $2.4 billion for energy conservation bonds for state and local government projects aimed at reducing greenhouse gas emissions.

Consumers can get in on the tax breaks too, with tax credits for energy-efficient improvements on existing homes being extended. And, for those early adopters – tax credits of at least $2,500 when you purchase a “plug-in” electric car.

Honestly, it’s doubtful any of these stimulus line-items really do much to make the life of an ethanol plant owner any easier, and the plan doesn’t change the game. And the name of the game is still fossil fuels. Basic economics always wins, and if Oil or Natural Gas remain just plain cheaper than the alternatives – after any and all incentives, investments, or incantations – well, they’re just not much of an alternative.

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