BETC: No longer 'broken,' but far from secure

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Grott

New proposed changes to Oregon’s Business Energy Tax Credit program, called BETC, could set off a flurry of small-scale renewable energy development in the near future, even while uncertainty about the program’s future has caused some larger projects to stall out.

A meeting last week with industry leaders resulted in the proposed changes, which have considerably brightened the mood among some energy developers.

"I’m no longer using the word 'broken,'" said Robert Grott, executive director of the Northwest Environmental Business Council, a business association whose membership includes renewable energy companies.

Should the proposed changes take hold, they apply to $80 million in tax credits still available through July 2011. Of the $300 million in tax credits dedicated to spurring renewable energy development this biennium, $220 million have been subscribed.

Some are calling the changes a ray of hope at a time when the BETC — in flux since a brisk but temporary legislative overhaul May 27 — has caused serious quakes in wind and solar development.

Still, BETC’s future remains uncertain, to be decided by the 2011 legislature.

Industry stakeholders met Sept. 2 in an informal meeting with Oregon Department of Energy officials to clarify the long-term outlook of the BETC under new rules set to take effect in November.

Grott said proposed changes by the Oregon Department of Energy signal the department’s willingness to keep the renewable energy sector and the BETC program on its feet, even while agreement about changes to the program is far from universal.

Chiefly at issue is the instability of state-sanctioned discount rates that apply to investors who buy the tax credits. Selling the credits is a tool used by developers to infuse ready-to-build projects with cash.

But temporary rules intended to stem what some lawmakers saw as an unscrupulous outflow of revenue from the state’s tax base rolled back that discount rate and deemed it temporary. With no fixed rate in place — and none planned until permanent rules take effect in late November — investors have shied away from buying the tax credits and lenders have been equally uneasy about issuing BETC-backed loans.

The temporary rules effectively squashed financing for some renewable energy projects, spurring quibbles between businesses and the Oregon Department of Energy and causing several developers to cry foul when previously promised tax credits were revoked, spurring at least one lawsuit.

Last week, Alfred Fairbanks, a part owner in Washington-based Energetics LLC, said the company would sell its 4.99-megawatt solar project in Lake County following construction rather than retain local ownership, as planned. The approximately $20 million project was pre-certified for $10 million in BETC tax credits in May 2010. Fairbanks declined to offer details as to why the project was being sold but said changes to the BETC were at the root of the decision.

"You have to use the pass-through methods to get any money out of it. It’s the pass-through where everybody is getting their doors blown off," he said.

It's a similar situation in Baker County. Randy Joseph’s 3-megawatt, $5.8 million community wind development has stalled out in part because he couldn’t find a bank willing to lend against the credits. The project is fully funded by post-construction reimbursements from BETC and other programs, and pre-construction planning is complete. But BETC’s instability, Joseph said, has combined with other economic factors to stymie the cash to build it.

"We have all the financing at the end of the project, but we can’t get the project built," he said.

Joseph added the banks he’s spoken with consider an investment in Oregon tax credits "iffy" as the rate of discount available to buyers remains unknown and the BETC program’s future is dubious.

But if proposed changes take hold, the state would set a permanent discount rate on the sale of BETCs at 36.8 percent. Though the rate is the same as the temporary rate and means the credits would be less of a deal for investors than in the past —73 cents on the dollar compared with 67 cents — it is seen as a compromise between business and state officials who fear that deeper discounts are siphoning badly needed tax revenue from the state.

Grott called future deals between developers and investors "doable" moving ahead, and expressed optimism.

Other program tweaks also appear to lie ahead, including language to clarify what constitutes a single development, a project start date, and other points of confusion in the BETC process.

Andrea Simmons, energy policy administrator for the Oregon Department of Energy, said the department may also consider changes that give business more certainty when applying for BETCs, a process that has become increasingly competitive since the legislature capped availability.

In the last round of large project applications, Simmons said, the state received $170 million in tax credit requests for $30 million available.

"The demand for the BETCs exceeds the supply," she said. As a result people are looking to get some stability in the program — in part to avoid unnecessary expenses in planning projects that won't be competitive for BETCs.

George Hughes, a partner with the accounting firm Hoffman, Stewart & Schmidt, predicted that a permanent discount rate for BETC buyers would provide enough short-term certainty to at least spur a flurry of construction on small projects such as energy-efficiency renovations.

"Having stability to the program would be a good thing," said Hughes.

Still at issue, however, is whether the BETC will survive past 2011. As the Oregon Legislature grapples for ways to revive a state budget set wobbling by the economic recession, many see the BETC as a target for elimination next year.

Problems may persist, said David Van’t Hof, an attorney at Lane Powell, who thinks overall economic instability may also contribute to future financing woes.

"Even if (Oregon Department of Energy) hadn’t done anything to the discount rate, that would have still been an issue," he said.

Looking ahead, "I think the question is going to be, 'Is the program going to be eliminated?' And if not, what’s going to be left?"

Simmons said the Oregon Department of Energy hopes to enact permanent BETC rules before a November deadline, but that the department is waiting for direction on the program’s long-term future from Oregon lawmakers next year.

Lee van der Voo, lvdvoo*at*gmail.com, is a freelance writer for Sustainable Business Oregon.