An Insider’s Predictions of How New U.S. Energy Legislation Will Impact Solar, Wind & Ethanol Investors
Posted: November 26, 2007

There’s been a lot written recently about how the U.S. Congress is going to take away tax advantages currently bestowed on the solar and wind power industries, but according to an authoritative Washington insider, investors shouldn’t worry. He predicts that while the solar and wind industries probably won’t get the eight-year extensions on their production tax credits that they want, they likely will each get one-to-three year extensions.

“Everybody (in Washington) likes solar,” says this insider, who spoke on condition that he not be identified given how close he is to the ongoing energy debate in Congress. Wind, too, he added.

Meanwhile, for every investor who thinks ethanol’s heyday is over – a large number, given how poorly ethanol company stocks have performed recently – this insider says Congress is poised to keep corn-based ethanol production growing strongly for years to come. To be sure, outside Washington corn ethanol has an army of critics, many of whom are complaining bitterly that so much corn is being used to make transportation fuel that it’s significantly raising food prices. But such concerns apparently are falling on deaf ears inside the Beltway. Indeed, according to this insider, raising corn production over the next several years is viewed simply as good politics, with no thought as to how it might raise inflation.

To be sure, for federal financial support of corn ethanol production to be increased, Congress is going to have to find a source of revenue that will offset that loss to the Treasury. Thus the insider believes that the ethanol provisions in the pending legislation could get bogged down in the debate over whether to increase royalty taxes on domestic energy production. Still, he expects Congress to give the corn ethanol industry a mandate to keep growing, with exact targets left blank pending the outcome of the royalty debate.

As for Congress giving more money to speed up development of cellulosic ethanol, well, this insider says investors shouldn’t expect that to happen. Celluloisic ethanol is ethanol made from such non-food sources as wood and agricultural waste and even garbage. Outside the Beltway, cellulosic ethanol is seen as the direction the ethanol industry has to take. But inside the Beltway, cellulosic ethanol is still at the stage where Congress is thinking, “Wouldn’t it be great if we could do this,” according to the insider. Not until cellulosic ethanol plants are actually up and running is Congress likely to really help push its development, the insider says.