Tuesday, September 9, 2008

Greenie Joe?

I'm not a big fan of the Federal Renewable Energy (RE) Production Credit because it is tax-based and makes it more difficult for public entities to compete in the renewable energy industry, as I wrote about yesterday.

So, what would be better? One quick thought:

Federal Loan Guarantees - they do this for Nuclear Plants and it is quite effective. Just like Nuclear, most RE projects have front-heavy costs and most of them are paid for with long term loans, so they are very sensitive to interest rates. Just like the housing market, affordability is determined more by interest rates than any other factor. Today, the Federal Government borrows money for 30 years at 4.3%, whereas a small business loan today costs 8%. By giving access to cheap funding, the Federal Government could balance the RE playing field for all parties. Small entities would benefit the most because they have to pay the highest interest rates. This would make it easier for towns, co-ops, and small businesses to invest in RE projects. In practice, it would be very similar to what the invention of Fannie Mae and Freddie Mac did for the housing market during the Great Depression. It greatly reduced the cost of borrowing money without costing the government hardly anything at all.

Just like Fannie Mae and Freddie Mac started with real names that eventually got shortened for the sake of convenience, I'd expect this sort of loan program to do the same. Thus the title for this post.

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