Solar Business Incentives

April 29, 2009

Transcript:

Ted Simons
>>> Arizona has plenty of sunshine, but very little of it is being converted to electrical energy. State lawmakers are hoping to help change that with a bill that would give tax incentives to companies that make renewable energy equipment in our state. We'll hear from both sides of the issue on the bill, but, first Mike Sauceda tells us about one company in the Valley that would benefit if such a bill were to be passed.

Mike Sauceda
>> Every day enough energy falls on the earth to provide all of our electrical needs, a Phoenix solar manufacturing company is hoping to catch some of the sun's rays and turn them into electricity. N.T.R. recently invested $100 million in the company and plans a similar investment to over the next year to install a sun catcher, a solar energy device.

Steve Cowman
>> This is talk about renewable energy, huge strides made, wind has become a very attractive form of renewable energy, geothermal, well established, and solar has been the great white hope because of the amount of sun in the southwest, and Arizona, the sun capitol of North American.

Mike Sauceda
>> The sun catchers uses a parabolic heat sources coming from the outside of the engine instead of from the inside like a car engine. The sun catcher tracks the sun's movements. The pistons movements are used to generate electricity. One can generate 25 kilowatts of electricity. Cowman says sterling energy systems is currently working on installing multiple sun catchers in the San Diego area.

Steve Cowman
>> We have secured a number of contracts. If you take our first contract, San Diego gas and electric, it is for 300 megawatts of power, potential to expand up to 700 megawatts of power. That would provide enough power for three-quarters of a million homes in the San Diego area.

Steve Cowman
>> If you take different technologies, photovoltaic, typically 12%, energy efficiency, effectively taken, input power from sunlight and converting it into electricity, a lot of the concentrating solar thermal technologies, 15- 20%, we consistently have the record solar to grid scale electricity, numbers in excess of 30%, 25% sun to energy efficiency, which is amazing, taking sunlight and getting 25% of that power.

Mike Sauceda
>> A bill has been introduced in the Arizona legislature to give companies like Sterling incentives to locate in Arizona.

Steve Cowman
>> I think Arizona is definitely committed to renewable energy. I think there has been a lot of positive soundings that have come out. This is a very tangible piece of evidence that Arizona is really serious about establishing itself as a renewable energy center. Not just for deploying it, but also manufacturing.
Mike Sauceda
>> A rainbow is sunlight broken down into component colors. He thinks a sun catcher will help his company find that pot of gold at the end of the rainbow.

Steve Cowman
>> You're using the sun, enough energy falls on the earth in one hour from the sun that would provide enough energy, if you could harness it to provide all electricity needs for the whole world. It is a free energy source. The question is how do you harness it. We believe we have a solution here that would work really well in that application.

Ted Simons
>> Here to discuss Senate Bill 1403, which would offer Tax incentives to renewable energy companies, is Barry Broome of the greater Phoenix Economic Council and Byron Schlomach of the Goldwater Institute. Thank you both for joining us on "Horizon."

Ted Simons
>> We just saw this company here, why should they be eligible for incentives?

Berry Broome
>> Well, first off, you know, like any economic policy, the question is what is the interest of the state of Arizona. Whenever we have a discussion about economic development strategies or programs, it is never about the company. It is about the state's competitiveness and creating wealth and jobs for residents in Arizona. This is a company that has a trajectory to be possibly a global player in solar. We don't want the same thing to happen with first solar, headquarters here, one of the greatest companies in the world, and it makes its investments in places like Malaysia, Germany, and Ohio where there are specific programs designed to reduce the cost of capital -- we want to see a company like Sterling expand in Arizona beyond its headquarters. We have to offer the same support to this industry like competitor states like Texas, Colorado and Utah are doing today.

Ted Simons
>> Possible global player here, why is it not a good idea to help them a little bit?

Byron Schlomach
>> I don't have anything against solar energy obviously. I think it is a technology that is going to eventually be very competitive. The problem I have with government subsidies, you ultimately have the government deciding who are the winners, who are the losers. It might be that this technology is the technology of the future. It might be though that a different company just a couple of years from now or six months from now would have the technology of the future. Yet if you put these tax incentives in place, you could actually preclude other companies from developing their technologies further. This is something that needs to be market driven, rather than government driven.

Ted Simons
>> Market driven rather than government driven.

Barry Broome
>> I think he is correct. One of the reasons that Sterling is operational and successful, it has compelling technology, and money out of Europe to take the company to scale. It is an example of a company that is where it is at today because it is market driven. There is more interest in the technology on the capital market side than ever before. The question isn't whether or not they will succeed -- the question is going to be is Sterling going to succeed in Arizona or are they going to succeed in another state that focuses more aggressively on supporting investment. Public policy is part of the market driven market place. Right now the Arizona Corporation Commission is close to negotiating transmission capabilities to California. That will shift solar export capabilities to the State of Arizona. From a policy standpoint, you only want to back market driven successful companies. Will they be in Arizona, will they be in Oregon, Utah, Colorado, Texas?

Ted Simons
>> Market driven policies here, is that how you see this?

Byron Schlomach
>> Not when the government is creating an unlevel playing field. It is deciding winners and losers at this point. The key to true market driven economic development strategy, one of very low taxes, low regulation, a good business friendly state, economic development friendly state, and Arizona, for example, part of the reason I think people are looking for these kinds of tax policies is because Arizona is just behind Texas, a very high property tax state when it comes to commercial property taxes. Our commercial property taxes are very high in this state. That does preclude investment. It does prevent people from making investments here that they would make otherwise. We have work to do on our tax policy, but it needs to be on a global basis for everyone in the state, not just for any particular industry.

Ted Simons
>> Would it be wiser to go look at tax reform in general as opposed to targeting certain industries?

Barry Broome
>> You need to do both. This is one of those moments where you say we're in agreement. If you look at Arizona's tax policy on real and personal property taxes, it is the second highest tax rate in the western half of the United States, second only to Texas. When you look at a company that is making a half a billion or a billion dollar investment, so if you normalize Arizona's tax policy and made it more competitive, on a one or $2 billion investment, you will still compete with other states like Texas who are going to use programs like the enterprise zone, eliminate property taxes completely on that investment. Sometimes this comes down to simple things, because I think there are good arguments on both sides. Intel announced $3 billion out in Chandler, Arizona. Intel has a special tax treatment around a foreign trade zone. They get a tax treatment that very few companies get in Arizona. In return, Arizona has 11,000 jobs that pay $122,000 a year. You have to ask yourself in a state plagued by low wages, economy built around simple economic models like construction and retail, is Intel a bad or good deal for Arizona?

Ted Simons
>> I want to ask that question as well. Is Arizona playing winners and losers when so much is at stake with an Intel, for example?

Byron Schlomach
>> Well, I think we end up playing sort of mercantilist type game when we get into this competition between governments trying to snap up companies from another state or from another country, versus -- and then doing exactly the same thing. You do get into a government level of competition that skews the market system overall. I understand the argument that we don't want to unilaterally disarm, while the way we don't unilaterally disarm is to recognize that we have certain comparative advantages in this state. I'm not sure why it is we think we need to run out and grab a solar company with government advantages when we already have natural advantages.

Ted Simons
>> Why does Arizona need incentives when we walk outside and the sun is always shining?

Barry Broome
>> Well, you know, where is most of the engineering and manufacturing occurring right now in the United States in solar? It is occurring in Oregon, and it is occurring actually in California where the innovation occurs, first round of manufacturing activity is parallel to the innovation. When you look at Arizona, the ability to create a demand equation for solar technology is the natural strength. We obviously buy plenty of cars in Arizona, and we don't exactly have an automotive industry presence. Some of that would be good right now. If you look at Arizona into the future for solar, sets the stage for consumerism, does not -- building a state policy strategy around that is imperative. We have proven losing all of the opportunities to competitive states, we have proven in the marketplace that Arizona is in a position of competitive disadvantage right now because it doesn't have economic policy addressing this.

Ted Simons
>> Very quickly.

Byron Schlomach
>> We will never be able to duplicate the economy of California, Oregon. We are blessed with different comparative advantages, natural advantages, located fundamentally differently. The population center of the United States is in Indiana. We're a long way from it. We do have comparative disadvantages, and because of that our overall tax and business policy needs to be as generous toward economic development as possible. I agree with that. We just don't need to be differentially favoring certain industries over others.

Ted Simons
>> We have to stop it right there. Great discussion. Thank you for joining us on "Horizon."