05/02/11 2:20pm

Article By: The Energy Collective

Rising gas prices virtually assure that, whatever the logjam in Congress in 2011, there will be a new energy bill.  For the past two years the Great Recession has held down petroleum prices.  The recession is over and oil prices, driven by diminishing reserves and uncertain supply, have resumed their inevitable long term climb.  The American public will demand that their leaders in both political parties take action.

At least part of that action will focus where it should: on building a long-term alternative to petroleum dependence.  That alternative is vehicle electrification.  Building that alternative means deploying electrification technology today and letting the market develop and perfect it over time, even if market price signals today might not yet call for its immediate deployment.

To deploy electric vehicles today in any meaningful volume, we must sharply reduce the cost of the advanced batteries that power them.  Improvements in advanced battery technology will contribute to cost reductions over time.  But in the shorter term, government policy must focus on increasing the volume of advanced battery production in order to drive down costs.  Increased production volumes will create economies of scale that can bring advanced battery prices down, perhaps sharply.

There is, of course, a market that can provide that volume:  the utility market for distributed energy storage systems.  Distributed energy storage can enhance power quality, improve system reliability, offer peak shaving services and provide a host of other ancillary services on the grid.  As in the automotive sector, the only real obstacle to the deployment of advanced battery systems is the high cost of the batteries themselves.  And each of the automotive sector and the utility sector is looking to the other to create the volume that will solve its problem.

That is no way to run a railroad; Congress must take charge.  To date, Congress has recognized the price barrier to energy storage on the automotive side by providing the tax credits necessary to create an initial market for electric vehicles.  Congress has, however, been considerably less attentive on the utility side. 

A comparison to fuel cells is instructive.  Under Section 48 of the Internal Revenue Code, corporate taxpayers are entitled to a 30% tax credit on investments in qualified fuel cell property.  Owners of stationary batteries, which can provide many of the same benefits as fuel cells, get nothing.  Under Section 25D of the Internal Revenue Code, individual taxpayers investing in qualified fuel cell property can also receive a 30% tax credit.  Individuals investing in stationary advanced batteries get nothing.

It is not comfortable suggesting that the federal government grant new tax credits at this time.  The long term federal budget deficit is a genuine problem and the tax burden on U.S. businesses and individuals is too high.  But it is important to remember that the high cost of petroleum is itself a tax and Congress must address the total burden on U.S. taxpayers, not just that burden in its individual parts.

If Congress is serious about reducing the burden of high petroleum prices on U.S. taxpayers, it must do what is necessary to build a market for an important petroleum replacement:  advanced batteries.  By simply extending to stationary advanced batteries the same investment tax credits that Congress has already made available to fuel cells (which are a promising but a much longer term solution to the problem of petroleum dependence), it would do much to help that market grow.

This is a cross-post from TheEnergyCollective.com.

The Energy Collective is the web's premier site for sophisticated energy policy discussion. TEC is an independent, moderated community of professionals focused on the complex challenges of meeting the world's energy needs sustainably.

Original Post: http://theenergycollective.com/jim-greenberger/56684/investment-tax-credits-advanced-stationary-batteries