U.S. solar panel makers prefer overseas

Tax credits for makers of renewable energy products could revive the U.S. industrial sector. But most find other countries more attractive.

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By Steve Hargreaves, CNNMoney.com staff writer

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NEW YORK, CNNMoney.com -- When SunPower, one of the country's largest makers of solar panels, went looking to build a factory a few years back, several countries vied for their business.

Ultimately, the company was attracted to a place that offered a competitive workforce and favorable taxes - and 5,000 high-skilled manufacturing jobs ended up in the Philippines.

"We would love to have the opportunity to invest in our own backyard," said Julie Blunden, a spokeswoman for the San Jose, Calif.-based company. But "the tax packages offered in the Philippines are difficult to compete with in the U.S. today."

It's not just taxes that entice companies to build abroad - lower wages and, in some cases, a better trained workforce help too. But taxes are a key part.

Now, as lawmakers scramble to pass a stimulus package designed to revive the economy and wean the nation from fossil fuels, more people are calling for a special tax break in the U.S. for manufacturers of renewable energy products.

Leading the charge are a handful of Senate Democrats keen to see these manufacturing tax credits make it into the stimulus bill.

The renewable energy industry already gets tax breaks - but they are targeted at producers of the power - the utilities and other companies that operate the wind farms in the Midwest or the solar arrays in the Arizona desert.

The new tax credits would be for manufacturers - the companies that build the solar panels, wind turbines, or equipment used in geothermal energy production.

Details of how manufacturing tax credits would work vary, but it would generally involve letting these companies take 30% of what they invested in equipment in a given year off their total tax bill.

Numbers on how much this tax break would cost or how many jobs it would create are also hard to come by.

The Solar Energy Industries Association estimates it could create 315,000 jobs by 2011, and that's just in the solar industry alone. The wind industry might double that number, with geothermal and biomass adding even more jobs.

While tax breaks for the renewable industry as a whole - expected to total around $25 billion as of last tally - have wide bipartisan support in Congress, it's not expected that the manufacturing tax credit will make it in this time around.

They were not included in the first draft of a House bill unveiled Thursday.

Proponents of tax incentives for green energy manufacturers say it's too bad these haven't yet been included.

"If we're serious about job growth, and we're serious about renewable energy, then why not establish some sort of federal incentive that would drive the two," said Michael Carboy, a renewable energy analyst at Signal Hill, a boutique investment firm based in Baltimore.

Many have argued that the U.S. has long lost out on opportunities to lead in the clean energy field.

Attracted by better subsidies in not only Asian countries but places like Spain, Denmark and Germany, renewable energy firms - many of which originated in the U.S. - have been setting up shop overseas.

In addition to the lost manufacturing jobs, this country also loses the specialized engineering knowledge that comes with a robust renewable energy industry.

Moreover, it loses its basic manufacturing know-how - the companies and employees that make the gear grinders, metal cutters and other equipment that form the backbone of an industrial economy.

"What are we doing to our own competitive posture?" asked Carboy. "We are being reckless by continuing to outsource technologies we need to build our industrial base in the U.S."

But others say targeting a specific industry for favorable treatment is a bad idea.

Robert Murphy, an economist at the free-market think tank Institute for Energy Research, sees nothing wrong with more domestic manufacturing or a lower tax rate.

But to single out renewables, he says, sets the government down the dangerous path of picking what will be the best technologies.

"They are micromanaging and cloaking it in tax relief," he said. "They are giving an advantage to solar over the other energy sources that pass the market test."

Others argue that the other energy sources - like fossil fuels - are only cheaper because they don't price into account their negative effects, namely pollution.

They also say the government has a long history of supporting emerging industries. The construction of the Interstate Highway System helped the auto industry, while the Internet, which originated in the Defense Department was a boon to the personal computing industry.

"At the beginning of a nascent market, do you want to decide to engage in the early evolution of that industry or no?" asked SunPower's Blunden. "This is that time."  To top of page

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