The POWER Interview: Importance of Tax Credits and Incentives

Tax credits and incentives, also known as C&I, have long been important to support the growth of energy technologies, from oil and gas exploration to solar and wind power. Federal tax credits have lifted the U.S. renewable energy industry over the past decade, leading to rapid growth in the sector.

Laurence Sotsky is the CEO and director of Incentify, an enterprise technology dedicated to realizing the financial and societal goals of tax credits and incentives. Sotsky founded mobile-platform technology startup Hopscotch (acquired by Wilshire Axon), and prior to that was the senior vice president of worldwide sales at Gehry Technologies (acquired by Trimble). 

Sotsky provided POWER with his insight and opinions on the use of C&I to support renewable energy development.

POWER: How can programs such as tax credits and incentives continue to jumpstart U.S. renewable energy initiatives? How can those programs then be used as part of a climate change initiative?

Sotsky: Innovation of any sort requires investment before it can reach any real commercial or ecologically meaningful scale. Now when you’re talking about renewable energy initiatives at that sort of scale where you are reasonably competing with the fossil fuel and coal infrastructure, you need to bridge very significant financial gaps to reach commercial viability. C&I in the U.S. is particularly valuable at the R&D [research and development] and Capital Expenditure stages—in fact, most people in the renewable world would point to the ITC and PTC as the real drivers behind the Obama-era surge in solar.

What we see is when the federal government pairs with state and local governments to invest heavily in a renewable portfolio, that’s when both the technology development ramps up but the market itself can be subsidized to further expedite change. Look at Tesla—C&I has been a part not only of the technology itself, but the development of gigafactories, the proliferation of public charging stations, and consumer credits offsetting cost discrepancy with a conventional combustion energy car. It takes that sort of multilateral effort. I think Tesla and that model had to factor into [California] Gov. Newsom’s commitment to end the sale of gas-powered cars in the next 15 years. To accomplish that sort of far-reaching, society-changing initiative, I personally don’t see a path forward without real C&I at every jurisdictional level.

POWER: What types of incentives can be offered to companies and utilities producing renewable energy?

Sotsky: There are C&I out there for all phases of renewable-focused projects and companies. You can start with both the federal and state R&D credits, the above mentioned ITC and PTC, and that’s without looking at focused state and local programs of which there are thousands. New York, for example, has a very well-funded EV charging station initiative. Then once you’ve exhausted renewable focused C&I, you can certainly still look at general purpose job creation or Enterprise Zone C&I packages. And finally, you might be able to negotiate a special package with a jurisdiction if your project has some special value. It’s really all about working with the government at all levels—that’s the essence of C&I.

POWER: How does the U.S. compare to other countries when it comes to tax credits and incentives for renewable energy?

Sotsky: Certainly in the upper echelon of the world. There are a few other countries investing heavily in renewables: Germany and various members of the EU have been very aggressive in incentivizing renewable production and China is now rapidly gaining in the renewable global market as well. The U.S. is in that handful of countries clearly prioritizing renewables from a C&I perspective.

POWER: The process for tax credits and incentives can be complicated. How can companies use it correctly to receive the maximum benefit?

Sotsky: It is not only extremely complicated to discover and apply for C&I, but we have found the invisible complication to be compliance. Most C&I take multiple years to monetize. During those years, companies must meet all manner of filing deadlines and compliance criteria or the C&I won’t monetize. It’ll be worthless. This is one of the big reasons that Incentify exists—to be the technology that C&I needs to move from the government all the way through companies and into the real world. I won’t turn this into an advertisement so I will leave it at saying that you really need to centralize your C&I effort, make sure that it receives dedicated human as well as technical resources, and that you don’t let it slip into the background over the multiple years it takes to ripen and monetize.

POWER: How important are credits and incentives to renewable energy, and should C&I be a priority for federal, state, and local governments?

Sotsky: 100% yes. As I said earlier, the nature of large-scale innovation, whether it is renewable energy or discovering new medicine or any other effort dedicated to solving the meaningful problems of our time, requires major financial gaps to be crossed at the planning and pre-commercialization levels. Twenty years ago, you simply could not make the business case to invest $10 billion in developing electric cars vs. investing $10 billion in making gas-powered SUVs. The discrepancy in anticipated return was orders of magnitude in size. But when multiple levels of government step in to bridge those gaps in planning, now you can move the market so much so that 2020 really could be the year of Tesla from a financial standpoint. In some ways, I don’t even think that the word “important” does justice to exactly how crucial C&I is to large innovation—it’s not important so much as it is necessary. Without C&I, the business case for innovation at a macro scale does not exist.

POWER: Can renewable energy prosper in the absence of tax credits and incentives?

Sotsky: That’s a complicated question because what you’re really asking about is both the stage of market adoption as well as technological effectiveness. Clearly, that answer is going to range from industry to industry and rather than belaboring my answer, I’ll just say no. I do not think that any industry is truly at the market adoption stage where it can compete with the existing infrastructure of non-renewable sources at a meaningful ecological level. You have to remember that non-renewables built out their infrastructure over centuries and furthermore, that they aren’t evil corporations actively trying to destroy the world!

Many of the biggest investors and innovators in renewables are those same brands so often associated with non-renewables. Significant C&I has really only existed for 10-20 years for renewables, prior to which the business case for these enormous corporations to “do the right thing” didn’t exist. When you are a public corporation, you are legally required to “do the right thing” by your shareholders. What C&I does is align the right thing to do by shareholders with the right thing to do by humanity. I’m also, by the way, very hopeful that C&I will continue to be a big part of what we do as a culture and an economy because C&I happens to be one of the few macro-economic policies upon which Republicans and Democrats largely agree. Bush, Obama, Trump—all three used C&I extensively.

—Darrell Proctor is associate editor for POWER (@POWERmagazine).