Originally published on EVWorld.Com, the author proposes a revision to U.S. tax code that would allow taxpayers to use pre-tax dollars similar to IRAs and 529 Education Accounts for investments in renewable energy systems.
In 2007, there was an estimated $2 trillion dollars in Individual Retirement Accounts in America. If other IRA accounts are like mine, they are worth about half that now. So, I wasn't looking forward to putting any more money into my personal IRA account as tax day arrived this year. My accountant suggested instead that I take out a IRA-dedicated CD, which I did. The interest rate my $5000 will be earning over the next seven months is a whopping 1.75%.
This got me to thinking, there are likely millions of others like me who are facing the same dilemma. Personal savings rates are up dramatically in America with Goldman Sachs predicting they will go as high as 6-10% in 2009. But those funds won't be growing very much either. At least they won't be losing value... we all hope.
It seemed to me there had to be a more constructive way to utilize my savings that both rewarded me and my country. Here's what I came up with.
The federal government allows me to set aside up to $5000 per taxpayer -- meaning my wife and I can both set aside similar amounts -- annually in Individual Retirement Accounts or IRAs. These typically are invested in professionally managed mutual funds or similar Wall Street-type investment pools. The managers then invest it in various companies and financial instruments. The money I set aside won't be taxed until I retire when it is presumed I will be earning less and therefore the taxes on those funds will be less.
Of course, the folks who came up with that idea hadn't counted on AIG, Lehman Brothers, Bernie Madoff and trillions of dollars in fraudulent mortgages.
What if, I got to thinking, instead of entrusting my hard earned retirement funds to Wall Street, I could "invest" in myself... and the IRS allowed it? What if I could take my $5000 annually and use it instead to invest in renewable energy either by putting it into companies who specialize in building and managing renewable energy projects or by putting it into a solar system on my own home? Because the "fuel" for renewable energy is free, my only investment is in the equipment to capture it and use it.
I started playing with the numbers on an elaborate spreadsheet I created, taking into account the various tax incentives and credits in the stimulus bill and came to the conclusion that short of significant government subsidies like the feed-in tariffs in Europe (where the government promises to pay rates as high as 45 cents for every kilowatt hour of power your system feeds into the national power grid) or system buy-down rebates like those in California that pay for a large fraction of the cost of the system, the case can't be made that solar photovoltaic systems, for example, will ever pay for themselves. My numbers indicated that electric utility rates will have to reach 17 cents a kilowatt hour before a typical residential-sized 5 kilowatt system becomes economically competitive given current system costs.
I concluded that the only way to make solar work in my personal case was to take advantage of current federal incentives and pay-off the system within the 8 year depreciation schedule provided for in the stimulus bill. Once the system was paid for, it would continue to generate positive rates of return for at least another 12 to 17 years and possibly far longer.
A conversation I had this week with a solar developer in Spain confirmed this. Their accounting forecasts predict that over the 25-year life of their industrial scale PV systems the internal rate of return is healthy 10%. At the household level, a long-lived PV system that produces as much energy as the family consumes means that once the system is paid for, their electric bills are zero, as is that portion of their personal carbon footprint.
If I could take the funds that the federal government allows me to set aside in an IRA to put it into a renewable energy system, I could, at the very least, be insuring that in my retirement, I have no electric power bill and potentially could be earning some modest, but welcomed supplemental income.
So, I put together a short presentation that I shared with my Congressman's energy advisor. He liked the idea and said he would recommend it to the Congressman who sits on the House Energy Committee, but he also noted that because my idea deals with tax code revisions, it would have to be brought up to the House Ways and Means Committee. You can download the PDF of my REA Repowering America presentation. This is, of course, just a draft proposal and needs to be fine-tuned, but I believe it can form the kernel of legislation that would allow millions of Americans to bring to bear the power of their personal retirement savings to truly stimulate the renewable energy industry in our country.
I hope you'll look over my REA proposal and if you believe it has merit, contact your Congressional Representative and encourage them to sponsor it, especially if they are on the House Ways and Means Committee, which none of my Congressional Representatives are.
Also, please take a moment to answer the following short questionnaire to help me gauge interest in this idea.