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Mon June 17, 2013

State incentives for alternative energy companies might do more for China than NC

As New Hanover County and City of Wilmington officials hand out financial incentives to companies they hope to keep in the Cape Fear region, the state is also considering the effectiveness of incentives. 

Some GOP leaders in the General Assembly have publicly equated incentives to corporate blackmail while others champion the need for them if North Carolina expects to stay competitive. 

The discussion illustrates the current divide over how to approach economic growth. 

But what about tax credits for alternative energy companies?  Can those benefit the state and the local economy? 

I spoke with Craig Galbraith, Economist and Professor at UNCW’s Cameron School of Business:

RLH:  Utilities have been required by the state to invest a certain amount in alternative energies.  Solar energy companies are starting to come in and lease land for these photovoltaic fields.  And there are also tax incentives, as I understand it, for these companies.  Does that mean that if we take away tax incentives that industry go away?  Isn’t that kind of a longer-term industry?  How does that work? 

 

CG:  Well, there’s a couple things.  The first type of incentive, which is a credit to the individual who wants to put solar panels on their house, is actually very important.  And the reason for that is because in technology – in high technology particularly, almost always the cost of manufacturing and development is going to be substantially higher than what the other perhaps older technologies are.  This is what’s called the Experience Curve. 

 

And as you produce more and more of a particular product, you’re going to drive down that learning curve or drive down that Experience Curve.  So in order to make a technology competitive with the older technology, you need these type of credits or grants.

 

RLH:  And you’re saying that as a fiscal conservative…

 

CG:  Oh, absolutely.

 

RLH: …that you should be incentivizing these types of movements.

 

CG:  Sure.  Oh, absolutely.  You know, a fiscal conservative is a fiscal conservative when it’s appropriate.  The idea is to run a business and understand the relationship of economics and how it ties to economic development and technology and incentives and things like that. 

 

See, we’re lagging behind.  We’re lagging behind China and in some areas of alternative energy we’re lagging behind Europe, too.  If we’re going to compete on a global range, we need to be the leaders in these particular areas.  And that’s only going to occur when we’re incentivizing these types of high-technology activities…

 

RLH:  And so you think we should also be incentivizing solar companies to come here and create these fields that they then connect to the grid?

 

CG:   Well, that’s a slightly different issue.  Most of these products are going to be made in China if we’re talking about solar panels.  So if we’re incentivizing the construction of Chinese-made solar panels in the area, some of that money’s actually flowing to China.  So what is actually being spent here in North Carolina by North Carolina companies – it’s basically the installation.

 

RLH:  When it comes of offshore wind energy – the Bureau of Ocean Energy Management is looking at the Cape Fear region – as – it’s one of the new darlings – one of the new great potentials for offshore wind.  Does that mean that if we do create these offshore wind farms here there isn’t going to be a truly significant benefit to the Cape Fear region?

 

CG:  From an employment point of view?  No.  And that’s one of the concerns I have.  Again when you look at what’s called the value chain of wind energy and all the components that go into a wind farm, you’re talking about the turbines, you’re talking about the propeller shafts, you’re talking about the installation of these things.  The vast majority – about 90% of that cost is actually produced outside the U.S.  So the only thing that’s really going to benefit the state of NC from an employment point of view, is possibly the leasing of land if it’s local land.  But again we’re talking about offshore – it’s federal land.  And primarily the installation – but even then there’s no guarantees that the installation will be done by North Carolina contractors. 

 

RLH:  The installation at any rate, is a short term prospect…

 

CG:  It is a short-term and the maintenance tends to be very small.   So if I was going to provide a tax incentive for these sort of things, I would make darn sure that a condition of that is that those products are produced to a very large extent in the United States. 

 

RLH:  Craig Galbraith of UNCW, thanks so much for joining us today.

 

CG:  Thank you.