US Legislation Boosting Incentive for Energy Efficient Product Lines

By Jennifer Lee | Tue, 24 Oct 2006

US Legislation Boosting Incentive for Energy Efficient Product Lines

VRB Power Systems Inc., SmartCool Systems Inc., Siemens AG and Power Integrations Inc. Comment on the Changing Marketplace

Jennifer Lee www.RenewableEnergyStocks.com March, 2006

Legislation aiming to change the pattern of energy consumption in the US could have wider implications for the economy on the whole. Supportive legislative measures, such as the Energy Policy Act of 2005, bode well for companies who are bringing new energy saving products to market. The push for suppliers to bring market ready products to their customers is being felt and understanding some of the strategies behind how they propose to make these products available, is relevant in determining how the market will turn.

The Energy Policy Act of 2005, which is said to contain approximately $14.5 billion in tax incentives, will change the urban landscape, as it provides tax credits of between $1000 and $2000, for those who incorporate energy saving features into existing structures and creates a benefit for builders who construct more energy efficient homes and buildings across the US. Samuel W. Bodman, U.S. Energy Secretary recently stated at the Pittsburgh Energy Summit that, "Over the past year, America's economy has seen steady growth, even in the wake of hurricanes and higher gas prices. One of the best ways to maintain this prosperity is by using our resources more efficiently and limiting America's energy demand. Thanks to the new energy legislation signed by President Bush in August, Pennsylvanians can now save money while saving energy."

According to the U.S. Department of Energy, tax benefits for the home will include, "$50 for purchasing an advanced main air circulating fan; $150 for installing a highly efficient furnace or boiler; $200 for installing energy efficient windows; $300 for purchasing a highly efficient central air conditioner, heat pump or water heater; 30 percent, or up to $2000, for the purchase of solar water-heating equipment."

States are making due changes to their regimens, as we see in places such as Oklahoma, where in May of 2005, the state created an income tax credit for "certain expenditures incurred in the construction of energy efficient residential property of up to 2,000 square feet, starting in 2006. The credit is based on the energy efficiency of the property, with a maximum credit of $4,000."

SmartCool Systems Inc. (TSX.V: SSC; OTC.PK: SSCFF), a company that markets advanced energy saving technologies, which reduces the electricity consumption and maximum demand of refrigeration and air conditioning compressors, offers their take on the market in light of the Energy Act. Company president, George Burnes says that, "The infusion of capital funding for utilities to provide incentives to clients, both consumers and business will continue to raise awareness and encourage them to develop a strategy to reduce energy consumption. Businesses in particular for the most part have restrictions on access to capital or commit funds to other operational or marketing projects."

The time it takes to adjust company strategies to meet current legislative demands, could play a considerable hand in whether companies will be able to fully absorb market interests. As the trends increase, Burnes says, at least for his company, "the benefit to SmartCool will be to shorten the decision making time frames to install our equipment. With funding available, companies will be able to manage capital spending differently and focus on energy efficiency and cost reductions that will benefit the bottom line."

When asked where he saw the biggest legislative push for energy saving solutions coming from, Burnes said that, "it should come from the State level, where Public Utilities Commissions and the Utilities Resident in the State will make clients aware of these new initiatives and encourage energy management."

Jil Shingledecker, Project Manager of Press Relations for Siemens Power Generation, Siemens AG (NYSE: SI), comments with respect to the renewables market that, "because of the tax credits, it's going to continue to be driven. It's difficult, however, for us to say how quickly it's going to grow. There is a definite market for renewables, as far as we're concerned and having a diverse portfolio is the best route."

Siemens Power Generation, who recently signed a contract with Solargenix in Nevada, to supply a SST-700 industrial steam turbine for the Company's solar power plant, has additionally signed an agreement with Florida Power and Light, to supply up to 600 megawatts of wind turbines. According to a press release issued by the company, "delivery of the wind turbines will begin in 2006 and support the planned expansion of wind-driven electricity generation projects at FPL Energy."

Ms. Shingledecker says that with respect to the wind power industry, "it is currently being pushed by the government administration which means everyone wants it, so quite a lot of the equipment manufacturers are at capacity. At the moment, it's a matter of determining the best approach and proceeding to best fulfill the needs."

VRB Power Systems Inc. (CDNX: VRB.V), an energy storage technology developer, manufacturer and systems integrator, deploying their patented product called the VRB Energy Storage System ("VRB-ESS") has a plan in terms of how they are responding to growth in market demands. When asked about how the company might further provide energy and cost saving assistance to customers over the next year, Mark T. Kuntz, Vice President of Marketing & Business Development replied that, "VRB will continue its targeted marketing efforts with those companies best able to utilize its technology, but will add the incentives provided by the Energy Bill to its value proposition. It is expected that these additional funds will make marginal projects feasible."

Eyeing the trend in legislation as an opportunity for the company and as Kuntz says, "the presence of these provisions in the bill brings energy efficiency and conservation to the mind of decision makers, particularly financial decision makers, and allows technology developers like VRB an entré into their process."

In this light, much hangs in the balance in determining just who is ready to capitalize on these shifts in market demand and as 2006 progresses, the roll out will continue among companies competing on this curve.

New Initiatives in California:

In California, the proposed bill recently put forth by Assemblyman Lloyd Levine in California, has raised question around the impact this will have for companies who are in the position to provide cheaper, more energy efficient solutions in the state. If passed, the bill AB 2021, will target the Department of Water and Power and other municipal utilities in California, having a trickle down effect on companies to provide alternative solutions.

Department of Water and Power Board President Mary Nichols, not speaking about the details of the proposed bill announced that, "publicly owned utilities as well as investor-owned (utilities) should be subject to statewide policies about energy efficiency, air pollution and global climate change."

Beyond the proposed bill, the California Energy Commission aims to introduce the California Solar Initiative next year, bringing solar power, as an energy saving strategy, to the forefront. This could place a new level of demand on companies currently bringing products to market in the state and Jackalyne Pfannenstiel, Vice Chair and Associate Member on the Renewables Committee for the California Energy Commission gives comment on how this may happen.

To start with, Ms. Pfannenstiel told InvestorIdeas that California as a state, has had a long term commitment since 1974 to, "energy efficiency and efficient appliances." She furthered that, "every several years we go back and upgrade our standards."

In 2005, Pfannenstiel said the energy commission, together with the Public Utilities Commission (PUC), adopted an energy activism plan, whereby they would work together, on a varying degree of issues. When they are looking at cutting back on energy expenditure, she commented, the choice is between focusing on energy efficiency or renewable energy. "We look at renewables as being essential to what we're doing and what we're going to fund," says Pfannenstiel.

According to Power Integrations Inc. (NASDAQ POWI), a company that provides high-voltage analog integrated circuits (ICs) to be used in power conversion, has a position within the spectrum of emerging trends in energy conservation. When asked for his view on how Power Integration is positioning itself in light of California's pending regulatory changes, Joe Shiffler Director of Investor Relations and Corporate Communications says the company is "extremely well positioned to benefit from the trend toward energy conservation."

Power Integrations',chips are used in power supplies, the devices that convert high-voltage AC power from a wall socket into low-voltage DC power. The company's EcoSmart feature reduces the energy consumption of electronic devices and Shiffler says, "We have chips for just about any kind of AC-DC application, from low-power cell phone chargers to higher-power devices like set-top boxes and LCD monitors. We have sold over a billion EcoSmart chips since 1998, and as efficiency standards are enacted around the world on more categories of electronic products, we think we are well positioned to help manufacturers produce more efficient products."

In terms of where he views the market going, Shiffler comments that, "Over the next year, mandatory efficiency standards are scheduled to take effect in California, Washington, Oregon, New York and Rhode Island, as well as Australia, on external power supplies such as cell phone chargers and other AC adapters. The old copper-and-iron transformers, sometimes called "energy vampires," will typically not meet the standards, whereas power supplies designed with our EcoSmart chips can easily meet the standards. This is a very big opportunity for us since these power supplies are so numerous. It is estimated that more than 1.5 billion external power supplies will be manufactured this year, and the majority of them will not meet the standards."

In light of the California Solar Initiative, the support for solar panel installation on individual homes is not a new concept within the state, as the industry drive has been present for years. Both the Public Utilities Commission and the California Energy Commission have been longer term supporters behind solar for a number of years.

Currently, there is a two-pronged program in place by the PUC and the California Energy Commission, says Jackalyne Pfannenstiel, and it will commence in January 2007. The Public Utilities Commission will be administering the program, working with existing homes and businesses to decide how rebates for solar installments will be applied. Currently $2.9 billion dollars have been earmarked for solar power over the next 10 years. What this could mean for solar companies looking to get into the market is worthy of attention, as a more solid market begins to present itself. Ron Kenedi, vice-president for solar energy solutions at Sharp Electronic Corp. says finally, "Prices are going down every year and the cost of standard electricity is going up. There will be a meeting point."

Jennifer Lee Jennifer Lee has a degree in English Literature from the University of British Columbia. She holds a publishing certificate from Simon Fraser University and has worked at both Vancouver and Western Living magazines, where she began her career as an editorial intern. She has worked as an editor in countries such as Zimbabwe and South Africa, producing books, newsletters and editing various quarterly magazines on a variety of international development related topics. In South Africa, she worked to help produce a bi-weekly newsletter for the Institute for Security Studies on crime and corruption headlines which appeared in all national and provincial papers. Prior to working in southern Africa, she wrote articles for DMR Consulting Group, on mergers and acquisitions taking place in the market during 2001. She now produces a quarterly publication at the University of British Columbia.

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