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Oregon legislators will take a closer look at state energy incentives next year amid a slowing economy and an estimated budget shortfall of at least $524 million, according to the Department of Administrative Services.

The Business Energy Tax Credit (BETC), which offers state tax breaks for up to 50 percent of renewable energy project costs and 35 percent of efficiency, transportation and recycling projects, has been a boon to developers seeking financing. But the 2009 Legislature will likely reallocate the credits, saving or expanding tax breaks for some efficiency projects and cutting incentives for large renewable energy projects.

“All tax credits are probably going to be revisited and the BETC needs to be looked at,” said Rep. Jackie Dingfelder, (D-Portland). “Clearly it’s bringing companies to Oregon, and we want to continue that success. But it’s a legitimate discussion we need to have.”

Tax breaks for new manufacturing facilities, like those the state recently gave SolarWorld in Hillsboro and Sanyo in Salem, as well as commercial efficiency upgrades, will likely remain untouched in a budget sweep. Clean tech companies looking to relocate or expand in Oregon have demonstrated strong interest in the tax credits, and the program is already reaping some rewards.

The BETC saved participating companies $46 million in energy costs in 2006, and the state expects the incentive to fund projects that lead to at least 889 new jobs statewide each year, according to a 2007 Oregon Department of Energy report.

But tax breaks for some projects, such as large-scale wind farms, could be “recalibrated,” said David Van’t Hof, Gov. Ted Kulongoski’s sustainability advisor. The 50-percent tax break for large renewable projects, for example, could be reduced or even eliminated if lawmakers determine the state has reached its goals for project development.

“As some of these programs get market share and are established, we can start reducing the credits for those and start shifting them to the next generation of opportunity,” said Van’t Hof.

The Oregon Center for Public Policy supports the change. They contend that the state is giving away money when it gives tax breaks to renewable energy developers that turn around and sell the power to California. The money should stay in Oregon to create jobs and generate clean power for the state, said Chuck Sheketoff, executive director of the Oregon Center for Public Policy.

“I don’t know if building wind farms to sell power to California should be a high priority for state tax dollars when our schools and health care aren’t getting funded,” said Sheketoff.

At the same time, Kulongoski said last month in a speech announcing his climate change agenda, that he wants to further expand the BETC in 2009. Under the proposal, the state would raise the existing 35-percent tax credit to 50 percent of eligible costs for companies that create energy-efficient products, similar to what the 2007 Legislature did when it raised the credit to 50 percent for renewable-energy projects.

It’s unclear whether Oregon businesses will actually take advantage of the tax credits during lean times, however. Applications for the BETC were down slightly in October at 339 companies compared to 369 in October last year, according to the Oregon Department of Energy.

Some businesses that are eligible for the BETC and would normally apply have chosen to delay projects, despite the potential long-term energy and cost savings, said Steve Lacey, director of energy efficiency programs for the Energy Trust of Oregon.

“With the economic situation out there being so uncertain, a lot of the businesses able to take advantage of the BETC are moving slower,” said Lacey. “They’re tightening the belt and weathering the storm and making expenditures only where they really need to make them.”

The Energy Trust, which bundles its own incentives with the state BETC to create affordable energy-efficiency projects for companies, has already seen fewer projects advance over the past six months. As a result, the Trust lowered the amount of energy it expects its projects to save this year by 5 percent.

In January the Trust estimated it would complete enough efficiency projects to save 315,000 megawatt-hours of energy this year. The Trust now estimates the savings will be closer to 296,000 megawatt-hours this year.

Uncertainty in the economy also deters some companies that would normally buy the BETC tax credits from companies to help lower their tax burden. An option to pass through incentives to companies willing to buy the credits provides cash for projects upfront. But the tax benefits are spread out over five years, and in an unstable market, it’s hard for companies affected by the downturn to predict what their tax burden is going to be.

“Renewable energy projects, especially in Oregon because of our relatively lower cost of power, just don’t pencil out without government subsidies,” said Robert Manicke, a tax attorney with Stoel Rives who works with renewable energy companies. “Transferability makes the project easier to actually get built.”

But some businesses will continue to take advantage of the tax credits, especially in industries in which efficiency upgrades bring enormous potential energy and cost savings, said Jon Thomsen, president of Ecos, a green consulting firm in Portland. 

“We see tightening of corporate budgets, but we’re still getting new businesses because efficiency is usually the most cost-effective solution to lower resource costs,” said Thomsen. “Businesses should focus on strengthening customer relationships, driving efficiencies and eliminating any waste.”