Promises, Promises

February 1, 2006 By    

When the CLEAR Act passed the House and Senate late last summer, and was signed into law in August, many in the propane industry were thrilled with the possibilities. With tax credits now available for the implementation and use of alternative fuel in cleaner, more environmentally friendly vehicles, propane sales were sure to grow.

 Tank manufacturers and installers say it's still too early to predict the impact of new, federal tax incentives found in the Energy Bill.
Tank manufacturers and installers say it’s still too early to predict the impact of new, federal tax incentives found in the Energy Bill.

Many felt that tank manufacturers’ and installation companies’ business would likewise grow, as the incentives would prod the industry to build more storage in 2006.

“These new incentives could and should produce quite a boon to the propane industry, but it is going to take more than the legislation to get it rolling,” says Philip Lombardo, president of Ohio-based Superior Energy Systems, which designs and installs propane supply systems.

“While they have provided us with a great tool, our industry needs to formulate a plan to best utilize these tools and make something happen. How many people outside of our industry are even aware of these changes? How many ads or campaigns have you seen?”

So far, the growth has been slow. Companies such as Liberty Tank & Vessel, Trinity Industries and Worthington Cylinders are still researching the tax ramifications of the law and what affect it will have on manufacturers.

“We’ve talked to our accounts and it’s just not on the radar screen yet,” says Mike Alexander, strategic account manager at Worthington Industries. “Some are not even aware. Plus, the effects seem to be more prevalent for home contractors because they focus on efficiencies.”

Mike Pitts, vice president of sales for Mississippi Tank Co., is unsure how some of the provisions will impact his company’s business.

“There is one item that states that a 30 percent credit can be taken for the cost of installing clean-fuel vehicle refueling equipment through Dec. 31, 2010. I don’t know if this would apply directly to a large storage terminal or not. It would probably only apply to small-vehicle fueling stations that are using propane as a fuel.”

Most manufacturers feel the industry needs to get the word out for the incentives to really take off.

“If the word was out where the public and fleets were aware of these new incentives, retailers would be increasing their on-site storage and setting more propane dispensing systems,” says Lombardo.

“We don’t see any of this activity occurring at all. Tank prices are at an all-time high, so retailers aren’t willing to increase their storage until their customers start a conversion to propane. These customers are not going to convert until they are fully aware of the benefits and current incentives available to them.”

The primary purpose of the CLEAR Act is to reduce the consumption of petroleum. Transportation accounts for nearly two-third of all oil consumption and is nearly 98 percent dependent on petroleum.

The legislation will provide consumer incentives for technologies that are currently being introduced into the market in low volumes, such as dedicated alternative fuel, battery electric and hybrid electric vehicles, as well as evolving, long-term fuel cell technologies.

It will also provide tax incentives for a limited period of time to consumers for the purchase or lease of these vehicles, helping offset the higher cost associated with new technology and alternative fuel vehicles. As the vehicles gain consumer acceptance and production volumes increase, the cost differential between these vehicles and conventional vehicles will be reduced or eliminated.

Further details on what the CLEAR Act will offer:

  • Alternative fuel vehicle credits. New vehicles that run on propane will receive a 50 percent tax credit on the difference in purchase price between a conventionally fueled vehicle and a propane-powered version. The credit can be worth up to $32,000, depending upon the weight of the vehicle. This new credit applies to vehicles placed into service after Dec. 31, 2005 and before Jan. 1, 2011.

This credit could up consumption by 100 million gallons if an additional 30 percent of the industry’s bobtails ran on propane. Companies whose bobtails run on diesel may find that propane becomes a competitive alternative. Each company could receive a $3,500 tax credit on each propane-powered bobtail beginning next year.

  • Installation of alternative fuel refueling property credit. This provision allows companies to claim a 30 percent tax credit for the cost of installing a propane vehicle retail refueling station, not to exceed $30,000. This new credit applies to facilities placed into service after Dec. 31, 2005 and before Jan. 1, 2010.
  • Energy efficient appliance credits for existing homes. This provision allows tax credits for the purchase of advanced, highly efficient new propane furnaces or hot water boilers. These credits could be up to $300 per unit. This new credit applies to appliances placed into service after Dec. 31, 2005 and before Jan. 1, 2008.
  • Propane-powered school bus purchases. There is a provision that will encourage municipalities to purchase more propane-powered and other alternative fueled school buses for their fleets.

The waiting game

Even with the incentives, most feel it’s going to take some time before manufacturers reap any benefits.

“I would assume that if this bill greatly increases the use of propane as an alternate fuel, this would result in an increased demand for propane, which in turn would increase the need for storage and transportation equipment,” says Pitts.

“In my opinion this will not be something that will impact the industry overnight, but will be years in the making.”

The bottom line, many believe, is that propane won’t really grow until it gains a strong presence in the market as an alternative fuel.

“The nation has to gain confidence in propane as an alternate fuel source for vehicles and the future pricing of propane,” says Lombardo.

“Propane prices have been at least as volatile as gasoline recently and propane availability raises other concerns. We need to see more storage being added to the retail sites, a more stable pricing and availability scenario and a more proactive role by the retailers in the industry before we will see any real results from this new legislation.”

Pitts agrees.

“I can’t see retailers or their customers increasing storage until the demand and use of propane as an alternative fuel increases significantly,” he says.

“I also think that small, domestic-type tanks will be more likely impacted first due to the fact the bill is more geared toward the homeowner or business owner, not to say that large industries might invest in the capital to convert to propane, but that will take some time before an impact is felt.”

For more details on the tax incentives and what they offer, visit www.energytaxincentives.org.

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