Can The Cash-Grant Program Be Saved?
Jessica Lillian , Wednesday 08 December 2010 - 12:23:17
As President Obama and members of Congress continue to negotiate a comprehensive tax package, the renewable energy industry is fighting to ensure that the final version contains an extension of the Section 1603 program, also known as the U.S. Department of Treasury's cash-grant program. If congressional action is not taken, the program will expire on Dec. 31.
"The 1603 program is simply the most important policy for continuing the growth of renewable energy in the United States," said Rhone Resch, president and CEO of the Solar Energy Industries Association, during a conference call.
Resch explained that the program was created to address a "serious failing of the financial community" after the economic downturn in 2008, when tax equity available for renewable energy projects declined 80%. It provides a direct payment in lieu of a tax credit, thus providing renewable energy developers increased flexibility - at the same net cost to the government.
The 1603 program has contributed to the installation of over 1,000 MW of solar energy installations in the U.S. this year - a new record, according to Resch - and the industry could see over 2,000 MW installed next year if the 1603 program is extended. Projects of all sizes - including over two-thirds of commercial-scale installations - have utilized the cash grant.
"Without the program, it is doubtful we'll see growth at all," Resch added. "We would certainly expect several hundred megawatts to fall off the production chart compared to what we have in 2010."
Denise Bode, CEO of the American Wind Energy Association, reported similar findings for the wind energy industry. "There just isn't enough tax equity to use the [production tax credit (PTC)]," she explained. As a result, approximately 85% of wind installations have taken advantage of the 1603 program.
The details of the framework tax-package agreement recently reached by Obama and Congress have not been released, and it is not certain whether this version of the package contains an extension of the 1603 program. However, the uncertainty has already cast a shadow on the renewable energy sector, which has historically faced inconsistent federal policy support.
"What we're already seeing is that we have tens of thousands of jobs at risk," Bode warned. "We've never had so much risk."
The many firms that have set up component-manufacturing facilities in the U.S. in anticipation of a boom in wind project development may close shop if they fail to receive positive policy signals, and according to Bode, several are already sensing "no appetite for renewable energy from policymakers so far." Consequently, 20,000 jobs could be lost in the next several months, she said.
"We're seeing concern because Congress didn't act on a [national renewable electricity standard]," Bode remarked. "If you tack on the loss of essentially the only provision that supports the renewable energy sector, it would be a disaster."
Meanwhile, renewable energy project developers must act under the assumption that their window for commencing construction and receiving the cash grant is quickly closing. "Project developers are scrambling to get their projects in place, and many of them will not be able to achieve it by the end of the year," Resch said. "With the serious lack of tax equity on the market, many of these projects will be scrapped."
Critics of the 1603 program - and other forms of government support for the renewable energy sector - have denounced it as an inappropriate and overly expensive component of the American Recovery and Reinvestment Act of 2009 (ARRA).
Resch and Bode explained that the program should more accurately be characterized as simply an adjustment to the available ways for using the PTC in order to allow business to continue during the recession. The PTC was extended under President George W. Bush.
"Our competitors in the energy sector - oil, gas and coal - get five times the support that the renewable sector gets, and it has been permanent for 80 years," Bode added. According to Resch, the 1603 program - with an initial revenue investment of $5 million - has provided an "incredible return" to taxpayers.
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