US Congress ‘Pulls the Plug’ on Section 1603 Treasury Program03. January 2012 | Top News, Industry & Suppliers, Markets & Trends | By: Cheryl Kaften
The U.S. Congress took an annual winter recess last week without extending the funding for the Section 1603 Treasury Program beyond its statutorily-mandated expiration date of December 31.
This was the second consecutive year that Section 1603 had been in jeopardy—but at the end of 2010, the financing mechanism ultimately was reinstated; whereas the 112th Congress seemed determined to place a “Do Not Resuscitate” order on the shaky program.
The 1603 Treasury Program was created under the American Recovery and Reinvestment Act of 2009. The program enabled the owner of commercial solar property to receive a 30 percent grant, in lieu of taking the solar Investment Tax Credit (ITC). Under the rules of program, applicants were eligible for 1603 only if they commenced construction on projects by December 31, 2011, and could complete construction by December 31, 2016.
Few are surprised, but many are frustrated that the plug has been pulled on the program–either temporarily or permanently. Federal funding for the renewable energy sector has been widely second-guessed—accused of a lack of due diligence and an overarching political bias—since California-based solar-panel manufacturer Solyndra squandered a US$535 million Section 1705 loan guarantee from the Department of Energy and declared bankruptcy last September.
The Section 1705 program—which carried a September 30, 2011, sunset provision—already is history. With a similar fate looming for Section 1603, the Solar Energy Industry Association (SEIA) was among 764 signatories of a November 30 1603 Coalition letter calling for an extension of the program. The coalition, which comprises individual companies, as well as 34 associations and lobbyists, addressed its correspondence to Speaker of the House John Boehner (R-OH), Democratic Leader Nancy Pelosi (D-CA), Senate Majority Leader Harry Reid (D-NV), and Republican Leader Mitch McConnell (R-KY).
"Extension of this program will create jobs, spur economic growth and promote private sector development of energy technologies," said the coalition’s letter, noting that, "The 1603 Treasury Program has been a resounding success. Since its enactment, the program has leveraged over US$22.8 billion in private sector investment to support over 22,000 projects utilizing a wide range of energy technologies in all 50 states. This has resulted in thousands of new American jobs. The 1603 Treasury Program is an efficient finance mechanism that allows taxpayers and small businesses to maximize the return [on] and value of existing energy tax incentives; and is technology neutral, so it encourages the development of a wide variety of domestic energy technologies".
The group warned that termination of Section 1603 could have dire results—shrinking funding by as much as 50 percent for U.S. renewable energy industry initiatives. "The tax equity market modestly improved in 2010, but still has not recovered to pre-recession activity," the letter said. "A July 2011 survey of the major tax equity investors by the U.S. Partnership for Renewable Energy Finance estimates expiration of the program would shrink the total financing available for energy projects by 52 percent in 2012. This would stifle job creation and severely restrict the market’s ability to leverage private sector capital to finance new domestic energy projects".
Pointing to a recent study conducted on behalf of SEIA by Boston-based GTM Research, which found that the amount of solar installed domestically through the third quarter of 2011 was more than 1,000 megawatts, Rhone Resch, president and CEO of the association, commented, “"he U.S. solar industry [has been] on a roll, with unprecedented growth in 2011…. But our industry needs stable policy on which to make business decisions and, unfortunately, an underlying mechanism for financing solar projects [expired] on December 31".
Resch further stated, "Our country is not in a position to have Congress turn their back on American industries, and it is critical that Congress extend the 1603 program in the few days left before the end of the year".
As year-end 2011 approached, Congress reacted with a flurry of replies, but no significant action—as Republicans knocked the program and Democrats knocked heads with the opposing party.
On December 1, Representative John Kline (R-MN) asked his colleagues to add their names to a letter in favor of finishing off the funding program. "In light of our shared commitment for comprehensive tax reform that would lower the tax burden for hard working Americans, we urge you to allow Section 1603 grants in lieu of tax credits for renewable energy to expire at the end of this year, as scheduled," said the letter, addressed to Dave Camp (R-MI), Chairman, Committee on Ways and Means.
In response, on December 8, Congressional Democrats sent two letters urging legislative leaders to extend the Section 1603 program. The Senate letter, signed by 34 Democratic Senators and sent to Senate Majority Leader Harry Reid, Minority Leader Mitch McConnell, Finance Committee Chairman Max Baucus (D-MT), and Finance Committee Ranking Member Orrin Hatch (R_UT), said that the Section 1603 program has supported 290,000 jobs and leveraged US$23 billion in private investment. In the letter to House leaders Speaker of the House John A. Boehner, House Minority Leader Nancy Pelosi, House Majority Leader Eric Cantor (R-VA) and House Minority Whip Steny Hoyer (D_MD), 88 Democratic Representatives also cited the job creation and private investment spurred by the program.
The Center for Environmental Innovation in Roofing, a not-for-profit partner of the solar industry, also exhorted the Congress to take action, in its own December 21 news release: "We urge Congress to return to the nation’s business and extend this vital program that ensures economic growth and job development in the domestic energy market," the group said.
When the 113th Congress convenes on January 3 in Washington, D.C., the renewable energy industry will be watching to see whether Section 1603 will simply have “flat-lined,” or whether there is still a chance it can be resuscitated.
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