Hopes for popular grant program extension dim in the US

Attendees at the two-day PV Power Plants conference in Las Vegas, organized by Solarpraxis last week, said lawmakers aren’t likely to muster enough votes to extend the program, which pays for 30 percent of a project’s cost. The program, administered by the Department of Treasury, was one of a myriad of goodies in a legislation passed in early 2009 to rescue a crashing economy. However, it looks like the sun will set on it by the end of the year.

"I am getting increasingly cynical about [its extension]," said Tim Derrick, CEO of California-based project developer Axio Power, during a roundtable discussion on solar financing.

The grant has been immensely popular, because it makes it possible for developers to complete a project without having to seek bank financing, which dried up in 2009 and is creeping back this year. Developers could get the money soon after finishing their projects, and before they need to pay their equipment suppliers and service providers.

The program, which Treasury officials said would cost more than USD$3 billion, is open to installations of different types of renewable energy, including solar, wind and biomass. Early on, wind developers were big winners of the program, particularly Spain-based Iberdrola. Wind energy developers already had projects in advanced stages of development when the grant program was put in place. The same couldn’t be said for solar projects. The solar industry is much younger and its developers in general have less experience and money to finish projects.

The disappearance of the grant program could create barriers for new entrants into the project development business. The program is meant to offer an alternative to an investment tax credit that is available until 2016. Project developers could borrow money from banks or other investors by allowing the investors to claim the tax credit, which covers 30 percent of each project’s cost. Or they could claim the tax credit themselves, if they have the money bankroll installations.

But the tax credit is valuable only if whoever claims it makes money and owes enough taxes to take the deduction. Many banks lost their appetites for making loans to project developers in 2009, because they were struggling and weren’t going to make enough to take full advantage of the tax cut.

The grant program makes it possible for new project developers without thick financial muscles or building owners to fund and own the solar installations. Without it, they will have to rely on loans, which in turn make the projects more expensive and cut into the developers’ profits. As part of a young industry, solar company executives like to imagine that the market is growing and providing plenty of opportunities to startups.

"You’ll see an emergence of the haves and have-nots," Derrick said.

Renewable energy lobbyists such as the Solar Energy Industries Association are hoping federal lawmakers could extend the program by two years, arguing that two more years is what it would take for the economy to recover more fully and the bank loans to become more plentiful. They would like the Congress to pass the extension, because after the New Year, Republicans will take control of the House of Representatives.

A key Senate Democrat, Senator Max Baucus from Montana, chairman of the Senate Finance Committee, included the program extension in a tax bill he introduced last week. But any tax bill from Democrats is sure to face strong opposition from Republicans, who have vowed to cut spending.

Meanwhile, solar project developers are in a rush to get in line for the grant before it expires on December 31. The grant program allows developers to claim the money if they are able to start construction or spend five percent of the project’s cost before the deadline. Some project developers are meeting the five percent requirement by paying for some of the equipment they will need to build the projects.