Despite fears, US renewable energy grant program is extended

Despite earlier fears, Congress extended a popular grant program as part of a tax package before lawmakers left for the Christmas break. There must have been a collective sigh of relief and perhaps some fist pumping among people in the solar industry when President Obama signed it.

Solar companies see the extension as a necessary cushion to sustain the growth of a market that is in its infancy and requires hefty government support to survive. The grant program came from the 2009 stimulus package that federal lawmakers and President Obama assembled to resuscitate an ailing economy. It was meant to last two years.

The program gives renewable energy project developers money to cover 30 percent of their projects’ costs. They receive it only after they have completed the installations. The program is an alternative to a 30 percent investment tax credit that became unattractive when banks and other project investors, who can fund projects in exchange for using the tax credit, dramatically cut back their lending activities in the wake of the financial market crisis in 2008.

The program has largely benefited wind farm developers. As of November 22, 2010, solar project developers had received $416 million from the program, while wind energy companies had gotten nearly $4.7 billion, which accounted for 85 percent of the grants awarded, according to the Solar Energy Industries Association. The $416 million went to 1,179 projects. The remaining $415 million went to other types of projects, from geothermal to biomass.

The likelihood that the program would end on December 31, 2010 prompted a flurry of lobbying and other activities by trade groups, project developers and state and federal regulators. SEIA’s CEO, Rhone Resch, warned of significant job losses if lawmakers didn’t extend the program. The California Energy Commission approved nine concentrating solar thermal projects in four months just so the project developers could start construction by the end of 2010. Developers could still qualify for the grant if they start construction or show they had incurred five percent of their projects’ costs by the year’s end.

Congress approved a one-year extension, though SEIA was hoping for two years. While the reprieve is good news, it also has prompted frustration that the same political battle will have to be fought all over again soon enough.

“I think the bottom line is it’s good news. It will help with the momentum. But we have to be careful not to create a situation where we overheat 2011 at the expense of 2012 and 2013,” said David Kaltsas, president of the systems group at SunWize Technologies, which engineers and installs PV systems.

Politicking is inevitable, of course. It happens even in countries that have long-term incentive policies in place, such as the feed-in tariff programs that have made many European countries booming solar energy markets.

Just days after President Obama signed the tax package that included the grant program, the Wall Street Journal ran an editorial calling on Republicans to get rid of it. The November election gave Republicans control of the House of Representatives in Congress. The editorial, which mostly targeted the wind industry, said renewable energy isn’t a good public investment.

“Given this level of inefficiency, it’s no wonder that wind and solar energy require at least 20 times more in government subsidies per unit of electricity generated than the average for coal and natural gas, according to a 2007 study by the Energy Information Administration,” according to the editorial.

Federal policy isn’t the only driver of the solar market growth. In fact, state and local policies and subsidies contribute to analysts’ predictions on the market’s growth in the coming years.

The United States currently has about five gigawatts of photovoltaic projects that already have lined up utility buyers for electricity, according to GTM Research. Many of the utilities are signing these power purchase agreements in order to meet state mandates for selling renewable energy. For example, California is requiring its utilities to get 33 percent of electricity from renewable sources by 2020.

The country could add 274 megawatts of utility-scale projects in 2010, a 369 percent boost from 2009, GTM said. Overall, roughly 5.6 gigawatts of solar power plants could come online between now and the end of 2014.