Extend the Treasury Grant Program for Solar and Renewables through 2016

KISS (Keep It Simple, Stupid!) and extend the 1603 Treasury Grant program through 2016 to match the 30% ITC (Investment Tax Credit) term.

SWFA Logo - JPEG As the lame duck session of the US Congress turns their attention to the extension of the Bush-era tax cuts, lawmakers should also extend the popular and successful 1603 Treasury Grant program (TGP). With indications President Obama and Congressional Democrats are ready to give in on a temporary extension of the Bush tax cuts perhaps even for wealthy individuals, the Treasury Grant program extension should be included as an amendment to any compromise.

Why =must= the Treasury Grant program be extended?
US Solar and Photovoltaic (PV) market growth and the associated jobs creation engine are in jeopardy if the TGP is allowed to lapse on projects not meeting the “Begun Construction” eligibility requirement by December 31, 2010. The tax equity market remains insufficient to grow or even maintain renewable energy (Solar electric, Wind, Biomass, and Geothermal) capacity installations at 2010 levels per “A Chicken in Every Pot? Is there Enough Tax Equity to Sustain the RE Market?” by Michael Mendelsohn at the Renewable Energy Project Finance Blogs of NREL (National Renewable Energy Laboratory).

The TGP has lower transaction costs than the ITC and is therefore more efficient dollar for dollar in getting renewable energy capacity deployed. In another Blog post titled “So, why are Treasury Grants so popular? Two words: Transaction Costs.”, Mr. Mendelsohn said:

Sheldon Kimber, chief financial officer (CFO) of Recurrent Energy, explained that monetizing the ITC via a tax equity investor can eat up 15%–40% of the ITC benefit.

Without the TGP, that means around 15 to 40 cents of every ITC dollar benefits tax equity investors instead of increasing renewable energy capacity.

However, the TGP does not eliminate a renewable energy project’s need for tax equity. For example, solar PV projects require bridge financing, “often furnished by equity investors”, to complete construction until the Treasury Grant covering 30% of installation costs is awarded 60 days after the project is operational and the completed application has been submitted. Tax equity is also required for solar PV projects to leverage the Modified Accelerated Cost Reduction System (MACRS) + Bonus Depreciation incentive.

Per “A Solar Installation Spree as the Deadline for Federal Grants Approaches” by Alison Gregor for the NYTimes (via @SolarFred):

“Prior to the cash grant coming out, about 70 percent of large-scale commercial solar projects were owned by third-party investors,” he said. “The cash grant made it feasible for actual building owners and companies themselves to own the solar assets.”

Whoever owns the system gets the most benefit, Mr. Hahn said. With federal, state and local subsidies, he said, the investment in a solar system can be extremely attractive. It can even generate income for the business, while locking in or providing free electricity for the 25 years the systems are typically under warranty.

Besides shifting renewable project power from tax equity investors and banks to project developers, the TGP has enabled commercial building and property owners to directly invest and own solar PV systems.

On the Treasury Grant program, the SEIA (Solar Energy Industries Association) said:

Congress needs to extend the TGP “commence construction deadline” to December 31, 2012 (2-yr extension)

favoring a two (2) year extension over calling for a permanent extension through 2016.

Senate Dems press for lame duck action on renewable power grants” by Ben Geman for The Hill’s E2-Wire said:

Sens. Maria Cantwell (D-Wash.), Dianne Feinstein (D-Calif.) and 24 other Democrats are asking for a two-year extension of the program – which sunsets at year’s end – in “any tax package the Senate considers during the current lame-duck session.”

Sen. George LeMieux (R-Fla.) joined 26 Democrats on the letter.
The
letter notes the grants have been “widely credited with maintaining strong growth in the renewable energy sector in 2009 and 2010, despite the severe economic downturn” and helped create jobs.

The Cantwell-LeMieux Amendment to Extend the “Section 1603” Clean Energy Treasury Grant Program is a draft of the TGP extension along with provisions to expand TGP eligibility to non-profit power producers, the Tennessee Valley Authority (TVA), and real estate investment trusts (REITs), while exempting Investor Owned Utilities (IOUs) from normalization rules. The expanded program “will be offset by a provision stipulating that contributions to the Oil Spill Liability Trust Fund made by companies with annual revenues in excess of $100 million shall not be deductible as a business expense.” The Amendment also said:

The original program scored at only $5 million, because JCT assumed that TGP recipients would have otherwise utilized Section 45 production tax credits or Section 48 investment tax credits.

This is an assumption I will dispute based on the dearth of tax equity in the wake of the Great Recession and contributed to my negative post on the Grant program, Solar Grant: What is a Refundable Renewable Energy Tax Credit?, before it was hatched in the American Recovery and Reinvestment Act of 2009 (ARRA). I learned the true value of the TGP working with property owners trying to pencil out profitable solar PV project investments that were only feasible under the Treasury Grant program.

Senators, please change that extension from two (2) to six (6) years to prevent the recurrence of stop and go renewable energy incentive policies in 2012 as witnessed in 2010 with California Non-Residential Solar installs lag after an April application rush caused by the lapsing TGP.

To fund the TGP, the “Estimating U.S. Government Subsidies to Energy Sources: 2002-2008” study published by the Environmental Law Institute in September 2009 cites about $72 billion in fossil fuels subsidies over the seven years ripe for budget cuts.

7 comments

  1. ECD Fan says:

    Things are not that simple. The United States uses about 100 Quadrillion Btu of energy each year, or roughly about 2 * (10 ^ 13) kWh. So your $10 billion or so in fossil fuel subsidies each year results in less than 0.1c per kWh subsidy. Compare to the 10c+ per kWh in subsidies you are demanding for solar. Essentially, you are advocating even worse misallocation of productive resources. It remains to be seen whether the US taxpayer (and ratepayer) is willing to accept that misallocation.

  2. Jay Tyson says:

    ECD: Check your math. Systems in NJ are now down to $5/watt. While the guaranteed lifetime is 25 years, the average lifetime is likely to be at least 30 years. (Some of the earliest panels are still working after 55 years.)

    At a typical 1230 hrs of full production per year here, a 1 KW system would produce 36,900 kw-hrs over its 30 year life, while costing the government $1500 (30% of $5,000). That comes out to 4 cents per kw-hr, not 10. Moreover, as mass production continues to bring the price down, the amount of the subsidy will continue to decline.

    Benefits for the government include less reliance on imported oil (especially as solar energy encourages the use of more electric cars that require no gasoline at all) in addition to the environmental benefits. Less dependence on foreign oil = less military involvement in the mid-East. So perhaps we should factor in the savings in the Defense Dept budget as well

  3. Darren Burke says:

    Way to go Jay, and good math with foresight. Let’s also mention that solar is de-centralizing the national power grid, which is aging and in need of upgrade. Solar produces power at the point of use, in most cases, and makes the national grid less prone to attack (making it vital to homeland security). Solar is quiet and reliable, it i proves the environment, which translates into healthier people( saving money on healthcare costs, with national healthcare system looming). Moreover; if you spent $40,000.00 on Fossil Fuel, it would be gone in under a week, while the same amonut would produce electricity for 25+ years.

  4. Beth Adams says:

    Biomass should be eliminated from Renewable Energy tax credits. a comparable 50 Megawatt biomass facility, whether combined heat and power or just for power production, spews 50% more CO2 than coal!

    It spews unhealthy particulates 24/7, swallows up nearly a million gallons of water per day and threatens greater CO2 losses by clear-cutting/all age logging the forest which have been sequestering CO2 and other toxins! Harvard Forest research has demonstrated that the older the tree, the more Co2 it produces. Therefore, even-aged logging/clearcutting is very damaging to our ecosystem of which humans are a part. (See Deep Ecology)

    We can eliminate at least 30% our electricity need, reducing CO2 and other Greenhouse Gas emissions and create green jobs at the same time by subsidizing comprehensive Energy Audits (with blower door tests using infra-red cameras to detect air leaks) weatherization and retrofitting residential and commercial buildings (See Green consortium and Home Start legislation. This must be our first course of climate protective, cost-reducing action, followed by solar, then current and wave turbines (Eastport, ME) and lastly the more expensive, but community-managed wind projects such as Princeton, MA.

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