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Solar Industry to Make Pleas to Save Key Federal Subsidy as It Slips Away

Solar advocates credit the expiring Section 1603 Treasury grant program with driving billions in private investment and supporting 100,000 solar jobs.

Oct 18, 2011
Rooftop solar panel installation in Ohio

The solar power industry is facing the end of a federal financing program that has helped companies thrive during the worst economic downturn in decades. That Congress would let it lapse at year-end was always a possibility. But the collapse of Solyndra, the Silicon Valley solar firm that received millions in federal loan guarantees, may have sealed the subsidy's fate.

"This was going to be a tough one anyway," said Ethan Zindler, an analyst with Bloomberg New Energy Finance, a research firm. "But Solyndra has made it even more challenging."

At stake is the two-year-old Section 1603 cash grant program administered by the Department of Treasury. Under the scheme, renewable energy developers that qualify for a tax break can instead apply for a cash payment worth up to 30 percent their project costs. The aim was to fill the "tax equity" financing void left by the recession and credit crunch. Tax equity investments are especially critical to kick-start projects and lure private capital down the road.

The program has plowed more than $1.3 billion into some 6,300 solar projects—15 percent of the total grants awarded—according to solar industry figures released last month. The industry and advocates credit the cash grant with driving an additional $4.5 billion in private solar investment and supporting more than 100,000 jobs at a time when unemployment around the country continues to rise.

Among the biggest beneficiaries are companies offering leases for solar panel installations, they say, which were almost non-existent a few years ago. Today, leasing makes up more than half of all solar sales to homeowners in California and Colorado—the first and fifth largest solar photovoltaic markets in the country—according to industry figures.

"The 1603 cash grant has stimulated the tax equity market ... and we're certainly one of the beneficiaries of that," said Danny Kennedy, founder and president of Sungevity, an Oakland, Calif.-based solar leaser.

The program's supporters say it should be extended beyond its Dec. 31, 2011, deadline, given the ongoing shortage of tax equity and absence of national clean energy legislation, like a renewable electricity standard, that could increase demand and spur investment in renewables. They argue it's only fair. The government has subsidized oil, coal, nuclear and other conventional energy sources for decades, while green power has received tax credits for just the past six years.

Critics, many of whom are Republicans ideologically opposed to clean energy subsidies, say the program is a reckless diversion of tax dollars. Opponents have gained ground in the debate, analysts say, with fiscal austerity mania sweeping Washington and the failure of Solyndra, which laid off 1,100 workers and could cost the government more than a half-billion dollars.

"Solyndra has definitely had a negative impact on how the solar industry is viewed within [Washington]," Zindler told InsideClimate News. "The chances of getting this [Treasury grant] extended look fairly slim."

Ryan Fitzpatrick, a senior policy adviser for the clean energy program at Third Way, a moderate Democratic group, said Solyndra has become a "rallying cry for half of Congress that wants all renewable energy programs on the chopping block," making the subsidy's extension difficult. He said that lawmakers have "additional ammunition now" to scale back renewable energy subsidies.

Kenneth Green, a resident scholar at the American Enterprise Institute, a conservative research organization in Washington, said Solyndra's demise gave Republicans what they needed to demand an end to "bureaucrats investing as venture capitalists" when they have "no culpability for the money that gets wasted.

"It is such a clearly drawn picture of the problem that I think the Republicans finally see an opportunity to pull it all by the roots," he said of federal subsidies like Section 1603.

But the program's renewal would be a longshot with or without Solyndrya's fall, said Tim Greeff, policy director for the national Clean Economy Network, a non-partisan advocacy organization. "The big issue with any kind of extension of a tax credit is the overall pushback against government spending that is viewed as excessive or unnecessary," he said. "Any program for any technology in any industry is potentially on the table to be cut."

Still, solar industry officials say they're not giving up.

Rhone Resch, president and CEO of the Solar Energy Industries Association (SEIA), the industry trade group, told reporters via conference call last week that he is working with lawmakers from both parties to get a minimum one-year extension included "in any bill moving forward between now and the end of the year."

Tax Equity Case for Keeping the Grant

Congress created the cash incentive in 2009 as part of the federal stimulus, so renewable energy industries wouldn't grind to a halt in the downturn.

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