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.
The program provides clean energy developers an alternative to the 30 percent investment tax credit, which largely benefits established companies profitable enough to pay income taxes. Before the credit crunch in late 2008, cash-rich lending firms like Bear Stearns and Lehman Brothers were a big help to younger startups, by giving them upfront cash investments equivalent to their tax credits, in what's known as a tax equity deal.
When financial institutions lost their appetite for such deals during the financial crisis, however, many solar startups lost access to credit.
The Treasury grants allowed firms to "fill in the gap that wasn't being met by a credit system," said Fitzpatrick. "The 1603 program ... has really been instrumental in getting a lot of projects off the ground."
While the grants are typically awarded at the completion of a project, developers can borrow up to 95 percent of the award's value early on to cover construction costs. The program offers interest rates as much as four times lower than what tax equity investors currently charge.
According to a Sept. 27 fact sheet by SEIA, $1.3 billion in cash grants spurred $4.5 billion in private investment since the program's start in late 2009. That helped bring the amount of solar electricity installed in the United States from under 500 megawatts in 2009 to nearly 3,200 megawatts today, the group said—enough to power 630,000 homes with solar panels.
The program has also paid off in new jobs, advocates say. On Monday, the nonprofit Solar Foundation, a D.C.-based advocacy organization, reported that more than 100,200 Americans work in the solar industry across all 50 states. According to its National Solar Jobs Census, the industry's job growth rate is 6.8 percent compared to 0.7 percent for the entire U.S. economy and a 2 percent net job loss in fossil fuel sectors.
Rolling the 1603 grant over into 2012 would create more jobs, despite the dim economic outlook for next year, advocates say. Around 37,500 jobs could be added from a one-year extension, according to an Oct. 12 study by EuPD Research, a global energy analysis firm, and commissioned by SEIA.
Resch said Section 1603 "has been the single most effective policy" driving renewable energy growth during the past two years.
The cash grant was initially set to expire on Dec. 31, 2010, but was extended another year with bipartisan support after it became apparent the tax equity market had yet to recover.
And according to Resch, it still hasn't. He pointed to projections from the U.S. Partnership for Renewable Energy Finance that found that available tax equity financing in 2012 would likely reach only 60 percent of what it was in 2007, pre-recession. At the same time, he said, major growth in the solar industry means that more companies will be vying for a smaller share of tax equity.
U.S. PV solar installations are expected to double in 2011 for the second year in a row, according to estimates. By 2015, the industry expects to reach its goal of installing 10,000 megawatts of solar annually, enough to power more than 2 million homes.
Solar Leasers Benefit the Most
Resch noted that solar leasing companies have been especially helped by the Treasury program. Leasers own and operate the solar energy systems, and their customers—who otherwise would have to spend tens of thousands of dollars to purchase and install the panels—pay only for the solar electricity generated on their rooftops.
Solar leases accounted for only a fraction of all home installations just two years ago. Today in California, the nation's largest residential solar market, third-party financing tools, like the lease, covered nearly 60 percent of home projects in the third quarter this year, a roughly 70 percent increase from the same period in 2010, according to a Monday report from solar firm SunRun and PV Solar Report.
In Colorado, another major solar state, more than half of home solar sales in the first half of 2011 were leased, according to the Colorado Solar Industries Association.
Monthly sales by Sungevity, one of the country's largest solar financing firms, have increased ten times since January of this year, and its number of employees tripled to about 300 people at its headquarters. This summer it expanded beyond its California, Arizona and Colorado markets and into five new East Coast states.
On Friday, the firm announced that the U.S. unit of Rabobank Groep, the world's biggest agricultural lender, has created a $50 million fund to finance new residential solar installations by Sungevity. In August, Citigroup Inc. announced a tax equity fund to support $50 million in Sungevity projects.
The fact that Citigroup, a global giant in the financial services sector, is sinking millions into solar projects is a good sign for the still-recovering tax equity market. Indeed, Kennedy, the company's CEO, said he anticipates "another banner year" for his firm in 2012, even without the Treasury grant, but he added the market still needs a lift. "For the industry, what [another year] will mean is the availability of financing, which is clearly driving the market."
Just One Year?
While supporters of the cash grant are prepared to take what they can get, they argue that long-term federal policy would be more effective in securing investment and inspiring confidence from financial institutions in solar than a one-year subsidy extension.
"Re-upping these programs every single year, while helpful, doesn't go as far as if we did a long-term [extension] for say five or 10 years," said Robert Walther, a senior policy analyst in Third Way's clean energy program. "Financing becomes easier for you based on the [certainty] that you're given."
SEIA's Resch said: "It is extremely difficult to scale up and build an industry and attract investment if you have an on-again, off-again policy. We need stable policy platforms."