Looking Beyond the Treasury 1603 Cash Grant for 2011

by | Jan 12, 2011

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In December, President Barack Obama signed the tax legislation that extends the US Department of the Treasury’s 1603 cash grant program for the solar and wind industries for one year. With an extension of this program now in place, the solar industry can continue its record growth, creating new employment opportunities for Americans in 2011 and growing the number of solar projects. As momentum in the solar industry continues, the industry must proceed with caution to not make rash decisions. This program could supercharge growth in 2011, but make it for difficult for integrators to plan past next year, as many 2012 projects could be pulled into 2011. Companies who are taking advantage of this grant must think about not only how it will affect next year, but also the years beyond.

When first implemented, the cash grant program provided a lifeline by transitioning the unfavorable tax credits to upfront payments not tied to a particular company’s income. This was a huge help to renewable energy developers. The grant is 30 percent of the full cost of the intended solar system. Without the grant, system owners could still claim the 30 percent as a tax credit, but some businesses weren’t profitable enough to make use of the full tax credit. This grant now keeps all businesses eligible for the 30 percent incentive, not just those with enough profits (or those with financing partners with enough profits).

In addition to not having to worry about how their tax situation impacts whether they can claim the tax credit, customers who claim the grant receive the proceeds quickly, as opposed to waiting until the next tax-filing season. It helps them achieve their return on investment quicker, making it more attractive from an investment standpoint, and allows them to free up funds for future developments.

A statement put out by the Solar Energy Industries Association (SEIA) stated that, so far, the Treasury grant program has helped move forward more than 1,100 solar projects in 42 states and supported $18 billion in investment. As well, the program helped the solar industry grow by over 100 percent in 2010, create enough new solar capacity to power 200,000 homes and provide work to more than 93,000 Americans. This is great news from SEIA and, in 2011, we in the solar industry hope to have the same growth; however, the industry as a whole must think well ahead of 2011. We will likely be in the same situation next year with the same issues in place that we faced this year. Hopefully the economy—as well as companies’ revenue—will be stronger.

One thing to note, the program has a relatively short window of opportunity (projects must commence construction by the end of 2011 in order to qualify for the grant), and there is uncertainty and inconsistency over how the grants are taxed at the state level (which may have negatively impacted the usefulness of the program to solar projects in particular). The extension could again cause a big rush by developers to meet eligibility rules before it sunsets at the end of 2011. The industry will have to be careful to not create a situation where the market overheats in 2011 at the expense of 2012 and 2013. That could create an imbalance of supply and demand of raw materials and force companies to make short-term decisions that aren’t good for the industry in the long run.

While this grant is a great incentive, most people in the industry would like to see the roadmap to a business model that doesn’t depend on industry-specific government support.  Federal government incentives tend to be feast-or-famine. Ideally, government incentives would decline gradually over time to help the industry acclimate to no industry-specific government support.

The solar industry looks forward to this next year, and the vast possibilities and opportunities this cash grant’s extension affords businesses and employees. With 2010 success as indicators, it seems the US will continue to be a leader in renewable energy, much with the support of government endeavors such as the Treasury’s 1603 cash grant program. However, with no single federal program able to fully support the industry over the short or long term, we must continue to examine not only the present, but also focus our energy on the future.

David Kaltsas joined SunWize Technologies, Inc., a subsidiary of Mitsui & Co. (U.S.A), Inc., in 2008 and currently leads the company’s Systems Group.

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