Solar developers have this week been hit with a "disturbing" 8.7% reduction in a critical clean energy grant as part of the US sequestration spending cuts.

At the end of last year, Congress passed compromise legislation to delay the so-called "fiscal cliff" until March 1. The 1603 Treasury grant was listed among the programmes that would be affected by sequestration - automatic spending cuts aimed at reducing the US budget deficit by $1.2 trillion over 10 years.

In a letter to Rhone Resch, the President and Chief Executive of the Solar Energy Industries Association, the Treasury wrote: "Due to the failure of Congress to reach a deal on balanced deficit reduction to avoid sequestration, the President … was required by law to issue a sequestration order cancelling approximately $85 billion in budgetary resources across the federal government for the remainder of the federal fiscal year.

"As partners with the US Treasury, we wanted to provide you with timely and clear information about how these unfortunate budget cuts  impact us, and in turn, what it means for your members that have applied for funding under the the Section 1603 programme."

The most recently available Treasury information shows that there were 44,052 solar projects awarded $2.76 billion under the 1603 grant, a temporary measure introduced during the financial crisis in lieu of the Investment Tax Credit, which will remain at 30%.

Projects that have already been awarded grants will not be affected, but the 8.7% grant reduction will apply even if an award letter has been received dated between 1 March 2013 and 30 September 2013 regardless of when the application was filed or when the project was placed in service. It is not clear how many projects will be affected.

Resch told PV-Tech that developers will be hardest hit.

"The cut didn't come as a surprise. But it really becomes a change in policy after most of these projects have already been constructed, which is extremely disturbing for developers," he said.

"Projects that were already finished at the end of last year or the beginning of this year and have submitted an application and they are now just receiving an award letter subject to that reduction.

"For the investors, most of their contracts are guaranteed a return and it's the developer that's assuming the risk."

Richard Caperton, Director of Clean Energy Investment at the Center for American Progress, said: "It's very bad policy. My concern here is that this changes the rules in the middle of the game for renewables developers and sets a very bad precedent that the government is not a good business partner.

"This is the lunacy of sequestration. It only affects the spending side – only grants and government spending – and doesn't affect tax expenditures so tax credits are unaffected."

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