In one of the strongest moves yet by the U.S. Federal government to spark investment in the development of renewable energy projects, the Departments of Treasury and Energy said that at least $3 billion in funds from the American Recovery and Reinvestment Act will be available soon. The key differentiator in this program, according to the sponsoring government agencies, will be its provision of direct cash payments in lieu of tax credits to support some 5000 solar, wind, and other clean energy production facilities.
The Recovery Act authorized the Treasury Department to make direct payments to companies that create and place in service renewable energy facilities beginning January 1. Before this authorization, these companies could only file for a tax credit to cover 30% of the renewable energy project’s cost.
Under the new program, applicants would agree to forgo tax credits down the line in favor of an immediate reimbursement of a portion of the property expense. This direct payment program allows for an immediate stimulus in local economies, according to the sponsoring agencies.
In previous years, the tax credit has been widely used and is seen as a successful incentive for encouraging the development of renewables. In 2006, about $550 million in tax credits were provided to 450 businesses.
Since the rate of new renewable energy projects has dropped since the economic/financial downturn began and installations have had a harder time obtaining financing, the departments expect a rapid acceleration of businesses applying for the energy funds in lieu of the tax credit.
To expedite implementation of the program, Treasury and Energy have made available the terms and conditions, guidance, and a sample application, so that companies can prepare successful applications before the launch of the Web-based application in the coming weeks.
Certain parts of the guidelines have not been posted yet, and applications will not be accepted until August 1.
The secretaries of Treasury and Energy both applauded the latest move.
“The renewable energy program provides another important avenue for the Recovery Act to contribute to economic development in communities around the country,” said Treasury’s Tim Geithner. “It will provide additional stimulus to economies in urban and rural America by helping to develop domestic sources of clean energy. This partnership between Treasury and Energy will enable both large companies and small businesses to invest in our long-term energy needs, protect our environment, and revitalize our nation’s economy.”
Energy’s Steven Chu believes that the “payments will help spur major private sector investments in clean energy and create new jobs for America’s workers. It is part of our broad effort to double our renewable energy capacity in the next few years and make sure that America leads the world in creating the new clean energy economy of the future.”
Solar industry leaders also enthusiastically chimed in about the announcement.
“Solar stimulus is ready, set and … coming soon,” said SEIA president/CEO, Rhone Resch (pictured). “The Treasury guidelines allow solar developers to prepare formal applications that will be accepted at a later date. Once Treasury begins accepting grant applications, the solar industry will create tens of thousands of jobs and spur investment in the clean energy economy.
“Financing for commercial solar installations, including utility-scale solar plants, has been impaired by great uncertainty in financial markets and anticipation of stimulus provisions like the grant program. There are dozens of large solar power projects in the pipeline that can now move forward.
“While today’s announcement is a positive step and will create much-needed momentum in the nation’s economic recovery, we still await the final application form and guidance for several other stimulus programs like the Department of Energy loan guarantees and the manufacturing tax credit,” Resch continued. “We need these programs fully in place for the solar industry to have the game-changing economic impact we expect.”
Because of delays in releasing certain funding up to this point, the SEIA executive also called on “Congress to include a one-year extension of the grant program project sunset-date in the energy bill currently being debated so that the program meets the intended goals for jobs and investment.”
SEPA’s executive director Julia Hamm (pictured) noted how the extension of the federal solar investment tax credit in October was “an important step in moving the electric utility industry toward a cleaner future. The tax credits boosted utility interest in solar power, and the addition of the federal cash grant program will further assist electric utilities as they strive to meet their renewable portfolio standards and future power generation needs.”
“Utilities across the country are developing portfolios of distributed and centralized solar projects,” she continued. “The solar-utility nexus will continue to gain momentum in the coming months and years, especially as technology prices rapidly decline. The cash grant program will provide a short-term measure to prevent many of these projects from dying on the vine just as utility interest is gaining strength.”