Cross your fingers for Solar’s 1603 TGP
The 1603 Treasury Grant Program (TGP) is set to expire at the end of 2011, although it is still uncertain whether Congress will renew the program for another year or longer. Cross your fingers.
For those unfamiliar with the 1603 program, it is a law that was passed at the end of 2008 as part of the original economic stimulus bill. The 1603 provision essentially allowed commercial companies to receive a cash grant of 30% of the cost of a commercial solar PV or solar thermal system instead of the 30% Federal Investment Tax Credit (ITC) – also part of that law.
This cash grant was a huge help to large scale solar developers, who would normally leverage the 30% ITC to finance their solar projects. Keep in mind that a tax credit is like an IRS gift card: It can be used to pay one’s taxes or a portion of taxes. Profitable banks, venture capitalists, and tax equity investors loved these credits to offset their very large tax bills. However, with the economy struggling, there were relatively few tax equity partners who could actually use the tax credits. Instead, banks and investors wanted to hold on to their cash on hand.
Enter the 1603 cash grant, which re-opened the doors to large scale solar financing. Now, investors and developers could immediately recoup their 30% incentive in cash, rather wait to use the 30% ITC to pay their taxes—if they owed taxes. If the company owed no taxes, the 30% ITC was not refundable; rather, the unused balance could be used towards paying corporate taxes for up to 5 years.
The other advantage of the 1603 was that financiers could use the grant to help fund solar PPA and solar lease projects, making it easier for businesses to go solar with little to no upfront payment.
As expected, the 1603 is widely credited for the large scale and solar boom in recent years. A recent report from SEIA projects that with another extension of 1603 in 2012:
- An additional 37,000 jobs would be supported by the solar energy industry in 2012, a 12% increase over baseline.
- 18,000 will be directly employed by solar companies or indirectly employed by firms that support the solar industry.
- An additional 19,000 jobs would be induced by the industry’s economic activity.
Remember that 1603 is not just for solar PV. Developers of commercial solar hot water applications are also eligible for the grant. That means apartment building owners, restaurants, hotels, hospitals, laundry facilities, condominiums, private colleges, and other industries can utilize the program…at least until the end of the year.
So, will Congress act to extend the program? At this point, nothing is certain in the halls of Congress, but sources at SEIA tell Free Hot Water that they are “optimistic” that there will eventually be an extension.
The tricky part is packaging the 1603 extension with some type of bill that must be passed by both houses of Congress, such as a military spending bill or a general government funding bill. These bills don’t come along often, but they do come.
So, keep those fingers crossed that the 1603 gets into one of those bills sooner than later. Couldn’t hurt.
