Stimulus: 30% Solar Tax Credit or Cash Grant?

The U.S. Senate's version of the stimulus package includes a new grant plan enabling renewable energy producers to take a 30% cash grant from the U.S. Treasury in lieu of the 30% investment tax credit currently in effect. The proposal, presented by Sen. Jeff Bingaman (D-NM), aims at addressing the precarious position of the tax equity market. Expectations for a refundable ITC had been very low in the Senate's version but now, as both the Senate and House stimulus bills include this investment option, the likelihood of inclusion in the final bill looks good.

As a result of the current economic situation, the availability of tax-equity investors for solar and other renewable energy projects has dropped considerably. Some three-quarters of companies involved in tax-equity investing (power purchase agreement investor groups) are no longer contracting such deals.

"The squeeze in the tax equity market threatens to severely slow down the construction of new facilities for renewables. I strongly support the Senate package which would enable firms to carry back their tax credits for five years. But I also would support doing more, as long as we protect the American taxpayer," said Sen. Bingaman who chairs the Energy & Natural Resources Committee and is a senior member of the Finance Committee.

"This grant proposal threads the needle by offering an opportunity for developers to monetize the production and investment tax credits but does so in a commonsense way. Of course, no one is forced to accept a grant under the proposal; any project developer can still choose to get the traditional PTC or ITC route," said Bingaman.

The senator developed his approach after consultation with numerous renewable energy developers and financiers. Industry members have praised it as a workable solution. Utility-scale solar developers can also benefit from Bingaman's version because their longer build-out schedules, such projects were basically left out of the House provision.

The Obama Administration is still hoping for Congress to be finished with the stimulus bill by mid-month, a daunting task for the next ten days.

(This story is a summary derived from articles in the Feb. 4, 2009 Futures and Commodity Market News and the PV Tech Newsletter.)