A cash grant program that has funneled $5 billion into hundreds of alternative energy projects is about to expire. Its loss could suck the air out of wind, solar, and geothermal companies that have come to rely upon it.
Formally known as Payments for Specified Energy Property in Lieu of Tax Credits, or more simply the 1603 Program, the cash grants were passed as part of President Obama's huge stimulus package last year, and were handed out to renewable energy project developers who had projects ready to go. Remember when "shovel ready" was the catchphrase of the day?
The program enables developers to recoup 30% of each project's cost, which has actually helped banks lend money to fund them, since they know the companies will be soon getting cash back to pay down their debt. Even General Electric
Credit Jimmy Carter for the idea
The cash grant program is an offshoot of the failed alt-energy tax credits idea Jimmy Carter enacted back in the 1970's. One of the problems with credits was that start-up renewable energy companies typically don't generate profits right off the bat, so they couldn't take advantage of the tax advantages. That led them to team up with investment bankers at American International Group
Needless to say, when Wall Street imploded, so did financing for a lot of renewable energy. Tax-equity financing for renewable energy last year was less than half the $6 billion it was in 2007, though JPMorgan Chase
A tailwind for wind power
Two-thirds of the money handed out from the government's cash grant program has gone to fund wind power projects, with a subsidiary of privately held Cannon Power receiving the largest grant of almost $200 million. Just 5% of the funds went to solar, while geothermal got 3%. But that 3% accounted for 100% of the geothermal projects financed last year. Most recipients are small businesses that have received grants in the tens of thousands of dollars.
Without the program, financing is likely to be as dry as the sun-baked flats of Blythe, Calif., where NRG Energy
Congress has thus far chosen not to extend the program yet, and many program proponents aren't hopeful it will. Come January, many companies pushing alternative energy will likely need an alternative form of financing to get their projects going.