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 (NYSE: GE) was convinced to back a 122-turbine wind farm in Idaho -- the state's biggest -- only after Treasury kicked in more than $100 million in grants. Utilities are now the major drivers of green-tech growth.

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 (NYSE: AIG), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), and Lehmann Brothers, who underwrote the projects in exchange for the tax credits.

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 (NYSE: JPM) remains the biggest financier remaining in the field. The cash-grants program filled much of that void. Without it, experts expect financing to crumble by as much as 80%.

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 (NYSE: NRG) and First Solar (Nasdaq: FSLR) expect the state's first and largest utility-scale PV thin-film solar generation facility to produce as much as 45 gigawatt-hours of electricity per year. NRG received $18 million from the cash grant program.

Lights out!
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.

First Solar is a  Motley Fool Rule Breakers  pick. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.