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Flow of US Treasury cash to renewables coming to an end


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Flow of US Treasury cash to renewables coming to an end

The Obama-era U.S. Treasury Department 1603 "cash grant in lieu of tax credits program," which has reimbursed just over $25.6 billion to a host of renewable developers, effectively ended Jan. 1 for solar projects. As a Treasury official has noted, however, any company that placed into service a solar project late in 2016 now has until the end of June to submit its final application for the cash grant.

"The Section 1603 program is still issuing payments to eligible applicants who meet all of the program's deadlines, some of which, but not all, have passed," Tom Longnecker, a Treasury spokesman said in an email March 28.

According to Treasury Department data just for the month of January, nine solar projects were reimbursed a total of $43.6 million, with the largest reimbursement being $17.5 million on Jan. 21 to San Francisco-based Corinthian Energy LLC. It is unclear just how large the backlog is of 1603 solar applicants.

The end of the 1603 program comes at a time when many renewable developers are nervous about how the Trump administration will ultimately handle the wind industry's most cherished program, the federal production tax credit, and the solar industry's 30% investment tax credit.

Congress and the Internal Revenue Service effectively moved in the last 14 months of the Obama administration to extend the time period over which those two differing tax credits can be obtained. Largely as a result of the extension period, installations of wind and solar projects have escalated and are expected to continue to do so.

While some politicians, particularly in the Republican Party, oppose federal subsidies for renewable energy, a concerted effort to roll back either the PTC or the ITC has not yet emerged. That does not mean that the two credits can or will survive the hashing out of a corporate tax reduction bill that may be coming.

One thing that is in favor, for example, of the production tax credit for wind generation is its relatively small size. The PTC represents roughly $2 billion to $2.5 billion per year in reduced federal income taxes paid by the companies or investors that claim the credit.

Cash grant hails from the 2009 stimulus bill

The Section 1603 program was created along with the U.S. Department of Energy's 1705 guaranteed renewable construction loan program by the 111th Congress' American Recovery and Reinvestment Act of 2009 that was signed into law by Obama on Feb. 17, 2009.

The two programs were aimed at reversing what threatened to be a turn away from renewables after the financial panic of late 2008 froze bank lending. The 1603 and 1705 programs were parts of a bill that became known as the stimulus package, through which Congress authorized a total of $832 billion in spending.

Specifically, the 1603 program called for reimbursing developers 30% of the cost of building and bringing their projects into service. The thinking was that the cash granted within 60 days of completion of a project would assure that developers had the ability to begin repaying loans.

This was particularly true if the developer had received a construction loan from the Treasury's Federal Financing Bank that was guaranteed by the DOE under its 1705 loan program. While a number of recipients of 1705 loans went bankrupt before completing their projects, the majority completed their projects and subsequently received 1603 cash to begin repaying their loans, or paying them off entirely.

The 1603 program began to be implemented in July 2009 and on Sept. 1, 2009, the first 1603 grants were awarded. Approximately $500 million was awarded to wind farm developers whose projects had been completed earlier that year.

By March 1, 2010, $2.2 billion had flowed to developers of 40 wind projects with combined capacity of 3,891 MW. The 30% reimbursement was based on an average $1.9 million/MW cost of construction. Among the biggest recipients were the foreign-based developers Iberdrola SA, E.ON SE and EDP Renováveis SA.

Solar PV developers of 280 projects with a combined capacity of just 50 MW had received $94 million in 1603 cash reimbursements by March 2010. The 30% reimbursement was based on a $6.3 million/MW cost of solar PV construction.

Wind developers received nearly $13 billion

The 1603 reimbursement program for wind effectively terminated at the end of 2012, with the last payouts made in the summer of 2013.

According to the U.S. Treasury, 1,023 wind projects with combined generation capacity of 21,633 MW ultimately received a total of $12.99 billion in reimbursements from the program.

Wind farms in Texas with combined capacity of 3,406 MW received just over $2 billion of 1603 cash in lieu of tax credits over the course of the four-year program.

Iberdrola received a $214 million reimbursement for its 404-MW Penascal Wind Power (Baffin) facility in Kenedy County in South Texas in July 2010. Pattern Energy Group Inc. received $178 million of 1603 cash after completing its 283-MW Texas Gulf Wind project also in Kenedy County near the town of Sarita, Texas, on the King Ranch in late 2009.

Solar developers have received $9 billion

Since mid-2013, however, solar developers have been the main recipients of Treasury funds.

In a status report released by the department that totals reimbursements for solar through July 31, 2016, nearly 84,000 residential solar projects with combined generating capacity of 460 MW received $887 million in cash reimbursements from the government. In many cases, reimbursements for residential solar were applied for and went to the companies that installed the rooftop systems, not to individual homeowners.

According to the data, developers of 19,499 non-residential solar projects with combined capacity of 7,823 MW have received $8.2 billion. That puts total solar reimbursements at $9.04 billion.

California’s renewable projects have received $6.5 billion

A total of 48,975 projects in California — most of them solar — received $6.5 billion in reimbursements. The total capacity of those California renewable projects that have received reimbursements through July 1, 2016, was 7,778 MW.

Some of the state’s largest utility-scale solar projects have been major beneficiaries of 1603 cash. In April 2015, affiliates of NextEra Energy Resources LLC received a total of $360 million for the 550-MW Desert Sunlight solar PV facility built in Riverside County.

In September 2015, an affiliate of Abengoa Solar Inc. that owns the 250-MW Mojave Solar Project near Harper Dry Lake, Calif., received a $376 million reimbursement.

In June 2014, NextEra affiliate Genesis Solar LLC, which owns the 250-MW parabolic trough-style CSP facility near Blythe, Calif., received a $327 million 1603 reimbursement. The company argued that it was underpaid roughly $6 million.

Many solar market analysts argue that the 1603 program's greatest accomplishment was the buildout of California's large fleet of expensive utility-scale solar generators.

Jeffrey Ryser is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is a division of S&P Global Inc.