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Congress queries 7 recipients of cash grants for solar projects


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Congress queries 7 recipients of cash grants for solar projects

Senate and House committee leaders have asked sevencompanies to submit information by mid-October on how they determined solarenergy project construction costs that were used as the basis for millions ofdollars in reimbursements under the U.S. Department of Treasury's Section 1603cash grant program.

As of Sept. 1, the Treasury Department has reimbursed thedevelopers of 9,940 separate renewable energy projects a total of $25.08billion under the seven-year-old program. According to data on Treasury's website,developers of 8,283 MW of residential and non-residential solar projects havereceived a total of $9 billion in reimbursements.

The reimbursements, which are for 30% of the cost ofconstruction of a renewable energy project, have been made through thedepartment's Section 1603 "cash grants in lieu of tax credits"program that was created by Congress and passed into law when President BarackObama signed the American Recovery and Reinvestment Act, otherwise known as thestimulus bill, in February 2009.

The program was created, along with the U.S. Department ofEnergy's 1705 loan guarantee program, in response to the financial panic oflate 2008 that saw bank credit to renewables developers frozen.

The 1603 and 1705 programs were intended to providedevelopers with enough financing to continue building wind farms, commercialand residential rooftop and utility-scale solar facilities, geothermal,biomass, landfill gas and fuel cell projects.

On Sept. 14, Senate Finance Committee Chairman Orrin Hatchof Utah and House Ways and Means Committee Chairman Kevin Brady of Texas sentletters to seven solar companies seeking information. The chairmen areinterested in learning whether the program has been run properly by theTreasury Department.

The committee chairmen said they want to understand how therooftop installation companies SolarCity Corp., Sunrun Inc. and Sungevity, as well as utility-scale solar developersSunEdison Inc.,Abengoa SA,NextEra Energy Inc.and NRG Energy Inc.,determined the cost basis they used in claiming Section 1603 cash grants.

The chairmen said they want the companies to identify all1603 cash grants they have received, "including amounts assigned to thirdparties," such as limited liability companies set up by the companies, andto include "a list of appraisers used to claim these incentives."

In the letter, the chairmen said the information is due nolater than Oct. 12.

2 programs have pushedsolar projects

The 1603 program's cash reimbursements have been one-time,lump-sum payments transferred into company bank accounts, as opposed to taxcredits that some companies can't use and others use over a period of years toreduce their federal income tax exposure.

To get the 1603 cash, developers have had to submit receiptsfor what they spent building their projects to the Treasury Department, whichis aided in the application process by the DOE's National Renewable EnergyLaboratory. NREL has studied the cost of building renewables and has beenadvising the Treasury Department on 1603 applications.

The 1603 program was designed to quickly reimbursedevelopers, in many cases within 60 days of a project's completion.

The program was initially run by a McKinsey & Co.veteran who saw it as a way for recipients of the 1705 construction loans thatwere guaranteed by the DOE to begin paying back those loans shortly aftercompletion of their projects. The 1603 cash from Treasury would effectively be usedto repay construction loans made by the Treasury Department's Federal FinancingBank that were guaranteed by the DOE.

In the most prominent case, solar panel manufacturerSolyndra received a $535 million guaranteed loan in December 2010, but wentbankrupt before itcould complete its project. There was no 1603 cash disbursed, and DOE had torepay the loan. The Solyndra bankruptcy in early September 2011 served topoliticize the Obama administration's support for renewables.

Treasury is alsobeing scrutinized

In November 2015, Sen. Lisa Murkowski of Alaska, who ischairman of the Senate Energy and Natural Resources Committee, and eight otherRepublican senators sent a letter to Treasury Secretary Jacob Lew asking for anupdate on an internal Treasury Department investigation into solar companies,including SolarCity, who were believed to be inflating the market value oftheir projects in order to receive more 1603 cash reimbursements.

That report never made it to Congress, and in April,Murkowski and Sen. Jeff Flake, R-Ariz., sent another letter to Treasury'sinspector general insisting the findings of the investigation be turned over"swiftly."

Lawyers in Washington, D.C., have noted that the TreasuryDepartment, as of the end of 2015, was involved in as many as 25 cases thatwere filed in the U.S. Court of Federal Claims by companies who challenged thedepartment's denying Section 1603 grants or challenged the reasons why thedepartment decided to reduce the reimbursement to the applicant.

Law firm Hunton & Williams said in a late 2015 note toclients that the 1603 program had no mechanism for administrative review orappeal of grant decisions, and the Court of Federal Claims is the only avenuefor appeal of Treasury decisions.

SolarCitysubsidiaries receive $240 million

In their Nov. 13, 2015, letter to Treasury, the senators,led by Murkowski, cited an Oct. 30, 2015, Form 10-Q filing by SolarCity "indicating thecompany had received about $501 million through the 1603 program."

Solar City, which is the target of a announced July 29 byTesla Motors that has not been finalized, has in the past used 1603reimbursements to secure bank loans to finance growth of its rooftop leasingbusiness.

The company has reported to the SEC that it has 110subsidiaries. According to public data posted on the Treasury Department'swebsite, just three of those subsidiaries received 57 reimbursements in 2011through 2013 that totaled $240 million of 1603 cash.

According to the data, SolarCity subsidiary USB SolarCityMaster Tenant LLC received 27 reimbursements in 2011 and 2012 totaling $95.69million for projects in 14 states and the District of Columbia.

Its Mound Solar Master Tenant V LLC subsidiary received 17reimbursements in 2013 totaling $58.2 million.

Subsidiary Sequoia Pacific Solar I LLC, which was locked inlitigation with the Treasury Department over the proper valuation of itsresidential solar systems, received 13 reimbursements from the 1603 program in2013 totaling $86.8 million, according to public data posted on the TreasuryDepartment's website.

By no means alone, subsidiaries of Sunrun, a competitor ofSolarCity, received 37 reimbursements from Treasury over the same time periodthat totaled $184 million.

Jeffrey Ryser is areporter for S&P Global Platts which, like S&P Global MarketIntelligence, is a division of S&P Global Inc.