????Let me try to explain the very complicated topic of tax oriented financing. Solar projects in the U.S. qualify for the Investment Tax Credit (ITC). But, neither the projects nor developers typically have big enough tax bills to make use of the credits on their returns. So, developers enter into a financial arrangement with an investor who does have a large tax bill. The investor puts money into the project and receives a combination of project cash flow and tax credits in return. The problem is that we have a shortage of investors eligible to participate in tax-oriented financings because the rules are overly restrictive. This problem was temporarily fixed by the 1603 Treasury Grant Program (TGP), which provides developers with the option to receive a cash grant in lieu of the tax credits. The TGP is scheduled to expire at the end of this year, leaving solar projects high and dry.
????The fix is an adjustment to the rules that allow more private investors to participate in solar projects. There are three options for the President to accomplish this goal: 1) extend the Treasury Grant Program, 2) make the Investment Tax Credit refundable, or 3) allow Master Limited Partnerships (MLPs) structures (commonly used to finance real estate and oil/gas projects) for Investment Tax Credit Projects. Net Impact: no additional cost because the Investment Tax Credit is already on the books through 2016 and none of the above fixes would amount to a government spending increase.
????Here's what's even more compelling. There's strong logic that says the changes above would result in a net savings to government. A study from EuPD Research found that any cost of extending the 1603 TGP is more than offset by the avoided unemployment costs and additional income tax revenue generated by new jobs resulting from the extension. Read that again: the revenue and savings for the government from creating all those solar jobs would exceed the costs of the grant extension.
????What are we waiting for, Mr. President?
????Arno Harris is the CEO of Recurrent Energy, a leading developer of solar power projects, and an energy industry veteran. As the primary solar development company for Sharp Corporation worldwide, Recurrent Energy combines the technical capabilities and access to capital necessary to deliver utility solar at just about any scale. Arno also shares his views on renewable energy on his blog Clean Energy Future.
