Expiration of Cash Grant to Affect Biomass & Wind More than Solar

The expiration of the 1603 US cash grant programme is likely to slow but not stop the solar industry's fast march toward grid parity, as solar costs continue to decline rapidly, said industry experts.

However, preserving government subsidies for other renewables remains critical as they try to reach parity with traditional energy sources, experts said.

The Section 1603 Treasury grant programme expired on 31 December after an effort to include an extension in must-pass legislation failed. Solar industry advocates were the strongest supporters of an extension and have vowed to keep pushing for the programme to be retroactively renewed.

One more year of the 1603 programme would have put solar on course to become cost-competitive with other forms of generation - so-called grid parity - during 2014-16, said Michael Gorton, CEO of principal Solar, an Addison, Texas-based company that seeks to acquire solar assets. However, the march toward parity will only be delayed for about a year without the cash grant programme as solar costs continue to fall dramatically, he said.

"It's still going to happen," Gorton said. "I think it's inevitable."

Solar is a highly attractive asset class with good, reliable returns, which has led to an increase in the availability of investment from 'tax equity' investors for solar projects, said Paul Detering, CEO of San Francisco-based solar power systems operator Tioga Energy. These investors can use the tax credits renewable energy generators are able to access.

Detering sees the brewing trade dispute with China over solar subsidies as far more problematic than the 1603 expiry because it could drive up costs. In addition, the possibility of another recession triggered by the European debt crisis would challenge the solar sector, Detering said.

"If that happens, that will cause lots of problems from an industry perspective," he said. "Those are of much greater concern than the 1603."

But the 1603 expiry will be particularly problematic for small developers of roof-top solar projects, who are less able to handle the resultant 30% increase in costs, said Richard Caperton, policy analyst for progressive think tank the Center for American Progress in Washington, DC."I think you're going to see a drop-off in installations," he said.

While solar is on a fast march toward grid parity, other renewable technologies such as wind and biomass still need the support of government programmes to get there, said Dan Adler, president of the California Clean Energy Fund (¬CalCEF), a non-profit venture capital fund in San Francisco.
"It's important as a society that we recognise the portfolio of technologies, that some technologies are not close without meaningful public support," he said.

'Significant disruptions' on the cards

The pending expiration of the production tax credit (PTC) for wind at the end of this year, and for other renewables such as biomass next year, could lead to "some pretty significant disruptions" over the next 24 months, Adler said. Before the introduction of the 1603 programme in 2009, the PTC was the primary means of federal government support for renewable energy projects.
"The new deals will struggle," he said. "PTC deals will grind to a halt."

Wind energy supporters are pushing hard for Congress to quickly move on legislation to extend the PTC for wind through 2016, aligning it with the investment tax credit for solar, which does not expire until that year.

There is a "reasonable" expectation that the PTC will be extended by the end of 2012, Adler said.
"Bipartisan interests have recognised the merits of this programme," he said. "You'd like to see it sooner rather than later."

Clean energy has become "a partisan issue for some people and that means there is some reason for pessimism", said Caperton at the Center for American Progress. But "the PTC is broadly popular and bipartisan. It's also been around for a long time and is pretty well established. That makes it easier to get it extended."

By. Gloria Gonzalez

Source: Environmental-Finance