Vitally important to renewables developers, the Treasury Grant program was included in the 2009 Recovery Act to make financing available despite the scarcity of bank credit due to the economic crisis. Referred to as 1603, its section number, the grant allows developers to accept cash from the Treasury Department for projects started before December 31, 2010, in exchange for tax credits useless during the downturn.

The economy is, however, healing more slowly than anticipated. Lenders and investors remain reluctant. Developers of utility scale solar, wind, geothermal and biofuels projects need an extension of the 1603 provision.

Renewable Energy Project Finance in the U.S., a report from Mintz, Levin and GTM Research, reported that through October 6, 2010, $5.4 billion was paid in cash grants to renewables projects, supporting over $18 billion in total investment. If the cash grant is not extended, $4.1 billion in 2011 and $6.6 billion in 2012 will have to come from tax equity, debt, or direct investment, capital sources that are improving but not expected to return to pre-financial crisis levels for “several years.”

Some claim that extending federal support such as 1603 to renewables puts U.S. money into foreign renewable industries. U.S. renewables advocates argue that federal investment has already grown significant domestic capacity, but that only more federal investment can grow domestic markets and achieve the economies of scale necessary to make the U.S. independent of imported energy.

According to Washington lobbyist Keith Martin of the powerful D.C. law firm Chadbourne & Parke, there are two proposals presently in Congress that could save the 1603 program. One is an extension of the program with “just a date change,” Martin said. The other is a renaming of the program. “It looks like a tax refund program,” Martin said, “but in practice it would work a lot like the current Treasury cash grant program.”

Both proposals will be under consideration in both houses of Congress in the lame duck session that opens November 29 with Democrats continuing to hold significant but not omnipotent majorities. Both proposals could also be considered in 2011 by the new and different 112th Congress in which Democrats will retain a vulnerable majority in the Senate and Republicans will take control in the House.

On a panel moderated by Martin at the recent American Wind Energy Association Fall Symposium, David Skillman, Legislative Assistant Counsel to Congressman Earl Blumenauer (D-Oregon) said House Democrats are fighting for an extension of 1603, because “it’s our last, best chance to really do something right for the renewables community.”

Skillman said a deal is “more likely than not.” He foresaw action coming late in the lame duck session, just before Christmas, as part of larger legislative action to extend a broad array of tax programs and benefits, a “tax extenders’ package.”

“I see no reason why we wouldn’t change the date on some of these programs,” Skillman said, because there is “substantial appetite to make something happen, both from a Democratic perspective and a Republican perspective.” Getting the tax extension legislation done, he said, will allow the 112th Congress to “deal with some of the larger ramifications of the November election.”

James Lyons, Republican counsel to the Senate Finance Committee, is not so optimistic. He called extending 1603 “a real iffy proposition,” because “in order to get a deal, it would have to be an agreement from Democrats not to raise taxes.”

Lyon reminded the panel that 1603 “was part of the stimulus bill, which was a highly partisan bill.” Extending it in the lame duck session, Lyons implied, would threaten Republican legislators who saw in November the implications of cooperating with Democrats. “Another practical problem,” he added, “is if you change this to a refundable in the lame duck session, add it on to the Bush tax cuts, there would be a number of other thrusts from other members to have other provisions changed. And it becomes, basically, a mini-energy bill.”

As to the prospects for passing the measure next year, “I would say the odds probably go down for the 1603 grant,” Lyons said, because “a typical conservative Republican has not been in favor of running the spending programs through the tax code” and a refundable income tax credit would also be perceived as “corporate welfare.”

Lyons agreed with Skillman on one point. The 1603 extension is “tied to all of the extenders.” He also raised doubts about President Obama’s commitment to the issue. “A lot probably depends on what guidance the President gives, but so far there hasn’t been a whole lot.”

Ryan Abraham, Democratic professional staff with the Senate Finance Committee, is more hopeful. “I think there’s definitely a middle ground that can be reached.” To define that middle ground, however, Abraham struggled for words. “Grant programs are not tax programs,” he insisted, but to meet Republicans halfway, he acknowledged 1603 is “a temporary provision at a time of economic crisis when we don’t have a stable tax credit market” and not “a permanent provision.” He then added, “it’s been a very effective program” and “it needs to be extended” whether as “a refundable credit or a grant.” He concluded, finally, “I think there has got to be a compromise there.”

Former Wyoming Republican Senator Alan Simpson recently described the only real way to save 1603. “If,” he told Charlie Rose, “you can’t compromise without compromising yourself, you shouldn’t be in Washington, D.C.”

Tags: 1603, 212th congress, alan simpson, biofuels, cash grant, chadbourne & parke, charlie rose, democrats, developers, earl blumenauer, federal investment in renewables, financial crisis, geothermal, gtm research, lame duck session