The solar energy industry may get its refundable tax credits after all.

Language in the draft stimulus bill making its way through Congress calls for turning the investment tax credits that solar power developers rely on into direct payments to investors for the next two years, observers of the bill say.

 "On a short term basis – 2009 to 2010 – solar projects will have a Department of Energy program in place to provide for grants to be paid within 60 days up to the eligible tax credit amount," Chris O'Brien, head of North America market development for Swiss solar equipment maker Oerlikon Solar, said. There is no cap on the amount that can be paid out, he added.

That's important for an industry that's seen the appetite for those credits dry up, as many Wall Street banks and other renewable energy investors that saw big losses last year don't have taxable income to offset. Industry groups started calling for the change to so-called "refundable" tax credits in November, saying they'd already seen the effects the economic downturn (see Industry Groups Call for Changes to Federal Incentives).

After all, "The 30 percent tax credit is only good if there are equity investors who can use them," O'Brien said Wednesday at the Clean-Tech Investor Summit in Palm Springs. But "the investors who played in that space may have disappeared, and others have retrenched," he said (see Lehman's Fall to Create Greentech Woes).

Such so-called "structured equity" deals represented about $5.5 billion in investment last year, he said. But this year could see only $2 billion to $4 billion available for such deals, given the massive losses investors are facing – and that's for a solar industry that will likely require $10 billion to $12 billion in 2009 to keep up their rapid pace of growth, he said. 

In other words, said Andrew Beebe, managing director of Suntech Power subsidiary Suntech Energy Solutions, "The industry really needs this."

Still, "The House giveth, and the Senate taketh away," he added. The language that would shift tax credits to grants is in a draft version of the $825 billion stimulus bill released by the House last week. But it has yet to work its way through both houses of Congress, and changes are likely.

Perhaps this changes things for the better. BrightSource Energy, which has deals with California utility Pacific Gas & Electric Co. to build 900 megawatts of solar-thermal plants, would like to see the timeframe for direct rebates to investors extended beyond the current 2010 limit.

That's because large utility-scale plants like those BrightSource plans to build will take longer than two years to finish, said spokesman Keely Wachs.

"Just extend them a couple more years, and you'll have a huge, huge economic impact," he said.