Will federal grants propel renewable projects?

Borrego Solar says its future for new projects looks bright.

It’s been almost a year since Congress passed an extension of tax credits for solar, wind and other renewable power projects. Yet they haven’t sparked investment as hoped, and now the industry is looking to a new federal program to pick up some of the slack.

“In July 2008, we weren’t taking on any new projects. We were just waiting,” says Richard Raeke director of project finance for El Cajon, Calif.–based Borrego Solar, which in early 2009 sold the residential side of its business to focus on commercial and government projects, and in August launched a power purchase agreement financing program.

In October 2008, Congress signed the $700 billion bailout bill that included an eight-year extension of the Investment Tax Credit (ITC) and a one-year extension of the Production Tax Credit (PTC). Industry groups hailed the move, saying it would pull in billions of dollars of investment, create hundreds of thousands of jobs and bring down the cost of solar power.

But the ITC, which offers a 30 percent tax credit for residential and commercial projects, has failed to spur investment as hoped as investors lost their appetites for tax credits.

“The issue with tax credits is that companies need to be making a profit,” to take advantage of them, Raeke says. All but one or two investors have dropped out, and the market came to a halt, he adds.

The federal government in July 2009 rolled out details of a program created as part of the American Recovery and Reinvestment Act, offering about $3 billion in grants in lieu of the tax credits. Under the new program, renewable energy projects built in 2009 and 2010 are eligible for grants of up to 30 percent of project costs. Projects that have begun construction by the end of 2010 may also be eligible.