Chairman Bingaman is urging Congress to include a creative new incentive program for renewable energy in the economic recovery package. The plan would stimulate renewable energy production by offering an alternative to tax equity financing, while ensuring protection for the American taxpayer.
To help meet President Obama’s goal of doubling renewable energy production in three years, Bingaman plans to advance a proposal to enable renewable energy producers to claim a 30 percent cash grant from the U.S. Treasury Department in lieu of the 30 percent investment tax credit. Under this plan, the Treasury Secretary would award the grant only after determining that the producer has taken adequate actions to protect American taxpayers.
Bingaman, a senior member of Senate Finance Committee, noted that domestic demand for solar, wind and other renewable resources has grown rapidly over the past few years, and faster growth is anticipated in the near future -- especially with the expected enactment of a national Renewable Electricity Standard.
(Bingaman also authored a clean-tech manufacturers’ tax credit to boost America’s renewable energy industry. That provision already is part of the bill Senate Finance Committee reported last week.)
Because of the current economic situation, the availability of tax equity for renewable energy projects has dropped dramatically. About three-quarters of companies that were involved last year in providing tax-equity financing are no longer involved in such deals
“The squeeze in the tax equity market threatens to severely slow down the construction of new facilities for renewables. I strongly support the current Senate package, which would enable firms to carry back their tax credits for five years. But I also would support doing more, as long as we protect the American taxpayer.
“This grant proposal threads the needle by offering an opportunity for developers to monetize the production and investment tax credits, but does so in a commonsense way. Of course, no one is forced to accept a grant under my proposal; any project developer can still choose to go the traditional PTC or ITC route,” Bingaman said.
Bingaman contrasted his approach with a provision in the House stimulus bill, which would allow for similar grants, but would be administered through the Department of Energy and not require participating firms to make tradeoffs to participate. “The House approach to addressing renewable energy financing is inadequate because it fails to protect the taxpayer, and because it needlessly involves the Department of Energy,” Bingaman continued. “My proposal finds common ground by offering an alternative to financing through the tax equity markets, in a manner that protects the taxpayer and doesn’t create a refundable tax credit in disguise.”
Congress has generally not permitted corporate taxpayers to refund tax credits, Bingaman noted. “Despite my strong, longtime support for renewable energy production, I can’t justify breaching that longstanding and fundamental principle of U.S. tax policy.
“In addition,” Bingaman said, “we must especially ensure that we aren’t subsidizing non-U.S. firms that have never even paid into the Treasury in the first place. I do not see why, for example, our Treasury should pay out 30 percent of project costs to a foreign developer who has never paid taxes in the U.S., unless that developer provides something in exchange.”
By giving Treasury the opportunity to negotiate an interest in exchange for the grant, Bingaman’s proposal offers an elegant solution to this policy challenge.
His proposal is modeled on the Emergency Economic Stabilization Act (EESA), which created the Troubled Asset Relief Program (TARP). Under EESA, Treasury can purchase troubled assets from financial institutions under the TARP program only if Treasury adequately protects taxpayers in exchange. EESA gives Treasury broad discretion to determine how best to carry out this mandate, subjecting the Treasury only to a “reasonableness” requirement.
Similarly, the Bingaman proposal does not presuppose a one-size-fits-all approach, but rather gives the Treasury Secretary broad discretion to determine how best to protect U.S. taxpayers -- a warrant, senior debt, or other interest.
Bingaman developed this approach in consultation with several renewable energy project developers and financiers, and industry representatives have praised it as a workable solution.
Additionally, Bingaman intends for utility-scale solar projects to benefit from his proposal. Because of their longer project build-out durations, utility-scale solar projects are effectively left out under the House provision.
Joe Berwind, founder of Alternative Energy Investing, one of the nation's leading independent analysts of alternative energy stocks, said, “I have been gravely concerned with the sharp and precipitous fall-off in tax-equity funding, the lifeblood supporting the growth of the renewable energy industry. Sen. Bingaman proposes to get renewable energy projects rolling again by stimulating the method which these projects are financed. This plan also protects the U.S. taxpayer and strikes us as effective in promptly reigniting growth in renewable energy funding in both its design and structure.”
Edward Fenster, CEO of SunRun, Inc. (one of the fastest-growing and largest suppliers of residential solar power in the country) pointed out that "Congress just passed an eight-year solar tax credit because long-term certainty and stability are essential to encourage investment in renewable energy. Sen. Bingaman’s plan to increase the tax credit carry-back period and to create a grant program that serves only as a backstop are good stimulus proposals because they will jump-start the financing market in a way that is complementary, not disruptive, to current long-term policy."
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