Just as the solar industry was beginning to significantly expand across United States, economic downturn in 2008 significantly reduced the supply of capital available for renewable energy investments. SEIA continues to support the 1603 Treasury Program, which provides additional liquidity in the marketplace by allowing solar project developers to more easily monetize existing tax incentives through 2016.
- The 1603 Treasury Program is a technology-neutral finance mechanism that allows solar and other renewable energy project developers to receive a direct federal grant in lieu of the Section 48 Investment Tax Credit (ITC).
- As of December 2013, the Treasury Department had awarded more than 9,000 grants totaling $18.5 billion, $4.4 billion of which went to solar projects.
- A preliminary analysis by the National Renewable Energy Laboratory's (NREL) conservatively estimated that the 1603 Program has supported an average of 52,000 to 75,000 jobs over the period analyzed.
What is the 1603 Treasury Program?
The 1603 Treasury Program is a technology-neutral finance mechanism that allows solar and other renewable energy project developers to receive a direct federal grant in lieu of the Section 48 Investment Tax Credit (ITC). This modification allows taxpayers and small businesses to maximize the return and value of existing tax incentives. The program provides access to needed capital and streamlines project financing transaction costs for project developers.
The 1603 Treasury Program has been a proven success and given taxpayers a good return on investment. Since its enactment, the National Renewable Energy Laboratory's (NREL) preliminary analysis conservatively estimated that the 1603 Program supported an average of 52,000 to 75,000 jobs over the period analyzed. The program has leveraged more than $30 billion in private sector investment for a wide range of energy technologies in all 50 states. As of September 2012, the 1603 Treasury Program awarded approximately 6,400 grants for more than 44,000 individual solar projects in all 50 states and has supported over $7.17 billion in private investment in the solar industry.
This 660 kW solar installation in Wisconsin was built between April 2010 and October 2011, making it eligible for the 1603 Treasury Program. Thousands of similar projects across the country benefitted from this successful program. (Photo credit: Patrick Shaw, courtesy of Convergence Energy & Helios Solar Works)
History of the 1603 Treasury Program
The 2008 economic downturn drastically reduced the availability of tax equity, severely limiting the financing available for renewable energy projects. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) created the 1603 Treasury Program, which allows the owner of commercial solar property to receive a grant equal to 30 percent of eligible project cost, in lieu of taking the Investment Tax Credit (ITC). Residential solar systems are also eligible if the system is owned by a third-party developer through a power purchase agreement (PPA) or lease. Applicants are eligible for a 1603 award only if they commenced construction on projects by December 31, 2011 and complete construction by December 31, 2016. A project may still be eligible for a 1603 award if the developer satisfied a five percent safe harbor by incurring five percent of the total eligible project costs before the December 2011 deadline.
On June 30, 2011, the U.S. Department of the Treasury published on the official 1603 Treasury Program website a guidance document entitled, "Evaluating Cost Basis for Solar Photovoltaic Properties." This document outlines the process used to evaluate the cost basis of solar property and the principles that guide this process.
On September 14, 2012, the White House Office of Management and Budget released a preliminary report on potential impacts of a budget sequestration that will cap federal spending in Fiscal Year 2013. Among the many programs identified by OMB, the report notes that award amounts issued by the 1603 Treasury Program may be reduced by 7.6%. For more information, read this SEIA fact sheet on the budget sequestration and implications for 1603 awards. Awards given between October 1, 2013 and September 31, 2014 may be reduced by 7.2%.
Why is the 1603 Treasury Program Important?
Tax incentives for renewable energy projects have achieved worthwhile economic and energy policy objectives. However, the weakened economy severely restricts the availability of the private sector tax equity that is typically used to finance energy projects. The 1603 Treasury Program was created to address this shortfall and facilitate financing for solar energy projects.
- The 1603 Treasury Program has been a resounding success. Despite a rough economy, the solar industry has experienced record growth due in large part to this important incentive. The program is also particularly helpful for small businesses that typically do not have the resources or scale to enter into complicated tax equity transactions, allowing them to monetize the underlying solar ITC.
- Cost-effective policy supports private-sector innovation and efficiency. The success of the multi-year ITC for solar energy projects exemplifies the importance of stable policy for the private sector and reveals a high return on public investment. The 1603 Treasury Program affected the timing of when ITCs can be utilized to address an immediate need for liquidity.