The U.S. Treasury and the Energy Department plan to provide an estimated $3 billion to help develop renewable energy projects.
The program, funded through the Obama administration’s economic recovery plan, will provide “direct payments in lieu of tax credits in support of an estimated 5,000 bio-mass, solar, wind and other types of renewable production facilities,” the Treasury said in a statement today. The Treasury said it would begin accepting applications about Aug. 1.
President Barack Obama has set a goal of doubling renewable energy production in three years. He also has said that development of cleaner energy sources would create much-needed jobs.
The plan is intended to support projects that would produce energy with limited emissions of gases that are tied to global warming. Sponsors have had trouble getting financing in what has been the worst recession in half a century.
“The grants are necessary, but not sufficient,” said Kevin Book, a Washington-based managing director for ClearView Energy Partners LLC. “From an investor perspective, the big moment that we think matters is when debt financing shows up.”
In addition to the grants through the Treasury, the Energy Department is distributing $38.7 billion in stimulus money, including $16.8 billion that will go to energy efficiency and renewable energy efforts.
The funding announced today would go to all qualifying renewable energy projects, not just those that the Energy Department selects to get the other stimulus funds. Applications will be accepted through September 2011 and projects must be in service by 2017.
Wind Farms
Project developers will still need to finance most of a project, meaning that wind farms will probably benefit more than solar projects, since wind can be produced more cheaply than solar energy, Book said. The grants would cover up to 30 percent of the project’s cost as an upfront grant.
“All renewable energy technologies win with the roll out of this program,” said Rhone Resch, the president of the Solar Energy Industries Association in Washington. “Clearly wind will start deploying again as will massive amounts of solar.”
Previously, companies could file for a tax credit to cover a portion of a project’s cost. Under the new program, they will forgo tax credits “down the line in favor of an immediate reimbursement of a portion of the property expense,” according to the statement.
Capital Markets
“Thirty percent of the cost up-front does a great deal for making a project financeable in capital markets,” said Matt Rogers, a senior adviser at the Energy Department. “It’s a major step toward helping spur private sector investment in clean energy.”
Rogers said the total amount of money committed to the project may be more than $3 billion and it might lead to as much as $14 billion in investment.
Book said renewable energy projects will get off the ground more rapidly if Congress passes legislation pending in the House and the Senate that would create a government bank or project development agency to finance the debt for such projects.
Under terms of the program, project sponsors would have to report to Treasury annually on the performance of the project over a period of five years. Companies that fail to operate a project for five years from the time the project is placed in service must repay Treasury on a pro-rated basis.
