{"id":527171,"date":"2010-04-14T09:11:33","date_gmt":"2010-04-14T13:11:33","guid":{"rendered":"http:\/\/greenenergyreporter.com\/?p=7591"},"modified":"2010-04-14T09:11:33","modified_gmt":"2010-04-14T13:11:33","slug":"reblog-big-misunderstandings-about-arra-stimulus-for-clean-energy","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/527171","title":{"rendered":"Reblog: Big Misunderstandings about ARRA Stimulus for Clean Energy"},"content":{"rendered":"

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By Arno Harris<\/a>, CEO of Recurrent Energy<\/p>\n

\"\"A few weeks ago I flagged a story in the Christian Science Monitor titled “Stimulus Funds for Clean Energy Largely Unspent”<\/a> because I thought\u00a0it deserved a clarifying ‘blog post. The story repeats\u00a0several big misunderstandings about the\u00a0status of\u00a0renewable energy programs\u00a0included in the American Recovery and Reinvestment Act of 2009 (ARRA). The general thrust of the story is that the lack of immediate and large uptake of stimulus funds is a sign that the program isn’t working or having its intended result.<\/p>\n

The reality is that despite the low outflows of ARRA funds to date, the stimulus program\u00a0is playing an important role in maintaining business continuity for developers of solar and wind projects in the US. In fact, the expiration of the program at the end of this year poses a major disruptive threat to the progress that’s been made in renewable energy in the US over the last few years. It’s critical that we get the program extended for a couple more years to enable the industry to recover fully.<\/p>\n

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ARRA was passed in the early days of the Obama administration as the magnitude of the\u00a0financial crisis began to unfold. Among its many provisions was a section intended to support continued development of\u00a0renewable energy projects–particularly wind and solar projects. The provision allows wind and solar developers to receive\u00a0a cash grant in lieu of\u00a0the Investment Tax Credit (ITC).<\/p>\n

The industry lobbied hard for these grants because the financial crisis made it almost impossible to close tax-oriented financings. Prior to ARRA, most renewable energy projects in the US relied on tax credits–either the ITC for solar\u00a0or the related Production Tax Credit (PTC) for wind.\u00a0Because most developers don’t have large current tax liabilities, they cannot use the\u00a0tax credits themselves. Instead\u00a0projects were typically financed in partnership with a ‘tax equity’ investor (an entity\u00a0with a large tax bill)\u00a0who would make a cash investment in the project and receive the benefit of the\u00a0tax credits in return.<\/p>\n

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Just because the funds aren’t flowing doesn’t mean the ARRA renewable energy grants\u00a0program\u00a0has not been\u00a0effective….<\/h3>\n<\/blockquote>\n

With the financial crisis in full swing at the end of 2008, tax equity markets\u00a0dried up and developers couldn’t get projects financed. As a solution, ARRA directed the US Treasury to offer developers a cash grant for projects equal to the previously utilized ITC. Using the cash grant disqualifies a project from using the ITC, so this was not an new incentive per se, just an new way of delivering the same incentive to the developer. The policymakers’ intent was to reassure developers that they\u00a0could continue to\u00a0advance projects with full\u00a0confidence they could secure project\u00a0financing.<\/p>\n

Because ARRA passed into law in early 2009, there’s a misperception that the industry has had full use of the grants since then. However, it actually took almost 9 months to get the grant program operational–there were procedures to define, rules to clarify, forms to create, websites to build, people to hire, etc.\u00a0The ironic thing is that\u00a0while everyone waited to see how the program was going to work, banks and developers put all project financings on hold. It just didn’t make sense to\u00a0burn\u00a0legal expenses on\u00a0financing until it was clear exactly how the stimulus grants would be made available.<\/p>\n

By October of 2009, the program rules were published and Treasury was technically\u00a0open for business. However,\u00a0banks and developers were still waiting\u00a0in the\u00a0starting blocks.\u00a0They weren’t ready to apply for grants, they were ready to start figuring out how to finance projects using the grants.<\/em> At that point, they began pouring over the program documents and forms to figure out the best way to finance a project eligible for the grants.<\/p>\n

As a result, it really wasn’t until November\/December 2009\u00a0that developers started to see financing term sheets begin to flow from banks into the market. Let’s think through the timeline implications of this for a typical solar project.\u00a0Term sheets can take several weeks or months to get to signature. And getting from term sheet to financial close typically takes\u00a0several more months. We’re just now closing the first of our ARRA-related financings–and I suspect many other players in the industry are on roughly similar timelines.<\/p>\n

What’s interesting is that even when a developer closes a financing, they don’t\u00a0apply for the grant money–that doesn’t come until the end of construction. Apply that insight across the entire industry and you have a wave of\u00a0 ARRA-stimulated projects that are likely to apply for funds mid-\u00a0to end-of year.<\/p>\n

This brings me to the most important point: just because the funds aren’t flowing doesn’t mean the ARRA renewable energy grants\u00a0program\u00a0has not been\u00a0effective. The very existence of the program has given banks and developers confidence to proceed with projects that otherwise would have been abandoned or mothballed. The flow of funds will become apparent later as the projects become operational. The key indicator to watch right now is NOT the flow of funds, it will be the flow of financing and construction announcements that we should start seeing with some frequency in the coming months.<\/p>\n

In closing, this is also why it is so important to extend the ARRA grants program for another two years. The industry has just gotten out of the starting blocks because of the delay in getting the grant\u00a0program operational. Letting the program expire at the end of 2010 will seriously undermine market confidence and disrupt project finance markets just as they are emerging from the ruins of 2009. The US is poised to become the leading market for solar and renewable energy–we need to extend ARRA to ensure we make that dream come true.<\/p>\n

Link to original post<\/a><\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

By Arno Harris, CEO of Recurrent Energy A few weeks ago I flagged a story in the Christian Science Monitor titled “Stimulus Funds for Clean Energy Largely Unspent” because I thought\u00a0it deserved a clarifying ‘blog post. The story repeats\u00a0several big misunderstandings about the\u00a0status of\u00a0renewable energy programs\u00a0included in the American Recovery and Reinvestment Act of 2009 […]<\/p>\n","protected":false},"author":2814,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-527171","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/527171","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/2814"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=527171"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/527171\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=527171"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=527171"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=527171"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}