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ARRA Section 1603 – One, Two, Three …… Nine You’re Out?

August 21, 2011

Source: philboxing.com

The strength of Section 1603 was the guarantee by U.S. Treasury Department to make payment within 60 days of the grant application date or the date the property is placed in service, whichever is later. Qualifying renewable energy technologies include: biomass, combined heat and power, fuel cells, geothermal, incremental hydropower, landfill gas, marine hydrokinetic, microturbine, municipal solid waste, solar, and wind. These upfront cash payments bolstered tax equity financing and drove the renewable energy industry, and in particular solar and wind projects, to experience strong growth in recent years.

So what has 1603 wrought? As of June 16th, 2011, the U.S. Treasury reported the status of the 1603 Program:
•  Total number of projects funded = 15,125
•  Total 1603 funding = $7.7 billion
•  Total private and federal investment in x1603 projects = $26.0 billion
•  Total installed capacity of funded projects = 11.6 GW
•  Total estimated electricity generation from funded projects = 30,395 GWh

By project type:
• 96% (14,595) of all funded projects were Solar, see Figure 1
• 79% ($6.1 billion) of all funds were allocated to Wind projects, see Figure 2
• 89% (10.3 GW) of all generation capacity came from Wind projects, see Figure 3
• 87% (26,395 GWh) of electrical generation came from Wind projects see Figure 4.

As of August 12, 2011, the U.S. Government (Recovery.gov, “Track the Money”) reported $900 billion has been paid out and awarded under the ARRA. Respectfully, Section 1603 accounted for less than 1% of all ARRA funds.  Another way to look at this expenditure is that the U.S. taxpayers spent $0.67 per Watt of installed electrical generation capacity on 1603.

Considering renewable energy as a key element towards achieving energy and national security, $0.67 per Watt is a bargain in comparison to the cost of the Iraq and Afghanistan War which on the same basis has cost the American Taxpayer $103 per Watt.

The capital cost for solar and wind electrical generation plants are north of $2.50 per Watt. Though the costs are steadily declining they cannot compare to conventional gas-fired plants which cost south of $1.00 per Watt. The following Table from the EIA shows, November 2010,  summarizes the cost estimates for the generic utility-scale generation plants, including 7 powered by coal, 6 by natural gas, 3 by solar energy, 2 each by wind, hydro, biomass, and geothermal power, and 1 each by uranium and municipal solid waste.

Capital Cost Estimates for Electricity Generation Plants

In closing, with a deadlocked myopic government ruled by self- and special-interests looking to save “easy” pennies, it appears 1603 is destined to the trash heap of promising programs killed at the cost of America’s future and security.  In this time of severe economic turmoil, can wisdom and national interests prevail on Capitol Hill to stop the dreaded 10-count?

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4 Comments leave one →
  1. August 21, 2011 12:23 PM

    There is an overarching issue in the government grants for solar and other renewables. The issue is the lack of support for the residential market. Residents are covered in most support programs or in federal grants. For businesses solar payback time is 3 to 7 years. For residential is it 15-20 years. We need to level the playing field and make the renewables more attractive with the same payback period as corporations. Maybe if more residential solar were being installed, we would have a bigger lobby of those of appreciate the benefits of not having to pay big electrical bills.
    steve@tnsolarenergy.org

  2. Bradley Schneider permalink
    August 22, 2011 11:26 AM

    The one thing I don’t see here are the number of jobs created, and I mean long term jobs, not just construction jobs. This is where you show the value of the program, otherwise people just look at the numbers of dollars spent and say it isn’t worth it. Look at the investment figure out the wages paid long term multiply that by 2.5 or 3 and that is the local economic impact to a community. Putting money into a road is good if it is repairing crumbled infrastructure, but just repaving an existing road is short term and once it is done then what do you do with that worker. If you have permanent long term jobs that contribute long term to a community then you have really used the money wisely. And under this program the government is funding the whole project. Somebody else has made the investment and taken the risk, the government is simply rewarding those who do by giving them what would be long term tax benefits up front. And what people may not realize is that this payment may spur additional development and investment by that renewable energy developer, so the cycle is extended. This is a good program that I hope does see the cutting block, but it needs to be presented in the way I have just noted. Show the long term jobs creation and the long term value to an economy. Then add all of the other benefits.

  3. ozit permalink
    August 22, 2011 2:55 PM

    Steve,

    Currently in Delaware commercial payback on PV after all incentives is 1 – 3 years for systems installed this year, depending on tax liability REC market and utility provider. Residential is 4-7 years with the same variables where the utility provides rebates. There are a number of municipal utilities that do not offer green energy rebates and in those localities, residential payback is still well under 15 years.

    The major difference between commercial and residential paybacks here is that a business can depreciate the installed cost of the system and an individual taxpayer can’t. The energy rebates are essentially the same with the exception of higher production caps on business.

    The situation is worst for Non-profits, since they can’t get the Federal Tax Credit or depreciate the system especially since the Delaware Green Energy rebate programs percentages dropped in response to the tax incentives.

    For non-profits located in on of the non-participating municipal utility service areas have to pay the full retail price of the installation.

  4. August 22, 2011 3:38 PM

    Bradley,

    Any additional data that is valid will help and welcome.

    Barry

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