Sunset for a Solar Subsidy?

When the economy hit the skids in 2008, one of the casualties was the federal government’s main mechanism for subsidizing renewable energy, tax credits.

These became almost useless because they were supposed to work by allowing a company with profits to reduce the tax on those profits if it has spent money on solar or wind installations. Suddenly, far fewer had profits.

So to tide the industry over the recession, Congress stipulated in the Recovery Act that for the next two years, it would give the help in the form of grants instead of tax credits.

The two years are about over but the economic woes are not, so the solar industry is asking for a two-year extension.  

In fact, the tax credits were always an awkward tool, some argue. Rhone Resch, the head of the Solar Energy Industries Association, said that many of the companies doing the installations were not making a profit either, so these tax credits were sold as “tax equity,” a secondary market, at a loss of 30 to 50 cents on the dollar to the seller.

Yet in 2007, there were about 28 companies that would buy such credits, he said, and this year there are “between 7 and 8.”

This poses special difficulties for the solar industry, whose costs are mostly up-front capital as opposed to fuel or maintenance expenses. Its costs thus depend heavily on interest rates. Rates are extremely low, but the grant program that is essential to keeping solar installations affordable expires on Dec. 31.

The solar lobby has given up on getting a national renewable energy standard during the lame-duck session of Congress but hopes lawmakers will raise the issue next year. Vice President Joseph R. Biden mentioned the idea recently, and with numerous budget bills and other measures on Congress’ plate, action is in principle feasible.

In a conference call with reporters, another solar executive, Edward Fenster, the co-founder and chief executive of SunRun, a company that finances and installs solar equipment, pointed to another way that the current downturn has handicapped solar.

Under the tax credit system, the equipment financed by the credit could not be sold for five years, or the government would try to get its money back. Under the grant program, it can be sold as long as it remains in service. And foreclosure, Mr. Fenster said, is considered a form of sale.

By MATTHEW L. WALD/NYT

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