Certainty — albeit short-term certainty — that’s what the renewable energy industry got this week. By signing a controversial bill extending the Bush tax cuts, President Obama also extended key green energy federal subsidies, (the provisions were inserted in the tax bill), including the game-changing 1603 direct cash grants.
As we’ve reported, it was widely understood that the bill extending the Bush tax cuts would also extend federal green subsidies. One looming question though, was whether the 1603 grants — and not just the investment and production tax credits — would also be part of the legislative package. Republicans had repeatedly criticized the 1603 funding as “just more government spending,” fueling concern with wind, solar developers that the grants would get the hatchet. They didn’t. The tax bill signed into law by President Obama on Friday, gives developers until the end of 2011 to apply for the government cash.
The sector’s full-court-press has obviously paid off. But the extension also underscores what’s wrong with the current U.S. energy policy, or lack thereof. Much like the other funding programs, including production and investment tax credits, the 1603 are only given short-term leases that lay the groundwork for more regulatory uncertainty in a year, when the grants sunset.
The renewable energy industry would be better off with the long-term certainty created by a cap-and-trade regime and a federal Renewable Electricity Standard (RES). But with Republicans about to take control of the House, cap-and-trade is all but dead. However, RES has a pulse as some Republicans have said that they would support the initiative.
Yesterday, GE Energy Financial Services and co-developer Caithness Energy closed financing supporting the construction of the 845 megawatts Shepherds Flat wind-generated power plant, a game-changing project set to cost $1.38 billion to build. West LB Securities, Citi, Bank of Tokyo-Mitsubishi UFJ and Royal Bank of Scotland arranged the Department of Energy-backed debt supporting project construction.
The financing comes as number of renewable energy developers are still having a hard time raising capital, both as debt or even by selling shares, as last fall’s failed First Wind IPO demonstrated. But Shepherds Flat is an all-together different animal. Its rock-solid backing (GE, the Federal government, it doesn’t get better than that…) made it one transaction banks rushed to finance.