President Obama signed the tax relief bill into law today, following passage in the Senate on Wednesday and The House early Friday morning. Those of us in the solar industry breathed a huge sigh of relief as the final bill included a one-year renewal of the Treasury Grant Program.
The TGP allows developers to apply for a cash grant in lieu of the 30% Investment Tax Credit. This in turn enables developers to finance projects using conventional project finance (i.e. non-recourse debt and equity) rather than having to use more expensive tax equity. I've blogged extensively about this issue and the need to renew the program in the past.
With the renewal of the TGP, the critical last piece falls into place to preserve the current momentum of US solar and renewables. Earlier in the year we saw the defeat of Prop 23 at the polls, which threatened to gut California's landmark climate legislation and the RPS. Yesterday saw the passage of RAM, which adds a critical new dimension to California's RPS by focusing on distributed scale resources. Also yesterday we saw the passage of the first non-wind RPS in Texas. And now with the TGP renewed, the projects resulting from the RPS and RAM will be assured of the access to capital necessary to finance construction and put them into operation.
These victories were hard won. The TGP renewal effort has been going on for over a year now. Recurrent Energy and many others in the renewable industry have lobbied hard on the issue with just about anyone in DC who would listen. And believe me it's hard to get people excited about the intersection of tax law, energy policy, and asset finance! Similarly the efforts to pass RAM and to defeat Prop 23 required significant effort and resources by many dedicated advocates of renewable energy.
As excited as I was to see the TGP renewal pass, I can't help but think that the really important victories are still to come for US renewables. The reality is that the industry secured only a year's breathing room with the TGP renewal. In the long run, it's clear we we can't continue using the US tax code to fund our renewable energy policy. The complexity and inefficiency tax incentives introduce in the market is no longer tolerable in the industry at its current scale. Meanwhile, our state RPS programs, which have done the heavy lifting in creating demand for renewables in the US, are at risk of running out of steam in the face of a weak economy and low cost natural gas.
We are now at a critical point in the history of US renewable energy policy. We can continue our past approach of applying a short term patchwork of half-measures to keep things limping along. But as Tom Friedman recently pointed out, this approach is rapidly losing ground to the focused national strategy being executed by China and other global leaders. While the US dithers, other governments rightly recognize renewables as one of the key emerging business sectors of the next century. I'm hopeful we're going to get the formula right in the coming years and the US will claim a leadership role once again. At least that's what I plan to spend my time and energy fighting for.