Summary:

The feds on Thursday unveiled guidelines to provide $3 billion in grants for renewable energy projects including solar, wind and biomass. The hope is that the grants will help spur investment in renewable energy projects, but analysts at investment bank ThinkEquity Partners aren’t so optimistic, according […]

The feds on Thursday unveiled guidelines to provide $3 billion in grants for renewable energy projects including solar, wind and biomass. The hope is that the grants will help spur investment in renewable energy projects, but analysts at investment bank ThinkEquity Partners aren’t so optimistic, according to a research note sent to clients Friday. The crux of the problem, according to ThinkEquity, is that developers can’t get approval for the grants until after their project construction is complete. “Without pre-approval, investors will not know if they will receive the grant and thus will be unsure of project cash flow,” the research note said. “We believe this situation complicates and ultimately slows investment decisions…and the program will not move many, if any, projects forward…”

The grants, made available through the economic stimulus package, will provide direct payments to companies for up to 30 percent of project costs in lieu of tax credits. Tax credits have been an important incentive for renewable energy projects, but they’ve become less attractive in the economic downturn as the tax-equity market has tightened. As part of the announcement, the Treasury Department said it will start accepting applications for grants starting Aug. 1 and that projects could receive funding within 60 days of submitting a complete application. While developers can submit applications before their projects are complete, the Treasury doesn’t guarantee a final determination until after the project goes into service.

But renewable energy trade groups welcomed the grant program. Solar Energy Industries Association’s president Rhone Resch told us that he sees no more risk associated with the grant program than with tax credits. “If you put a project in service using qualifying technology, you will receive the grant,” he said. “There is no subjective decision-making by the government.” With tax credits, developers don’t know if they qualify until after projects come online, Resch said, and the advantage of the grant program is that applicants will receive money much faster than they would have by relying on tax credits.

The American Wind Energy Association supports the new program as well, saying the grants will help wind industry companies get “back on track” and create more jobs.

But the industry trade groups did express concern about the timeline of the grant program, as we noted yesterday. As it stands now, only projects that come online this year or next will be eligible for the grants. Resch said that the rollout of the program has taken longer than hoped, and that in order to make it more effective he expects his organization and other renewable energy trade groups to lobby for a 1-year extension on the program.

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