Last Tuesday, March 13, Congress failed to act to renew the 1603 Treasury Grant program, and that’s not only a loss for the entire solar industry, but other renewables too.

Some may see 1603 as a program that only benefits large scale solar, but 1603 indirectly benefits the residential solar community, as well as solar thermal, and all other renewables. Without 1603, wind, geothermal, tidal energy — you name it — are all going to see declines in 2012 after any residual “safe harbors” have expired.

Briefly, 1603 is a grant (cash) that is given to commercial and utility solar developers and owners instead of the renewable energy investment tax credit (ITC). Both the 1603 and the ITC are equal to 30 percent of the gross cost of the project and are taxable as business income. (I know, residential ITC is calculated differently, but not when it's sold through a solar PPA/lease.)

The main difference between 1603 and the ITC is that 1603 gives solar developers and owners the cash grant, regardless of whether the business is profitable enough to pay taxes the year the solar system was installed. That’s especially useful for new businesses and solar developers entering into long-term solar PPA and lease contracts.

And that’s why 1603 touched all sectors. Residential solar is growing fast, thanks in large part to solar leasing and solar PPA companies that utilized the 1603 grant instead of the ITC. Solar installers with some experience can also benefit through contracting with a finance company like Sungevity, Clean Power Finance, Sun Edison, and a growing list of other finance companies, and offering a solar lease or PPA to residential customers. In addition, non-taxpaying entities, such as government, schools, and other non-profits indirectly benefited from 1603 through solar PPA companies.

But all of that's changed. As of 2012, financing solar is now more risky and will negatively affect the industry and jobs. It’s not just me saying it. I shall quote from the executive summary of SEIA/GTM Research’s recent 2011 U.S. Solar Market Insight Report. A-hem: "Unless the [1603] program is extended, we anticipate a tax-equity bottleneck in 2012, stifling some large-scale utility, commercial, and third-party owned residential projects."

Tax equity is a finance art that I won’t go into here. Just know that it works, but it’s complicated and not as sure as 1603-backed financing. So, yeah, all of the above-mentioned sectors will still be able to utilize the ITC...

...Except playing the tax-equity game is not cash. It’s risky, and that was the other advantage to 1603. Financiers knew they could count on a full 30 percent cash grant after installation, so you could be a start-up with little or no taxable income and still receive that 30 percent incentive, reducing your costs — and the financier's risk.

Risk, risk, risk. It’s all about risk. With the European debt crisis still in play, plus China heading for a real estate bubble, creditors and investors are tightening up their cash flow.  So without 1603, there’s simply more risk investing in solar (and other RE), and that means investors will invest in fewer solar projects.

Now, watch the spin cycle:

  • Fewer financiers willing to take risks means fewer solar projects will be financed.
  • Fewer solar projects financed means fewer total solar projects in the pipeline.
  • Fewer total solar projects means decreased demand for solar products. Uh, oh….
  • Less demand for solar products means higher inventories. Things stay on the shelf.
  • Higher inventories means slowing down the manufacturing of solar products.
  • Reduced manufacturing means it’s time to reduce the workforce.
  • And, of course, fewer solar projects means fewer installations (pick a sector, any sector), which means fewer installations, sales, and service jobs too.
  • The same goes for any other renewable energy covered under 1603.

It’s a vicious cycle, and that’s why 1603 matters to all of us in the renewable energy industry. Yes, solar will survive. PV prices will continue to decline, and savvy finance people will still know how to swing that 30 percent ITC to create solar magic with a profit. Goody.

But it’s going to be much harder, and solar is hard enough right now, defending itself against 26 senators that want eliminate all solar subsidies, including the ITC. I kid you not. See their failed attempt here and the names of those senators.

So, what do we do? We can continue to fight for 1603. SEIA is searching for another opening for the amendment. The last vote count was 49-49. We need 60. So, next time you see an email from SEIA or VoteSolar, or any solar advocacy organization asking you to email or call your senator, please do it immediately. Plus, tell your friends and co-workers to do the same via Facebook and any other social network.

1603 matters, but your voice matters even more for keeping solar jobs — and adding more jobs too. Please help, and please... UnThink Solar.

Tor Valenza a.k.a. “Solar Fred” advises solar companies on marketing, communications, and public relations. Contact him through UnThink Solar or follow him on Twitter @SolarFred.