1603: Hope is Not a Business Plan

If you’re one of the many solar developer who’s just hoping the 1603 Cash Grant will be extended, we have some news for you: hope is not a business plan.

As a financier for small-scale clean energy developers, we work with some of the top tax law and accounting firms in the industry – and many of these experts agree there are practical steps solar developers may be able to take right now to extend the Grant even if Congress doesn’t. However, there is still a good deal of uncertainty about how exactly to interpret Treasury guidelines, and Treasury itself is regularly reviewing and updating their guidance.

What is clear is that the 1603 program has a Safe Harbor provision allowing projects to qualify for the grant if they begin construction by December 31, 2011. There are two tests for meeting the “Begun Construction” requirement. The first is to begin “physical work of a significant nature” on say a large wind or solar farm for example. The second, which is more relevant to the community-scale, distributed generation developers we work with, is to “ pay or incur” more than 5% of the project’s total cost of construction by Dec 31, 2011.

Many experts interpret this to mean solar developers could continue to qualify for the grant if they pre-invest in equipment before the end of the year. If this proves correct, it could be an insurance policy for developers who don’t have access to tax equity or the ability to monetize the tax credit. 

However, this is a very complex program, and there is disagreement among top experts in field — as well as Treasury and the IRS officials themselves — about how exactly to interpret the details. Opinions on when and how to take delivery; accounting methods on applying the 3½-month rule; and whether project location must be determined in advance of filing a “Placed in Service” application, are constantly shifting according to our sources in close contact with Treasury.

What is certain, is that this is an important program that could make a significant difference to the industry, and it’s worth paying close attention to. At virtually every conference we’ve been to this year, experts have put the chances of the 1603 Cash Grant being extended at slim at best. And they’ve also said that if the grant does expire, it’s going to put thousands of people out of work.

And that is where the hope comes in. We are all hopeful that the solar market continues to grow and thrive next year, whatever Congress decides this December. But this lack of certainty continues to be a major challenge for the clean energy industry overall. It’s very difficult to build lasting business models when the policies change every few years and even the top experts can’t agree on how to interpret the policies that are in place.

So it’s no wonder people are relying on hope. But it’s important to be practical as well. If the grant does expire, then companies with the capital and expertise to structure a Safe Harbor could be at a significant competitive advantage in the market next year.

If you’re one of the many solar developers that could potentially benefit from this program, you may want to consider a strategy that goes beyond hope this holiday season. If there’s even a chance that the Safe Harbor could work for you, you might want to roll up your sleeves, stay close to the Treasury website, and put your accountants and tax attorneys on speed dial. Because you have a lot of work to do between now and December 31.

 

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Adam is a born entrepreneur. As CEO and Founder of Adam Capital, Adam specializes in bridging the financing gaps for distributed scale solar developers. Over the past 3 years, the company has funded hundreds of projects and provided over $30 million in loans to build clean energy projects around the country. He is a recognized leader in the field of renewable energy finance. Growing up in San Francisco, Adam’s passion for the environment along with his unique ability to think big and inspire others was imparted by his lifelong mentor & grandmother Connie Boucher, the iconic founder and CEO of Determined Productions Inc., a $100 million dollar family-owned full-service character licensing and merchandising company with offices worldwide. In addition to pioneering character licensing, Determined Productions was also a pioneer in cause-related marketing in the 1980’s with partners including the World Wildlife Fund and Rain Forest Action Network. That pioneering spirit continues in Adam’s work today as CEO of Adam Capital and helped shape his vision for success: The bigger the challenge, the greater the opportunity. He has specialized in collateralized lending since 2003. It was during this time, getting calls from old friends deeply engaged in solar installations, that Adam saw the challenge: an acute lack of financing options. Investing his own money in 2007, Adam Capital was born. The company has funded over 1200 solar projects across 3 states in an effort to capitalize on the enormous clean energy opportunity in the US. “I believe there is no need to take on excessive risk to solve our energy challenges and create win-win-win situations. I get up in the morning knowing I am doing something meaningful for my children, my investors and our future.”

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