A new Office of Management and Budget (OMB) report indicates that the full value of the 1603 Treasury grant may be in jeopardy, and solar developers expecting a 30% cash grant for their renewable energy projects may be in for a surprise come January 2nd. The report indicates that the 1603 program may be subject to budget cuts, also known as sequestration, which could result in cash grant values closer to 27.72% rather than the expected 30%. This is a 7.6% reduction of the cash grant value which could significantly impact the economics of a project.
OMB issued this report in response to the Sequestration Transparency Act of 2012 which asks OMB to outline automatic spending cuts if Congress does not enact a plan to reduce the nation’s deficit by $1.2 trillion as required under the Budget Control Act of 2011. While there is still time for Congress to enact such a plan, they would have to move quickly, as the December 31st deadline is quickly approaching. Anticipating that Congress may not meet that deadline, OMB outlined how the $1.2 trillion reduction would take place. OMB’s proposed 7.6% cut to 1603 would result in a total spending reduction of $279 million for the government for the 2013 fiscal year. This news has come as a shock to many in the renewable energy industry, as the Treasury Department had informally indicated only weeks prior that they did not believe the Treasury grant was within the scope of sequestration.
There are still a number of unknowns regarding the actual implementation of sequestration with regards to the Treasury Grant. For example, it is unclear whether the 7.6% reduction will be enforced per grant as noted above, or whether the reduction would be allocated in a different manner. The timing of the sequestration, as well as which information as to which projects will be subject to the reduced cash grant remain unclear. For example, will projects placed in service in 2012 be subject to the reduced cash grants if they do not complete the final grant application until 2013, or would they be exempt from the budget cut as the systems went operational in 2012? Details such as these will be important for understanding the full ramifications of sequestration.
Sol Systems will continue to monitor any news surrounding this and will provide updates on our website. Developers with questions should feel free to email us at firstname.lastname@example.org.
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Sol Systems’ solar financing programs catalyze investments for a broad set of projects by simplifying their origination, diligence, and financing process. Developers seeking financing for projects can access over $2.5 billion in capital through the Sol Systems investor network.