What is the Real Impact of the Stimulus Bill on Solar?

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) February 15, 2009 -- The stimulus bill that the Congress passed yesterday contains three provisions that will help the solar power industry:

Renewable Energy Grants in Lieu of the 30% Investment Tax Credit: Essentially this makes the 30% investment tax credit refundable. One has to apply for the grant once the system is installed but no later than 60 days after installation. This eliminates the need for solar project developers to find tax credit buyers and gives them 100 cents on the dollar for the tax credits (effectively selling them to the U.S. Treasury).

Loan Guarantee Program: There is a $6 billion loan guarantee program for renewable energy and transmission (smart grid) technologies.

Manufacturing Investment Credit: There will be a new 30% investment tax credit for investment in facilities for manufacturing renewable energy equipment. However, this tax credit is not refundable and would likely be very difficult to sell to tax equity investors.

Solar Energy Industries Association President & CEO Rhone Resch expects the bill will allow the solar industy "to create 67,000 jobs in 2009 alone and a total of 119,000 jobs over the next two years, putting Americans back to work installing solar panels, manufacturing components and constructing solar power plants." However, these estimates are highly suspect and were based on unrealistic assumptions made more than a year ago that do not account for the impact of the credit crunch on project financing. Most solar installers and many solar equipment manufacturers have been laying off employees in recent months. The residential and commercial installation segments have been particularly hard hit. The reality is that this will slow the layoffs and, at best, will allow some of these firms to hire previously laid off solar workers.

The Renewable Energy Grants are a major, positive development. Essentially, the tax equity market has collapsed. Virtually all tax credit equity transactions were purchased by financial institutions, with Fannie Mae, Freddie Mac, Bear Stearns, and Lehman Brothers being the four dominant players here. All four no longer exist as profitable entities who have any need of sheltering profits. In addition, most of the other players in this market have so many losses that they will not need to purchase tax credits to shield profits for years to come. Without the ability to monetize the 30% tax credit, virtually all commercial solar installations that were not financed by September 2008 have essentially ground to a halt.

The loan guarantee program looks nice on paper but the reality is that it will be months before one can even apply for loans guaranteed under this program and it allows loans for a wide distribution of renewable energy genergation and transmission technologies. Furthermore, like so many other government appropriated programs, this program is extremely vulnerable to politically-driven manipulation and favoritism that does not guarantee that a single dollar is lent to fund any solar projects or technologies.

This bill does little to address the impact of the credit crunch on the solar industry. One still has to finance 40% to 70% of the cost of the project, depending on whether the project qualifies for any other grants or rebates. Commercial and residential installations will continue to be extremely difficult to finance and fewer and fewer potential customers have sufficently high credit ratings to qualify for financing. This will make the industry dependent on government projects providing solar for government building. However, this game has significant uncertainties, places a premium on political connections and influence, and will benefit a few larger installers over the vast majority of the installers in the industry.

In addition, given the roughly 100% over capacity in photovoltaic module production worldwide, it would be virtually impossible to raise capital, even with the 30% manufacturing investment tax credit, to fund any new equipment or module manufacturing project. Module prices are rapidly dropping and some vendors are selling for below $3 per Wp in megawatt volumes -- well below the $3.60 to $4.40 per Wp rates they commanded just a year ago.

Finally, no one is considering the unintended consequences from both this bill and the myriad other stimulus, TARP, and other bailout bills on the solar industry. The solar industry is particularly vulnerable to inflation and a US Dollar crisis because the vast majority of solar photovoltaic modules, inverters, and other components are manufactured in foreign countries and are imported. All of these stimulus, TARP, and bailout programs are massively increasing the money supply and are creating the potential for a Treasury funding crisis because there may not be enough (or ANY) foreigners willing to purchase US Government debt. This would mean paying significantly higher prices to import equipment combined with having to pay higher interest rates on financing.

More information can be found online at http://scitechminer.blogspot.com/2009/02/what-is-real-impact-of-stimulus-bill-on.html

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