Section 1603 of the American Recovery and Reinvestment Act was designed to attract private investors to renewables projects by offering investors a cash reimbursement equal to and in lieu of the 30% federal Investment Tax Credit. According to a recent NREL report, the program has awarded $11.6 billion to around 38,000 projects – which have received $38.6 billion in total investment – and has supported the installation of 16.9 GWs in new renewable capacity. To put that in context, in 2007 third-party tax equity financing provided about $6.7 billion to renewable project developers. In 2009, in the heart of the financial crisis, that number, according to USPREF, dropped to $2.1 billion.

That drop in financing helped inspire the creation of the 1603 Program, and renewable developers fear that with the end of the Program – the application period for which ends on September 30th, 2012 – a similar drop in renewables financing may take place.

The NREL report gives some credence to these fears, collecting renewables industry insiders’ analyses of the impact of the 1603 Program’s expiration. Many of the report’s contributors expect reduced renewable project development, as developers’ options for obtaining funding are narrowed. The report anticipates three primary consequences of the Program’s expiration: industry consolidation “as well-funded developers acquire smaller firms”; reduced investment for innovative projects; and a slowing of new investment as projects become more expensive to develop and developer returns decrease.

The Senate Finance Committee appears unlikely to extend Section 1603 when the mark-ups are finalized this week.

Are tax incentives the most effective way to spur project development? Do the returns on these renewables projects, in terms of capacity installed and jobs created, justify the cost of the program? Should it be the role of government to support industries through these types of programs?