Sequestration Impacts on 1603 Grants for Solar Projects

PALO ALTO, CA—The American Recovery and Reinvestment Act of 2009 created the Section 1603 Grant in Lieu of Tax Credit program for qualified renewable energy property (“Section 1603”).  Under Section 1603, generally, the Secretary of the Treasury provided grants (as an alternative to “investment tax credits” issued pursuant to Section 48 of the Internal Revenue Code of 1986 (“IRC”)) to eligible persons, who place in service qualified energy property and apply for such payments.  Grants are awarded under Section 1603 to reimburse eligible applicants for a portion of the expense of such property. Section 1603 further provides that the amount of a grant with respect to any qualified energy property is the applicable percentage (either 30% or 10%) of the basis of such property.

On August 2^nd, 2011 Congress passed and the President signed the “Budget Control of Act of 2011”.  Among other things, the Budget Control Act raised the federal debt limit, created a so-called “Super Committee” to identify $1.2 trillion in budget savings over the following ten (10) years and provided for expedited consideration in Congress of the Super Committee’s recommendations.  As we all know, the Super Committee failed to agree upon much of anything.  The impact of this failure was the implementation of budget sequestration, which provided for automatic, across-the-board spending reductions.