Sequestration Continues to Impose Heavy Toll on Renewables

Published by Michael Novogradac on Friday, April 11, 2014 - 12:00am

The Office of Management and Budget (OMB) released a report on the impact of mandatory across-the-board spending reductions known as sequestration created by the Budget Control of Act of 2011. The report details, among other things, the effect of sequestration on the Section 1603 cash grant program. The Section 1603 program allowed renewable energy developers to choose to receive cash grants in lieu of the investment tax credit (ITC), in order to counter the decrease in tax credit appetite caused by the financial crisis. While the program expired in 2011, renewable energy projects that began construction in 2011 could apply for grants. In 2015, the OMB projects that $1.7 billion worth of grants would be issued absent sequestration. However, the Budget Control Act imposed 7.3 percent cuts across the board for all grants.

 

Blog Chart OMB Report to Congress on the Sequester Reductions for Fiscal Year 2015
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OMB estimates the value of Section 1603 grants in 2015 will be reduced by $124 million because of sequestration.

 

Blog Chart Effect of Sequester on Renewable Energy Grants in 2015
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This is problematic because these renewable energy developments were built with financing plans where the grants were a key component; slicing 7.3 percent of the grant could threaten the financial viability of many renewable energy projects. Because of this negative consequence, the Solar Energy Industries Association has urged Congress to delay or modify sequestration.