1603 Packed a Punch

After three years of aiding renewable energy projects, the 1603 program is set to expire.
By Anna Austin | January 05, 2012

While the qualification deadline for the U.S. Department of the Treasury’s 1603 program nears, the renewal outlook doesn’t look good, despite the efforts of renewable energy sectors attempting to convince Congress to extend it. The deadline for applications is Sept. 30, but only projects that began construction by the end of 2011 will qualify.

Since its inception, the impact of 1603 on renewable energy development has been tremendous. Sandra Salstrom, a spokeswoman for the U.S. Department of the Treasury, says more than 24,000 projects have been funded. The bulk of them have been wind and solar, but the 46 biomass projects funded received $171.3 million.   

“The 1603 program has helped dramatically expand and accelerate renewable energy development across the country, enabling companies to create and retain tens of thousands of jobs,” she says. “The program has provided more than $9.3 billion in much-needed capital to [qualifying] renewable energy projects, including some that otherwise might not have moved forward without this funding.”

One developer who has been able to take advantage of the program is Kevin Maas, founder of anaerobic digestion project company Farm Power. Farm Power has two completed projects in the Northwest U.S. that received aid from 1603, and has two in development that will also qualify.

A typical Farm Power project costs about $3 million to $4 million, and 1603 has provided close to $1 million for each. “It’s made a huge difference,” Maas says, adding that he is appalled at the low number of biogas projects that took advantage of 1603. “It’s been such a huge benefit, but we had three solid years of treasury grants and we didn’t get more than 40 projects done. It’s something the industry should have taken advantage of.”

One reason more projects didn’t utilize 1603 could be the uncertainty surrounding the availability of manure feedstock. “It’s hard to get into the manure digester business if you’re worried about farms going out of business, which is an ongoing issue that we can’t really solve,” Maas says. “There are larger problems with the U.S. milk market.”

Maas says another possible reason is that biomass projects are more complicated than other renewable projects. “Some in this industry try to use the wrong business model, treating these projects like wind or solar projects, where you can build them and walk away—the wind will blow and the sun will shine. They aren’t like that though; they require a lot more coordination and building of trust to get a project to move forward.”

While Salstrom says it’s difficult to predict what effect the expiration of the 1603 program will have on renewable energy development next year, she says the two underlying tax credits the 1603 program provides a payment in lieu of—the production tax credit and investment tax credit—will still be available. “It's possible that some renewable energy developers pulled their investment forward in anticipation of the expiration of the 1603 program, meaning there may be a bit of a spike in development as the deadline approaches,” she says.

After that, Maas says he sees development slowing down for a while. “It won’t go to zero, because there are creative people out there that can make things happen, but it’s going to be a lot harder.”

—Anna Austin