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Energy Efficiency Industry Eyes Expiration of U.S. Treasury Energy Grants by Mary Duan San Jose Business Journal, September 27, 2010

Silicon Valley's energy efficiency players are keeping an eye on Washington and the fate of a cash grant program that is due to expire this year.

Industry leaders in the energy efficiency space say the loss of the cash grants from the U.S. Treasury Department could mean a loss of business to them, making it more difficult for companies to afford pricey installations on solar panels, wind turbines or energy fuel cells.

The program is known as Internal Revenue Service Section 1603, a part of the American Recovery and Reinvestment Act.

Josh Richman, director of business development at venture-backed Bloom Energy Corp., which makes a fuel cell called the Bloom Energy Server, said customers have definitely benefited from the cash grants. Bloom customers include Cypress Semiconductor Corp., eBay Inc. and Google Inc.

Richman said Bloom has sold all of its fuel cell inventory for 2010, but the entire fuel cell and solar industries are closely watching what happens.

"The extension of this program is critically important," Richman said. "We're sharing the importance of this with our friends on the Hill, and they're very sympathetic."

Richman said there's a lot of discussion in the industry about extending the grant for two years; that amount of time will help provide market certainty for companies like Bloom.

It also will provide that certainty for customers who are evaluating whether to add solar or a fuel cell. They need to know the grants will be available, he said.

It's not a cheap decision. Each Bloom system costs upwards of $800,000, not including infrastructure and installation.

Alternative energy push by feds

The 1603 program allows businesses or schools that are installing solar, wind or fuel cells to recoup up to 30 percent of the total cost of a project.

The grant is given in the form of a cash payment to businesses and is taken in lieu of a tax credit. It doesn't apply to any residential projects. The program requires an application to the U.S. Treasury Department.

Legislation to extend the cash grants is pending, but is included in a yet-to-be introduced bill.

Lyndon Rive, co-founder and CEO of SolarCity, which on Sept. 20 announced it would be installing solar panels at 30 Wal-Mart stores in California and Arizona, said if the grant program doesn't get renewed, it could slow solar adoption. Available financing for solar projects is an important way to ensure America continues to adopt alternative forms of energy.

"We are keeping our eye on this," Rive said. "The federal government should extend it."

But while companies are pressing for its extension, some remain anxious about the prospect, considering Congress has yet to address it.

"Everyone is really nervous about it unless Congress extends it because this is essentially free money. It's a very compelling program," said James Su, a senior director at the accounting firm BDO Seidman LLP with an office in San Jose. "And with California such a hotbed for innovation, it definitely has a greater impact on us."

One problem with the looming deadline, Su said, is that these types of projects -- whether it's a solar installation or a fuel cell installation -- require planning and lead time. A project that starts in 2010 but isn't finished until next year can still qualify, but the project has to be at least under way.

"There is a recognition that these energy efficient strategies have to be implemented in the long haul," Su said. "It's a difficult type of thing to just squeeze in."

About $5.2 billion in grants have already been sent out or requested. In Nevada, geothermal company Ormat Technologies Inc. in September received a $108 million grant to expand its plant in North Brawley.

Jim Conlow, who heads the energy efficiency business unit of Sprig Electric Co. in San Jose, said that for customers installing projects, the grant can be worth hundreds of thousands -- or even millions -- of dollars depending on the size of the installation.

Sprig has a rapidly growing business in installing Bloom Energy Servers and electric vehicle charging stations, as well as energy efficient lighting.

"The recession was so bad, we need to continue these sorts of programs to pull us out of it. Ending it at the end of the year would be too soon," Conlow said. "There are a lot of projects that aren't approved yet, and people are still interested. There has been a rush of people trying to get things done."

The cash grant program is different from a related tax credit portion of IRS Section 1603. That carryover tax credit will continue for several years.