If section 1603’s planned 2010 expiration was a time bomb, its recent extension has merely replaced a short fuse with an even shorter one. The one-year extension will limit section 1603’s effectiveness at encouraging investment and development. Section 1603 deserves to be renewed for the long term, or even made permanent.

A small provision tucked away in the 2010 tax bill has the renewable energy industry exhaling a big—albeit temporary—sigh of relief. The provision extends a Treasury Department program, the much-applauded ‘‘section 1603.’’ Section 1603 gives renewable energy ventures the option to take a cash grant instead of certain tax credits. Section 1603 has proven effective at encouraging renewable energy in terms of investment, capacity, and jobs.

Lamentably, the extension only continues section 1603 through 2011. This defect is typical of our nation’s shortsighted energy policy. The short extension limits section 1603’s impact because capital-intensive projects like wind, solar,
biomass, and geothermal facilities demand long-term policy stability. Long-term policies are crucial to restoring American preeminence in renewable energy.

This article, by Haynes and Boone Partner Paul Dickerson, examines the tax credits to which section 1603 provides alternative cash grants. It explains how the financial crisis spurred the government to devise section 1603, and the key role that the provision has played since its enactment. Then, this article examines the renewal of section 1603 in 2010 before discussing the shortcomings of a one-year extension and why a long-term, or even permanent, extension would be preferable for the renewable energy industry—and the United States itself.

Excerpted from Electricity Journal. March 2011, Vol. 24, Issue 2 1040-6190, 2011 Elsevier Inc. All rights reserved.

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