In October 2008, President Bush signed into law the The Energy Improvement and Extension Act of 2008. The act extended, through 2016, the corporate and individual Investment Tax Credit (ITC). It also removed the cap that had previously prevented homeowners from taking more than a $2,000 credit when purchasing a solar PV system.

Now, in the face of a crumbling economy, Congress may consider transforming the credit into direct payments from the federal government. As reported by Greentech Media,

Language in the draft stimulus bill making its way through Congress calls for turning the investment tax credits that solar power developers rely on into direct payments to investors for the next two years, observers of the bill say.

“On a short term basis – 2009 to 2010 – solar projects will have a Department of Energy program in place to provide for grants to be paid within 60 days up to the eligible tax credit amount,” Chris O’Brien, head of North America market development for Swiss solar equipment maker Oerlikon Solar, said. There is no cap on the amount that can be paid out, he added.

Such payments would clearly provide a boost to the solar sector. As it stands now, there is little demand among investors for the 30-percent credit. Again, here’s Greetech media relaying the sentiments of Rhone Resch, President of the Solar Energy Industries Association, which he expressed back in November 2008:

“The investment tax credits available for solar are a very effective tool when you have the tax credit appetite. When that tax credit appetite starts to decrease, which we’ve seen literally over the last 60 days or so, they become less useful.”

For a while, the setup worked brilliantly: tax equity investors — like AIG, Wachovia and the now-defunct Lehmen Brothers — would provide cash to solar developers in exchange for the tax credit, which they would then use to offset their tax liability. Unfortunately, the arrangement has hit a snag. It’s no secret that 2008 was a rough year for the financial sector. Since few (if any) such banks and investors posted profits, none had a need for the credit. And with the S&P down almost 6 percent on the new year, 2009 isn’t looking much better. As goes January, so goes the rest of the year…

So, hence the current push in Washington to make the 30-percent ITC “refundable” — that is, to put cash directly in the hands of solar developers. Seeing that the solar sector will likely need between $10 billion and $12 billion to keep up growth through 2009, we can understand why Andrew Beebe of Suntech Power suggests that, “the industry really needs this.” Whether Congress will put future American taxpayers on the line for yet another stimulus initiative is anyone’s guess. In the interim, all we can hope is that the solar sector will end 2009 in a stronger position than where it began.