(Solar, wind cash grant extension story, updated for House letter)

WASHINGTON D.C. ( TheStreet) -- As President Obama's massive tax cut plan reaches its final stage of negotiations, renewable energy, one of the President's hallmark items, has found some Congressional backers willing to make a last-minute push for inclusion. The cash grant program which is the key item for solar and wind projects, in particular, was rumored to be gaining support on Thursday afternoon.

Both the solar and wind industry took a hit when the year-long lobbying effort to convince Congress to extend the cash-grant program for renewable energy projects looked likely to be a loser, not making it into the tax package revealed by Capitol Hill and the White House on Tuesday.

The solar and wind industries weren't giving up the fight for good, even when announcing the discouraging news on Tuesday, and were reduced to fighting for legislative space as an "extender" item.

As previously detailed on TheStreet, the cash grant program is big business for the solar and wind industries. It wasn't just the solar and wind industries trade groups pleading for a last gasp inclusion in the tax cut package, but the National Venture Capital Association, as well as progressive think tanks like the Center for American Progress, continuing to fight on Thursday for the renewable energy cash grant program, as well as other renewable energy measures.

Sen. Dianne Feinstein (D-Calif.) was fighting for an extension of the cash grant program on Thursday, noting in an Op-ed penned for Politico.com that the program "is rightly credited with maintaining growth in the renewable energy sector in the middle of an economic downturn.... The program has, so far, supported roughly $18.2 billion in clean energy investment to build 8,600 megawatts of renewable energy generation, according to Feinstein's data.

Feinstein and Washington Senator Maria Cantwell were reportedly arguing for the cash grant program in the Democratic caucus.

Late on Thursday, Feinstein and Sen. Tom Harkin (D-Iowa) told reporters on Capitol Hill that the cash grant program was "in", though there won't be any official confirmation until Senate Majority Leader Harry Reid unveils the legislative package.

A cadre of Democratic congressmen also pressed for inclusion of the cash grant in the tax bill on Thursday afternoon. What's more, the Democrats were trying to position the issue as a bargaining chip as the White House and Capitol Hill seek to assuage Democrats unhappy about the tax cut legislation.

The Democratic caucus rejected the tax cut package, "as currently written," on Thursday morning.

In effect, the Democrats hope to hold the tax cut package "hostage" if they don't get what they want in terms of renewable energy agenda, just as President Obama had to give in to the Republicans over tax cuts for the rich since they were holding all tax cuts "hostage."

Whether or not the voting calculus of the Hill provides any leverage in the last minute "extender" battle is an entirely separate matter from the rhetoric of unhappy Democrats.

Three Democrats, Representatives Earl Blumenauer of Oregon, Mike Thompson of California, and Rush Holt of New Jersey, held a news conference on Thursday afternoon to push for the energy grant program. The triumvirate of renewable energy friendly Democrats is also sent a letter to House leaders, signed by 81 lawmakers who support the cash grant program, and the Senate had its own letter -- albeit only signed by Democratic senators -- supporting the cash grant program.

Yet Democrats are divided over renewable energy measures to support. Farm state Democrats have reportedly gained inclusion for a key ethanol incentive, and care less about wind and solar cash grants that have the support of others in the Democratic party. The Democrats supporting wind and solar were not pleased to learn that the ethanol lobby was poised to get what it wanted while wind and solar were left out in the cold.

Both Feinstein and Sen. Ben Nelson (D-Neb.) stated on Thursday that the ethanol incentive has received enough support to be included in the legislation. Nelson is most closely associated with the farm state interests of the Democratic party, while Feinstein represents coastal interests more closely aligned with wind and solar. Nelson is supporting the cash grant extender, too, signing his name to the Senate letter in support of the Treasury program extension. Democratic Senator Harkin is also from a ethanol-friendly farm start, but his comments on Thursday afternoon were optimistic about the cash grant program, too.

However, when the renewable energy interests even within the Democratic party are divided on which renewable energy item to support fully, it becomes much more difficult to predict the final legislative result. There is also an argument being made that the Democratic caucus rejection of the tax-cut deal is simply posturing, and in the end, the vote on the tax cut legislation won't even come down to appeasing unhappy Democrats who support the renewable cash grant program.

Keith Martin, a tax partner with Chadbourne & Park who has worked with the renewable energy industry on the lobbying effort for the cash grant program, wrote on Wednesday that odds were still against an extension of the Treasury cash grant, but added, "the issue remains in play and could go either way. The renewables trade associations have done an excellent job of grabbing the pole position among the many interests groups vying to make changes in the tax package."

On Thursday afternoon, the tax attorney said the talk on Capitol Hill did seem more optimistic about the chances for the cash-grant program, but it was just talk, and the situation was still fluid, and impossible to handicap. In effect, even with rumors swirling that cash grants were "back in", the tax attorney said it wouldn't be a surprise if sentiment turned back in the other direction.

Senate Finance Committee Chairman Max Baucus (D-MT) failed last weekend in his proposal to extend several clean-energy tax credits, including the Section 1603 cash grant, in lieu of tax credits for renewable energy projects, including wind and solar, the ethanol blenders credit at a reduced rate, and the $0.48 investment tax credit for domestic manufacturing facilities that produce "advanced energy property" (such as wind turbines and solar panels), as well as a residential energy-efficiency tax credit.

The ethanol incentive that was reportedly "back in" on Thursday was at an even higher rate than it was in the failed measure that Baucus had supported.

Sen. Baucus told Politico.com on Thursday that the fate of the cash grant program was still an unknown, though in general, it looked like renewable energy extenders would make it into the final package.

Of course, the cash grant program under section 1603 of the economic stimulus package was never intended to be a permanent structure to support the renewable energy industry -- yet neither were the Bush tax cuts, and Congress has no problem extending them for the good of jobs and the economy.

Efforts to extend renewable energy credits have failed several times this year over opposition to offsetting tax increases. On the other hand, given the high cost of the tax-extension bill, the renewable energy credits would seem to be a relatively small addition to the legislation.

All the major U.S. solar companies have project pipelines which would benefit, though not necessarily be handicapped, by the loss of the cash grant program, including Fist Solar ( FSLR - Get Report), SunPower ( SPWRA and MEMC Electronic Materials ( WFR.

The loss of the cash-grant program could also have broad implications for all solar module and solar inverter companies, as optimistic 2011 forecasts are being spun predicated on a much larger U.S. marketplace for solar installations. While the biggest of big projects will be able to secure financing without cash grants, the entire market size for solar -- and the ability for solar product suppliers to sell into the U.S. project market -- could be significantly impacted by a lower overall number of projects able to secure financing.

The performance of the U.S. wind sector has been atrocious this year, with an expected first-half bottoming out of the sector lingering throughout the year. Wind turbine maker Broadwind Energy ( BWEN - Get Report) has been the poster-child for the woes of the wind sector, down 75% this year.

It's safe to say that the wind industry can make the same case that's being made for the broader U.S. economic in support of the argument in favor of the tax cuts: it just can't afford any potential limiting factor given the stress under which it is already operating.

New Jersey Congressman Holt's spokesman Zach Goldberg said on Thursday afternoon that the renewed hope for the cash-grant program centered on its concrete economic benefits as a piece of jobs creation legislation.

"Nothing is guaranteed and the train hasn't left the station. This isn't just about clean energy, but about jobs," the Holt spokesman said. "If the tax bill is about the economy and jobs, the cash grant program should be part of it," he added.

Goldberg noted that if a tax package that's not paid for will be quantified in the trillions, there isn't a strong argument to be made against the cash grant program as a cash drain when it only amounts to roughly $3 billion. The fact that the cash grant program is a stimulus item that's paid for by the government has always been a reason for resistance from Republicans.

"This isn't a philosophical debate. Business have created actual jobs because of the cash grant," Congressman Holt's spokesman said.

The House letter to leadership made the accurate case that there could be a big gap between the total number of renewable energy projects looking to be constructed and the amount of tax equity financing available to these projects if the cash grant is no longer an option. However, the House pitch also included one questionable line of support for the cash grant program.

"The U.S. renewable energy industry is under increasing competition from other countries. For instance, as recently as a decade ago, the U.S. accounted for more than 40% of global solar photovoltaic cell production. In 2008, the U.S. produced only 5% of the world's solar cells."

As critics of this argument have pointed out, even the biggest U.S. solar power brands, First Solar and SunPower, have manufacturing operations based in Asia and Europe. It is also easy to manufacture solar cells cheaply outside the U.S. and ship them back to the U.S. to be assembled into solar modules. In effect, a solar project can be constructed under the auspices of the cash grant program, but using solar cells and solar modules made in China -- though part of the negotiations over extension of the cash grant program have focused on a domestic content requirement.

Extending the cash grant program won't immediately guide the decision by solar companies of where to place manufacturing operations, and Asia's overtaking of the U.S. as the dominant solar cell player isn't going to change. However, in a general sense, the larger the U.S. market is, the more incentive there will be for the U.S. to get its fair share of quality solar jobs as solar manufacturing is parceled out around the globe.

Yet the Capitol Hill game isn't won or lost on logical arguments, or even a number of actual jobs created in the past few years, but through the scurrying to collect enough votes in whichever way ultimately proves most expedient.

As the Chadboure & Park tax attorney Martin noted to clients, "Obama is facing difficult, but not impossible, math to get the package through Congress."

Obama appears to have 39 Republican votes in the Senate. The White House would need another 11 to get to 50, at which point vice president Biden could break the tie, or another 21 votes to get to 60 to cut off debate if there is a filibuster. At least eight Senate Democrats appear already prepared to support the package.

Obama needs slightly fewer than 40 Democrats in the House together with all the Republicans.

-- Written by Eric Rosenbaum from New York.

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