The Sequestration steamroller is set to hit March 1, 2013 and we continue to monitor negotiations between the White House and Congress. The impact for Federal Fiscal Year 2013 will be compressed, given that the fiscal year is almost one-half over. While final spending decisions are not yet made, it is clear that federal grant and other assistance programs will be hit by the sequestration cuts. This includes funding for renewable-energy grant programs.

Recently, the Executive Office of Management and Budget (OMB) included the Section 1603 Treasury Grant Program – created within the American Recovery and Reinvestment Act of 2009 (ARRA) – among those subject to the sequester of funds. This proposed action galvanized the renewables industry into lobbying action in an effort to convince the OMB and Treasury Department to rethink this inclusion. In a letter of January 24, 2013, the Solar Energy Industries Association (SEIA) argued that the Section 1603 Program was “unique . . . designed to transfer a financial benefit originating from a tax credit.” The SEIA also argued that the Section 1603 grant payments were very closely analogous to “obligated balances,” which were not subject to sequestration. Limiting amounts received under Section 1603 artificially increases risk, including default risk under federal financing bank loans. Finally, SEIA asserted that, even without actual default, developers and private equity investors would suffer significant financial losses, even though all grant conditions were fully observed.

We see many other renewable industries reaching out as well, in an effort to redefine the law’s impact, including by using the argument that unpaid Section 1603 balances should be considered “obligated” once the facility is placed in service. We expect this debate to intensify as the budget axe begins to fall.