Solar developers are breathing a sigh of relief this morning as they wake up to news that the House passed a big tax cut and stimulus bill last night, sending it on to the President for his signature, which is expected this afternoon. The bill, which extends Bush Era tax cuts, extends unemployment benefits, and cuts social security taxes, also extends a popular renewable energy grant program.

Yesterday evening, Lyndon Rive, CEO and founder of a solar financing, installation and maintenance company, Solar City, told me that the if the renewable energy program, which provides grants that cover 30 percent of the cost of solar installations, weren't extended, "it would be a catastrophe for the entire industry."

The U.S. Partnership for Renewable Energy Finance has been calling for the extension of the grant program since this summer, when it became clear that the recession would make it hard for solar projects to get financing under a related tax credit program.

The Section 1603 Treasury Grant program was enacted by Congress in 2009 as part of the American Recovery and Reinvestment Act to help address the impact of the financial crisis on the emerging U.S. renewable energy sector. Specifically, by providing tax grants in lieu of credits for qualifying renewable energy investments, the Treasury Grant Program has addressed a critical barrier to the continued flow of capital to renewable energy projects throughout the U.S. at a time when the economic downturn had begun to severely limit the use by investors of the tax credits that have traditionally played a central role in U.S. renewable energy policy incentives . . .

"If the Treasury Grant Program is allowed to expire in 2010, the level of capital that is available to finance renewable energy is anticipated to decline by more than 50%, jeopardizing the installation of clean renewable power projects throughout the US and our international competitiveness," said Neil Auerbach, Co-Managing Partner of Hudson Clean Energy Partners.

Rive says that the tax grants are particularly important now that state incentives are starting to wind down, such as a California program that offsets the cost of rooftop solar installations. Under that program, the state aid decreases as sales of solar systems increase. He says that the decrease in incentives has been faster than the decrease in the cost of buying and installing solar panels.

Last night the Senator Harry Reid introduced a bill designed to extend the Bush-era tax cuts—the ones that Washington has been abuzz about all week. The bill (pdf) is in line with a deal that President Obama made with Republicans, which would extend the tax credits to the wealthy, as well as the middle class, in exchange for a package of incentives that Democrats want, including a payroll tax reduction and an extension of unemployment insurance benefits. It also includes something the original deal didn't have—an extension of a popular grant program for solar, wind, and other renewable energy projects.

The program, established under section 1603 of the Recovery Act of 2009—and often referred to as the 1603 grant program—gives grants instead of tax credits that had been previously authorized to renewable energy project developers, which makes it much easier to get financing. The program had required construction to start on renewable energy projects by the end of this year—a deadline that came too soon for many projects mired in lengthy approval processes. Without the new extension of the grant, financing for renewable energy projects would be cut in half, according to one estimate (pdf).

The bill also extends almost a dozen energy-related incentives programs, including production credits for biodiesel, tax credits for energy efficient home manufacturers, and ethanol subsidies.

When the Senate comes back from its summer recess on September 11th, the energy bill that was dropped before vacation will still be dead in the water.

In a conference call today Senate Majority Leader Harry Reid (D-NV) said he and other senators will continue to modify the bill in an attempt to win votes. This may include adding a standard that would require States to use a minimum amount of renewable energy. Reid said he hopes such modifications will entice Republicans to vote for the bill after the elections this fall, when Congress is in its "lame duck" session.

"Now it's a time out period," Reid said. "We'll see if we can come up with something before the end of the year. I'm confident we can, and we should," he said.

The bill, which includes provisions to promote home energy retrofits, electric vehicles, and natural gas trucks, will not include a cap and trade system for decreasing carbon dioxide emissions. Cap and trade, he said, "doesn't have the traction that a lot of us wish it had."