Show Me the Stimulus Part 2 – The 1603 Program in Colorado

February 29, 2012

(Wiki Image)

President Barack Obama signed the 2009 American Recovery and Reinvestment Act in Denver, choosing as his background the recently installed, subsidy-laden solar panels at the Denver Museum of Nature and Science made by Boulder-based Namaste Solar.

The newly inaugurated administration touted the local company and praised the various “incentives”—rebates and tax credits, primarily—that made the solar panel company successful and provided the vaunted renewable energy source to a cherished cultural landmark in the city.

Independence Institute investigative reporter Todd Shepherd revealed, however, that without massive rebates, the actual installation cost of the solar panel array would require 110 years to pay off, and would not “make sense financially.”

Solar panels, incidentally, have a life span of only 20 t0 25 years.

Since that moment, bolstered by repeated failures like Solyndra in the sector highlighted by the kickoff of the administration’s landmark stimulus bill, much attention has fallen on recipients of government grants, loans, and other incentives authorized within ARRA. The Department of Energy’s loan guarantee program in particular has drawn the lion’s share of attention due to high-profile cases like Solyndra and Colorado’s own Abound Solar.

Other massively funded initiatives like the 1603 Program, administered by the Department of Treasury along with the Department of Energy, has remained somewhat obscured, despite a price tag of more than $10 billion.

The 1603 program is designed to offer renewable energy project developers a lump-sum cash payment in lieu of receiving investment tax credits, up to a maximum of 30 percent of the project’s total cost.

While solar projects outnumbered their counterparts (as of October 2011, PDF) by nearly 46-1 (22,060 vs. 481), the selected wind projects have received more than five times the amount of 1603 funding, with $7.65 billion against $1.45 billion for solar.

As for many of the stimulus programs, 2011 marked the end sunset of the funding efforts, with the 1603 program expiring in December. President Obama’s FY 2013 budget seeks to extend the program.

Measuring the expenditures, while more difficult than other ARRA-related outlays catalogued at, can be done. Measuring the effect on jobs, however—as pointed out in the first part of this series—is far more difficult.

Just as local news outlets have found, arriving at an actual number is frustratingly cumbersome, if not impossible. From the Wall Street Journal on February 24, 2012:

“On federal applications, companies said they created more than 100,000 direct jobs at 1603-funded projects. But a Wall Street Journal investigation found evidence of far fewer. Some plants laid off workers. Others closed.

The discrepancies highlight broader challenges calculating the economic benefits of stimulus spending. Jobs have been an important measure influencing distribution of more than $800 billion in stimulus money, which also has included tax breaks and spending on roads, sewers, schools, health and public assistance. Yet the number of jobs created or saved is largely based on formulas, mathematical models and reports by recipients, rather than actual tallies.”

How reliable are those job-creation models? Depending on which government agency you ask, the answer varies widely.

“Jen Stutsman, a spokeswoman for the Department of Energy, which administers the 1603 program with the Treasury Department, said it created ‘tens of thousands’ of jobs in construction, installation and operation.

Jobs figures reported by grant recipients were full of errors, the Congressional Research Service said in a report last year: ‘Thus it is recommended that any job creation estimate be viewed with skepticism.’

The report also addressed a broader issue. ‘The potential for job creation has become a key factor in evaluating renewable energy investment incentives and programs,’ it wrote. Yet ‘quantifying and measuring green job creation and growth has been difficult.’”

In Colorado, Cedar Point Wind, LLC received $145,596,213 in 1603 funds, the largest recipient in the state. In 2010, Renewable Energy Systems Americas, based in Broomfield, teamed with Enbridge Inc., to complete the 250 MW wind project near Limon, and promoted the 250 expected construction jobs associated with the development.

Upon completion, RES Americas CEO Susan Reilly applauded the Cedar Point Wind Project as “an excellent example of the success of the Treasury Grant Program” in creating jobs, but more importantly, as a way to “generate clean, renewable energy.”

That’s $582,385 per construction job. The reimbursements from 1603 are awarded only after the project has been completed. The construction jobs have come and gone, and the WSJ found the same results nationally:

“The 1603 program gave $10.7 billion to 5,098 businesses for 31,540 projects, according to the Treasury Department. Recipients were generally reimbursed 30% of their costs after projects were finished.

Those businesses claimed on federal applications that they created 102,883 jobs directly. But the Journal found evidence of far fewer.

About 40% of the funding, $4.3 billion, went to 36 wind farms. During the peak of construction, they employed an average of 200 workers apiece—a total of roughly 7,200 jobs.

Now, those projects employ about 300 people, according to the companies and economic development officials. Their parent companies employ many more, both in the U.S. and abroad.”

Cedar Point’s owner, Enbridge, is based in Calgary. Of the $342,283,515 in grants awarded in the state of Colorado, Cedar Point’s portion comprises 42.5 percent of the total amount. Taken together, the two largest wind projects in Colorado garnered roughly 72 percent of 1603 funding.

Further analysis shows that, rather than actually increasing the total number of jobs in wind energy production, the industry’s public relations giant American Wind Energy Association noted that jobs were lost, despite an extension of the 1603 grants:

“The American Wind Energy Association lobbied successfully in late 2010 to extend the 1603 program through 2011, predicting it would create thousands of jobs. Wind companies wound up with more than $7 billion of the 1603 money, yet industry payrolls declined to 75,000 last year from a peak of 85,000 in 2009, according to the association.”

The 10,000 jobs reported lost by AWEA would exceed the number of temporary construction jobs created by just under 3,000.

The WSJ report shows some companies declaring bankruptcy and hemorrhaging staff, while others claimed the 1603 program essentially bailed them out. Locals, however, questioned where the reported jobs actually were, as highly skilled labor was imported to the projects and highly temporary in nature:

“Iberdrola Renewables Inc., the U.S. arm of a Spanish energy giant, received more than $1.5 billion for its wind and solar projects. In January, it laid off 50 people, leaving about 850 U.S. employees, according to spokeswoman Jan Johnson.

The company takes credit for creating more than 15,000 jobs, based on economic models that count staff, suppliers, temporary construction jobs, as well as employment generated by the money workers spend on food, hotels and other purchases.

Some communities are baffled by such estimates. In Kenedy County, Texas, population 416, Iberdrola said it supported 978 jobs building a wind farm there.

‘How dare they claim they created those jobs,’ said Dick Messbarger, executive director of the nearby Kingsville Economic Development Council. “Their existence is almost invisible.’”

Just as the administration hopes to extend the 1603 program for an additional year, many in the solar and wind energy industries have spent millions lobbying to ensure the result arguing, once again, for jobs, according to the WSJ report.

The lure of tax credits was a prime draw before the 1603 program was implemented by ARRA, as pointed out by the WSJ. Companies, including banks, saw the investment in renewable energy as a way to increase their own “green” credibility while amassing the lucrative tax credits from projects that, in turn, received them from the government.

The National Renewable Energy Laboratory in Golden reviewed 1603 project applications, and NREL hopes that a forthcoming report using their own in-house jobs creation model, dubbed JEDI for Jobs and Economic Development Impact, will demonstrate substantial success for the program, the WSJ notes. The grantees are subject to reporting rules, but compliance requirements are rather generous, as “grant rules require that for five years recipients annually report the number of employees and amount of power produced. Even if a project stops producing power—or employing workers—for long stretches, owners can keep the money unless they convert their facility to a use other than power production or stop trying to get the plant working within five years of receiving the grant,” the WSJ report concluded.

Among large corporations receiving 1603 grants for solar projects in Colorado were Metlife ($877,137), Hertz ($364,539), and Wells Fargo ($342,628). Smaller Denver-area companies like Wheat Ridge Cyclery ($65,742) and Racines ($53,250) for their solar installations.

Overall, 305 solar panel projects were awarded 1603 grants. The remaining 21 grants were split between solar thermal, wind, and a single biomass project.

The WSJ investigative reporters summarized their 1603 findings:

Colorado’s 1603 program recipients, by amount awarded:

CO 1603

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