One plank of President Barack Obama's "green-collar" economy plan has been to subsidize manufacturers of renewable-energy equipment, with the aim of creating jobs while speeding a shift away from fossil fuels.
The problem faced by many of those companies, however, is that they don't have enough in tax liabilities to make use of the manufacturing tax credits offered under the economic stimulus law, or the American Recovery and Reinvestment Act of 2009, hindering the job-creation aims of the program. In addition, some companies are not planning to use the tax credits because of general market conditions, under which adding new manufacturing even with government support doesn't make economic sense.
BP Solar International, part of BP PLC (BP), qualified to receive $11.7 million toward repurposing some of its Frederick, Md.-based factory where it was making solar cells.
"BP Solar informed the IRS that we will not be utilizing the tax credit," wrote Pete Resler, spokesman for the company, in an email to VentureWire. The company shut down manufacturing in Frederick in March, cutting hundreds of jobs. It is outsourcing cell and panel manufacturing to China and Mexico.
"While the tax credit would have helped to modernize some equipment at the Frederick facility, it could not improve the long-term cost profile sufficiently to change its competitive value," wrote Resler.
There was intense competition to obtain the credits when they were issued in January, with $8 billion in requests, far in excess of the $2.3 billion the Department of Energy gave out to 183 projects under what is known as the 48C program. But the credits haven't proven much use to younger and smaller companies, which are often those in most need of third-party finance as they lack the revenue to provide investment capital. Those companies represent a large portion of the qualified projects.
"We can't use the money," said Noel Davis, chief executive of Vela Gear Systems Inc., citing a lack of earnings. His company qualified to receive an $11.6 million tax credit toward constructing a factory in Indianapolis to make wind turbine components.
Still, tax credits under the program can be claimed over five years, and the White House said in January that it expected only 30% of qualifying projects selected to be complete in 2010.
Large companies such as United Technologies Corp.'s (UTX) Pratt & Whitney and Hemlock Semiconductor said they are claiming part of their credits this year for new manufacturing added over the course of 2010. Amonix Inc., a Seal Beach, Calif.-based solar-panel maker backed by venture investors, is also planning to claim part of its tax credit this year, according to Chief Executive Brian Robertson.
Other companies willing to take advantage of the tax credits haven't been able to find tax-equity investors. Those investors, traditionally a mainstay of renewable-energy investment, provide capital in return for the credits, which they use to offset their own tax liabilities.
Sunnyvale, Calif.-based Calisolar Inc. qualified for a $51.6 million tax credit to expand a factory making silicon, the base material out of which solar cells are made. It aimed to use the tax credit to reach 200 megawatts of annual production by the end of the year, but will only get to 75 MW, said Chief Financial Officer John Beaver.
The solar start-up has searched for tax-equity investors but has come up empty so far, according to Beaver. So far, Calisolar has been using its venture-capital investors to fund the expansion. "It's getting to the point where they've got a lot invested. You start getting into the issues of concentration of portfolio risk," said Beaver.
Another company, AE Polysilicon, also will have to wait until it becomes profitable to use the $44.9 million in tax credits for which it qualified. "At this early of a stage for our company it is not going to make a difference," said Leo Tsuo, spokesman for AE Polysilicon. The company is commissioning a plant in Fairless Hills, Pa., for the manufacture of polysilicon. The company also applied for another federal program, called the 1705 Loan Guarantee Program, which provides low-cost loans to manufacturers.
"We've spent thousands on the due diligence for this loan guarantee, but the bar keeps getting raised higher and higher," said Tsuo.
Tsuo noted the contrasting experience of competitor China-based LDK Solar Co. (LDK), which said in September that it received a credit facility worth up to $8.9 billion from China Development Bank. "It still blows my mind to this day," said Tsuo.
Some manufacturers say that U.S. policy has favored subsidies on renewable-energy production over job creation at the manufacturing level, as shown by the recent extension of another program from the American Recovery and Reinvestment Act that provides cash grants to energy producers.
Extending the cash grant program "is a clear win. But if the U.S. doesn't remain competitive in manufacturing, we'll be subsidizing panels that are made in Asia or made in Europe," Tsuo said. AE Polysilicon's investors include the French energy company Total SA (TOT) and India's Motech Industries Inc. (6244.OT)
"Of course they'll be looking at AE Polysilicon as sort of a case study. What is it like to do business [in the U.S.] and how stable is the policy?" said Tsuo.
(Dow Jones VentureWire covers news about venture capital investing and start-up companies.)
-By Yuliya Chernova, Dow Jones VentureWire; firstname.lastname@example.org