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Solar Energy Tax Credit May Be Saved By Washington Gridlock

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By Rory Carroll

SAN FRANCISCO, Sept 28 (Reuters) - A stalemate in Washington next year over tax reform could help solar developers by preserving the 30 percent investment tax credit for solar projects until it expires at the end of 2016.

Regardless of who wins the Nov. 6 U.S. presidential election, Congress is expected to target tax loopholes and government subsidies as part of an effort to rein in federal spending and cut the deficit.

But an agreement between Democrats and Republicans is not expected to come easily, and an impasse could keep the ax away form the tax credit.

"It's one of those unusual situations where the gridlock that prevails around Congress could actually work to our benefit," Paul Detering, chief executive of San Francisco-based solar project developer Tioga Energy, told the Renewable Energy Finance Forum conference in San Francisco on Thursday.

The tax credit allows buyers of residential and commercial solar systems to reduce their tax bills by 30 percent of the cost of a new solar energy system. Because of the hefty upfront cost of buying a system, the U.S. solar industry relies heavily on this incentive, and others at the state level.

But while Congressional deadlock could help preserve the tax credit, breaching of the "fiscal cliff" on Jan. 1 would result in automatic cuts to some programs. If this happens, government payouts to solar projects assisted by a U.S. cash grant program would automatically be cut almost 8 percent, dealing a blow to projects expected to come online next year.

Any cut to the cash grant program "would be very disruptive to the industry," said Arno Harris, CEO of solar project developer Recurrent Energy, a unit of Japan's Sharp Corp .

Nat Kreamer, CEO of Clean Power Finance, a startup that helps solar installers access financing, said that even an in-depth discussion on Capitol Hill about ending the tax credit would hurt development of solar projects.

"The most important thing is consistent tax incentive policy, and right now the solar industry has that through 2016," Kreamer said. "Comprehensive tax reform might open the book on everything, which would create uncertainty in the solar investment market. Uncertainty leads to slowdowns in the industry and that would be very unfortunate," he said.

Republican lawmakers branded the Obama administration's green incentives a waste of public money after Solyndra, the California-based solar panel manufacturer that received a $535 million government loan guarantee, filed for bankruptcy in September 2011.

But many in the industry believe any threat to the tax credit is remote.

"Despite a year-long, concerted effort to attack solar, the American people haven't been fooled," said Recurrent Energy's Harris.

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