With the U.S. Treasury Department’s Section 1603 cash grant for renewable-energy projects set to expire at the end of 2011—and chances for its revival look- ing tentative at best—developers are racing to ensure they can capitalize on the program.

The 1603 cash-grant program, established by the American Recovery and Reinvestment Act of 2009, provides a direct 30 percent project subsidy in lieu of a tax credit. It has been a hugely popular program, pro- viding renewable-energy developers with $9.6 billion in funding for nearly 23,000 projects since its inception.

Many developers were striving to qualify for the cash grant by satisfying a requirement that construction of a project commence by year’s end. But with the clock ticking down, focus has shifted to the program’s “safe harbor” provision, which allows applicants who incur 5 percent of project costs prior to the end of 2011 to qualify.

What that means is that developers are taking delivery on sizeable purchases of equipment and “specified energy property” during the final days of 2011, so projects that are still on the drawing board can qualify for the cash grant even though construction may not begin for several months.

“What they’re doing is buying as much solar equipment as possible this year,” observed Keith Martin, a partner at Chadbourne & Parke who specializes in renewable-energy project financing.

The rush has triggered an uptick in business for the solar industry in particular.

Solar developers have until 2016 to place their projects in service, while wind projects must be placed in service by 2012 to qualify.

“Indeed, SunPower is negotiating agreements with customers to deliver reliable, high-efficiency SunPower technology, which will enable them to take advantage of the 1603 incentive,” said Howard Wenger, president of solar-panel manufacturer SunPower.

Gary Gerber, CEO of turnkey solar-project developer Sun Light & Power, said his company’s business has been very brisk in recent weeks. Customers who have been on the fence about moving forward with solar projects are signing binding contracts so they can qualify for the cash grant.

 “A lot of our clients are taking delivery of equipment,” Gerber said. “The end of the 1603 is a huge boon for business.”

Adam Capital, a provider of short-term bridge loans to smaller solar developers who use the 1603 cash grant as collateral, is lending money to a select group of solar-leasing companies so they can purchase safe-harbor-designated energy equipment. The sup- plies will be warehoused and used in projects over the next 12 to 18 months.

Adam Boucher, the company’s founder, said the advance purchase of solar panels, solar hot-water heaters and associated equipment is like buying an insurance policy, as it guarantees continued cash-grant benefits.

“We find the pre-investment to be an insurance policy,” Boucher stated. “It allows us to continue turning the crank on our business model.”

Boucher noted that the cash-grant program does not require that projects be specified in advance, only that the safe-harbored assets account for at least 5 percent of a project’s total costs. So, even if a planned rooftop solar project falls through, the solar panels can be used for another project.

Companies are relying on lawyers and accountants to ensure all the require- ments of the cash-grant program are met. Some rules are still evolving.

Recently they have been seeking guidance from the Treasury Department on a number of issues, including under what circumstances equipment, projects and companies (LLCs) can be transferred. “Those transfers could cause loss of eligibility,” Martin explained.

Martin also said companies have raised questions about eligibility for a provision that allows a developer to pay for equipment this year and count the spending as a 2011 cost, but take delivery in 2012, up to 3.5 months after the payment.

Last December, Congress extended the 1603 cash-grant program, initially slated to end Dec. 31, 2010, for another year. On Nov. 30, hundreds of renewable- energy trade associations and businesses sent a letter to congressional leaders urging them to provide for another 11th-hour extension.

The letter notes that the circumstances that served as the impetus for the cash-grant program—difficult economic conditions and a dearth of tax-equity investors for renewable-energy projects—have not changed much.

“The tax equity market modestly improved in 2010, but still has not recovered to pre-recession activity,” the letter states.

This week House and Senate Democrats, along with a few Republicans, sent their own letters to party leaders. A Dec. 7 letter from House members states that “allowing the 1603 Treasury Grant Program to lapse would eliminate tens of thousands of jobs across all clean energy industries.”

But Hill observers remain skeptical that the cash grant will be extended again, given the political cli- mate in Washington. They say with a presidential election coming, anything associated with President Barack Obama faces an uphill battle.

“Right now it’s hard for the renewable-energy agenda to advance,” said Martin. “It’s basically gridlock through to the 2012 election."

If the cash-grant program is not renewed, there is still optimism that even small renewable-energy developers will find ways to take advantage of invest- ment or production tax credits, whether through the bundling of projects to attract tax-equity partners or other means.