Concerns are mounting that a key cash incentive programme for US renewable energy projects could lapse at the end of this month unless Democrats and Republicans reach a deal to extend the scheme.

Observers reckon the chances of an agreement being reached are receding after Republicans, emboldened by their victory in last month’s mid-term elections, signalled they were unwilling to support the passage of legislation during the current “lame duck” Congressional session unless Democrats bow to demands for a full extension of Bush-era tax cuts.

The impasse threatens the future of the Investment Tax Credit (ITC) Grant scheme, which was introduced as part of the 2009 US stimulus package and offers developers of wind, solar and other renewable energy projects grants worth up to 30 per cent of development costs.

Many projects across the country, including a wave of large-scale solar thermal plants in California, are now racing to break ground before the end of the year to qualify for the incentive.

Meanwhile, renewable energy groups are stepping up lobbying efforts, calling on senators to find a way to extend an incentive that has allowed renewable energy developers to move forward with projects despite tightening credit conditions.

The campaign to extend the ITC received a short-lived boost late last week when Democrat senators Max Baucus and Harry Reid included proposals to extend a reformed version of the grant scheme by one year to the end of 2011, in a wide-ranging tax bill that also proposed extending tax cuts for anyone earning less than $200,000 (£126,000) a year.

The bill failed to secure the 60 votes required to overcome a Republican filibuster, although renewable energy groups hope that elements of the bill could still be passed alongside alternative legislation.

The wide-ranging tax bill also included proposals to provide an extra $2.5bn to the advanced manufacturing tax credit scheme for clean tech manufacturers and attempted to broker a compromise on tax breaks for ethanol producers, promising to reduce current incentives by about 20 per cent while resisting calls from some senators to scrap the scheme altogether.

The proposals were welcomed by the Renewable Fuels Association (RFA), which said that the reforms to the tax credit system would provide market stability while efforts to improve biofuel policy continue. “Continuing to invest in a domestic ethanol industry will help save the jobs of tens of thousands of Americans in the short term and provide the catalyst for the commercialisation of new biofuel technologies into the future,” added RFA president and chief executive Bob Dinneen.

However, with a number of senators fiercely opposed to an extension of ethanol tax breaks that they regard as ineffective and potentially harmful, and Republicans apparently committed to blocking all legislative action until the next Congress forms in the new year, fears are mounting that a number of crucial green incentives will lapse at the end of the month.