OAKLAND, Calif. -- The Energy and Treasury departments released eagerly
awaited guidance Thursday to help renewable energy project developers apply for
roughly $3 billion in stimulus funds, which experts say will open the market to
many technologies that weren't economically feasible before.
The
American Recovery and Reinvestment Act offers project developers the option
of taking tax grants in lieu of tax credits, which became less useful when the
economic downturn shrank tax liabilities and tight credit made it difficult, if
not impossible, to secure financing.
The departments released the
guidance, terms of conditions and a sample application, although
applications won’t be accepted until next month. The rules are a major step that
will spur private sector investment in clean energy and move the U.S. closer to
President Barack Obama’s goal of doubling renewable energy capacity in three
years, according to Matt Rogers, a Department of Energy (DOE) senior advisor
charged with implementing ARRA funding.
“By getting these rules out there and making it clear how to apply we’re hoping
this will bring that private capital back from the sidelines and into the market
quickly,” Rogers said during a conference call with reporters Thursday.
The tax grants will offset between 10 percent and 30 percent of the project’s
cost, depending on the technology type. Construction must begin by the end of
2010 and the projects must be placed into service by 2017 at the latest for
certain types of technologies. The Treasury Department expects the program will
benefit some 5,000 projects, and seems ready to boost funding from an estimated
$3 billion if demand warrants an increase.
Under this temporary program, developers who previously qualified for the
production tax credit can now opt for the investment tax credit, which is based
on the cost of the project, not the amount of electricity to be generated. Those
eligible to claim the investment tax credit may then elect to receive a direct
payment, rather than having the credit paid over 10 years and based on the
amount of electricity generated. Cash grant recipients must agree to give up
future tax credits.
The program allows project developers to structure transactions in a different
way, according to Minneapolis-based attorney Greg Jenner. Previously projects
eligible for the production tax credit secured financing from large banks and
other institutions carrying big tax liabilities, which made them interested in
investing in green power projects to take advantage of the tax credit benefit.
Many projects stalled when the tax equity market dried up in late 2008 but now
the cash grant takes the place of the tax equity financing.
“All of a sudden because the government is providing the equity, these deals can
get done with debt now,” Jenner said. “It opens up a range of opportunities.”
Jenner, a partner with
Stoel Rives law firm, has several clients around the country with
shovel-ready projects who have been waiting for the details of this program to
be released, he said, adding that some wind developers are “chomping at the
bit.”
The tax grant program has opened the market to many renewable energy
technologies that may not have been economically feasible before, according to
John Gimigliano, a principal in charge of
KPMG’s energy sustainability tax practice.
“I call it the democratization of the production tax credit,” Gimigliano said.
Biomass, in particular, can be characterized as a winner in the program, both
men said. Previously, biomass received half the credit as solar and wind, but
under the tax grant program, its credit increased to 30 percent.
“Biomass has gone from the poor stepchild to equal with the others,” Jenner
said.
Gimigliano has a client that previously would’ve been too small to secure tax
equity financing to turn its biomass into electricity. It would have instead
used its biomass for other purposes but now is reconsidering since the
government will offset 30 percent of the project.
Although projects must meet size thresholds to qualify for the grants for
certain technologies, other projects, such as solar, can be of any size. There
could be lots of small-scale or distributed generation projects launched "at a
scale we haven’t seen before,” Gimigliano said.
The guidance removes much of the uncertainty surrounding the program. “Treasury
has come up with a set of rules that will make it as easy as possible for people
to get this grant,” Jenner said. “Now that lenders know it’s going to be a piece
of cake, they now know what they can lend against.”
The Treasury and Energy departments aim to issue the cash grants within 60 days
of receiving completed applications, but they could receive more applications
than they expect. If there is a flood, applications may not receive an
exhaustive review, Gimigliano said, although he does expect the program to
receive a certain amount of scrutiny on the back end. Previously, the Internal
Revenue Service audited tax credit recipients, but he said it’s unclear if the
agency will continue doing so or if the Treasury or Energy departments will
assume the responsibility.
“Getting the money will be easy part,” Gimigliano said. “The challenge may be
keeping all of it (on subsequent audit by the federal government).”