The American Recovery and Reinvestment Act contains a host of provisions meant to help renewable and conventional developers.
Key among these are an extension of the production tax credit, new uses for investment tax credits and grant programs for qualifying projects. These target renewable energy projects.
Also included is money for carbon capture and storage projects, a potential boon for fossil-fired generation. Largely absent from the stimulus act is money for natural gas-fired generation and nuclear.
Altogether, the act includes nearly $50 billion for energy-sector projects, including transmission and distribution projects as well as power generation. Click here to visit the Obama administration's Web page for the American Recovery and Reinvestment Act
Among the highlights:
• Extension of the federal Production Tax Credit (PTC) sunset date: The act extends the placed-in-service sunset date for wind projects through 2012. It extends the placed-in-service sunset dates for closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash, hydropower and marine and hydrokinetic renewable energy facilities through 2013.
• Option to claim the Investment Tax Credit (ITC) in lieu of the PTC: The act permits a taxpayer to claim the ITC in lieu of the PTC for wind, closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash, hydropower and marine and hydrokinetic renewable energy facilities placed in service from 2009 through 2013 (through 2012 for wind). The ITC amount generally is 30 percent of qualifying costs.
• Grants in lieu of the ITC: The act permits a taxpayer to receive a grant from the U.S. Treasury in lieu of claiming tax credits with respect to certain property placed in service in 2009 or 2010 that otherwise would qualify for the ITC or the PTC. Property placed in service after 2010 and on or before the applicable credit termination date could qualify for the grants, but only if construction begins this year or next.
• Modifications to the ITC: The act eliminates an ITC reduction for property financed by subsidized energy financing or tax-exempt private activity bonds and placed in service after 2008.
• Advanced Energy Property Credit: The act creates a 30 percent credit for investment in certain property used in a "qualifying advanced energy manufacturing project." Likely to benefit are projects that re-equip, expand or establish a manufacturing facility to build components used in solar, wind, geothermal or other renewable energy production. Also included are fuel cells, microturbines and a variety of energy storage systems.
Other energy measures include:
• Authorizing an additional $1.6 billion of clean renewable energy bonds (CREBs) and $2.4 billion of qualified energy conservation bonds
• Extending through 2010 the placed-in-service sunset date for nonbusiness energy property
• Removing certain caps for nonbusiness energy property and residential energy credits
• Modifying the carbon dioxide capture and sequestration credit
• Increasing caps on the alternative fuel vehicle refueling property credit
• Modifying current credits and creating new credits for plug-in electric vehicles.
Stimulus money will flow from several federal agencies as well as in the form of block grants to individual states. For example, fhome weatherization, community development block energy grants and job training assistance will flow through the states.
"A lot of this is still being worked out," said Michael Zimmer, an attorney with Thompson Hine LLP. He said the Department of Energy and Department of Housing and Urban Development are moving forward "pretty efficiently" with disbursement plans. By contrast, the Department of Agriculture is still mulling over how they're going to approach it.
Tax Credits for Renewables
In one change affecting the renewable investment tax credit, the act ends reduction of the ITC for property financed by subsidized energy financing or tax-exempt private activity bonds. The provision allows companies to claim the ITC instead of the PTC and receive a grant instead of a tax credit.
Dennis Loria, president of Loria Emerging Energy Consulting, said the modifications will help developers obtain funding in different ways.
"Instead of getting tax credits and needing investors who can use them, you can get a government grant," Loria said.
The immediate affect on the industry has been a sense that projects that are ready to go will be able to find the money to get them started, he said.
"These provisions have added a lot more in terms of being able to get projects done in difficult times. The credit crisis was affecting everything, so people feel that there's a lot of opportunities to get projects financed," Loria said.
Greg Jenner, partner with Stoel Rives LLP, which specializes in energy law, said the renewable tax credit provisions mean developers could get credit for their project up front instead of only at the back end of a project.
"Under the old law where you just had the PTC, you had to have an investor with tax liability because tax credits like the PTC can only be used to offset tax liability," Jenner said.
The number of investors with tax liabilities was shrinking due to the credit crunch. He said the recovery act will likely succeed in loosening up capital for new projects. The prospect of more freely flowing capital has some developers ready to begin new projects, he said.
The act extended DOE authority to issue project loan guarantees and targeted $6 billion for the program. Under the act, DOE has until September 30, 2011 to enter into guarantees. Eligible projects include renewable energy projects and facilities "that manufacture related components, electric power transmission systems and innovative biofuels projects." Funding for biofuels projects is limited to $500 million.
Loria said expanding the DOE loan guarantee program is important, but projects will need quick approval to proceed.
"For a lot of developers who have commercial technologies that they are ready to put into place today, the DOE loan process is a long process," Loria said. In some cases, the application process can take up to a year. "The government has to do something to speed up that process for it to be more useful for people."
Doug Houseman, chief technology officer for Capgemini's global utilities practice, said companies won't attempt to get credit this way unless they feel their project is "green enough," suggesting loan guarantees will not go to fossil-fired projects.
Clean Coal
David Walls, director of Navigant Consulting, said the Advanced Energy Property Credit, which provides a 30 percent credit to projects including clean coal, could be useful for developing, testing and proving advanced coal-fired technologies, including carbon capture and sequestration (CCS). Around $3.4 billion is earmarked for CCS demonstration projects.
"The provisions for clean coal seem fairly significant, but relative to some of the challenges that exist to develop lower emission coal through gasification or CCS projects, I think it's going to take a lot more investment," Walls said.
Lynn Bertuglia, managing director of energy management solutions with Black & Veatch, agreed with Walls, saying many unresolved problems remain with advanced coal technologies.
"There's enough money in there for a couple of CCS projects. Carbon capture raises the cost of generation so much that you can't solve the problem by supporting projects to capture carbon," she said. Bertuglia called for more money to be invested in a carbon cap-and-trade program to put a cost on carbon and level the playing field for low- or no-carbon technologies.
Walls said the act contains no direct provisions for the natural gas sector, but questioned whether such aid would have been warranted.
"Some would argue that they might not need the help that some others need. The reality is gas, from an economic standpoint, will be one of the most promising options for new generation projects," Walls said.
Nuclear Loses Out
Loria said some other sectors were let down by the absence of money for their industries in the act.
"I think the nuclear industry is the loser on this," Loria said. "Coal is a more acceptable native fuel for the U.S. than nuclear, but it still obviously has some drawbacks, which are carbon emissions. If we develop technologies to solve that problem, then we can make more use of that fuel source."
Walls said some of the most meaningful parts of the act could be the measures that concern energy efficiency.
"Energy efficiency will impact the demand for new power plants and that may be one of the more significant energy provisions in the stimulus. It will decrease the need for increasing capacity in plants going forward," Walls said.
Also, the Advanced Energy Investment Credit includes mention of energy storage. Up to $2.3 billion in energy tax credits could have a major effect on developing such advancements, he said.
Energy storage is one area that could see increased attention in coming years. Advanced batteries would be used in tandem with wind and solar, Walls said, adding that storage advancement could help resolve the problem of intermittency with wind and solar generation.
Jenner said the act's renewable tax credit provisions have created a buzz in the industry that wasn't there before. The year-to-year extensions of the tax credits, the tightening effect on credit because of the recession and the uncertainty of a new presidential administration were all factors that worried the industry.
"The renewables industry was in the doldrums," Jenner said. "But now you can just feel these companies are saying, 'Now is the time.'"
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