Domestic demand for solar, wind, and other renewable energy resources has grown rapidly over the past few years, and faster growth is anticipated in the near future. Despite the turmoil in the financial markets, the Cleantech Group recently reported that preliminary 2008 results for clean technology venture investments in North America, Europe, China, and India totaled a record $8.4 billion, up thirty-eight percent (38%) from $6.1 billion in 2007. Integrated energy management systems, smart grids, and energy efficiency are expected to play a key role in generating green jobs and enhancing transmission infrastructure in 2009 and moving forward.

The American Recovery and Reinvestment Act of 2009 (ARRA) provides a number of new incentive programs that are intended to encourage accelerated commercialization and deployment of renewable energy resources and other innovative energy technologies. In addition, a significant goal of ARRA is the development of a smarter power grid (in part through modernization of the existing electric transmission system) as well as retrofitting buildings with an eye on energy efficiency. ARRA offers investors considering investments in cleantech – including research, development, and manufacturing relating to renewable energy, advanced energy technologies, and energy efficiency and conservation – several benefits that can enhance the return on such investments. These are discussed in more detail below.

GRANTS AND LOAN GUARANTEES

  • Advanced Battery Manufacturing Grants.1 ARRA provides $2 billion to the Department of Energy (DOE) to support the manufacturing of advanced vehicle batteries and components.
  • Fossil Energy Research and Development. ARRA extends, until September 30, 2010, the availability to DOE of $3.4 billion for fossil energy research and development, including but not limited to: (i) $1 billion for fossil energy research and development programs; (ii) $800 million for additional amounts for the Clean Coal Power Initiative Round III Funding Opportunity Announcement; (iii) $1.520 billion for a competitive solicitation for a range of industrial carbon capture and energy efficiency improvement projects, including a small allocation for innovative concepts for beneficial CO2 reuse; (iv) $50 million for a competitive solicitation for site characterization activities in geologic formations; (v) $20 million for geologic sequestration training and research grants; and (vi) $10 million for program direction funding.
  • Grants for Smart Grid Investments. ARRA provides $4.5 billion to DOE's Office of Electricity Delivery and Energy Reliability for activities to modernize the electric grid, including a program to provide matching grants up to fifty percent (50%) of the costs of qualifying smart grid investments in urban, suburban, tribal, and rural areas, including areas where electric system assets are controlled by non-profit entities and areas where electric system assets are controlled by investor-owned utilities. DOE is required to initiate the matching grant program within sixty (60) days of the enactment of ARRA.
  • Department of Energy "Rapid Deployment" Renewable Energy and Transmission Loan Guarantees. ARRA   includes $6 billion in "rapid deployment" loan guarantees for both renewable energy power generation and electric transmission projects. Recipients must be entities borrowing to develop/construct projects using current commercial technology for: (i) renewable energy systems, including incremental hydropower facilities, systems that generate electricity or thermal energy, and facilities that manufacture related components; (ii) electric power transmission systems, including upgrading and re-conductoring projects; and (iii) leading edge biofuel projects that will use technologies performing at the pilot or demonstration scale that the Secretary of DOE determines are likely to become commercial technologies and will produce transportation fuels that substantially reduce life-cycle greenhouse gas emissions compared to other transportation fuels. Construction on such systems must commence not later than September 30, 2011. The $6 billion in appropriated funds is expected to support more than $60 billion in loans for these projects. Loan guarantees for leading edge biofuel projects are limited to $500 million.2

TAX PROVISIONS

  • Advanced Energy Project Credits. ARRA provides for a new thirty percent (30%) investment credit for qualifying advanced energy projects similar to the investment tax credit for available for solar property. A qualifying advanced energy project means a project that re-equips, expands, or establishes a manufacturing facility to produce the following equipment: renewable energy systems (including solar, wind, and geothermal), fuel cells, micro-turbines, electric car/hybrid batteries, electric grids to support the transmission and storage of intermittent renewable energy, carbon capture and sequestration property, property for refining/blending renewable fuels, energy conservation technology property (including smart grid technologies), plug-in electric vehicles and related components, and other advanced energy property designed to reduce greenhouse gas emissions. 
  • Three-year Extension of Section 45 Production Tax Credits. ARRA extends the placed-in-service date for wind facilities through December 31, 2012 for purposes of qualification for the Section 45 production tax credit (10-year credit of 2.1¢/kWh in 2008). For closed-loop biomass, open-loop biomass, geothermal, landfill gas, waste-to-energy, hydropower facilities, and marine renewable facilities, the corresponding extension is through December 31, 2013.
  • Availability of Investment Tax Credits for Wind and Other Production Tax Credit-type Technologies. Under current law, the Section 48 investment tax credit is thirty percent (30%) of the basis of qualifying solar, fuel cell and small wind property, and ten percent (10%) for other qualifying property, and is claimed in the year the property is placed in service. By contrast, the Section 45 production tax credit is claimed over a 10-year period based on the amount of electricity produced and sold. ARRA allows certain Section 45 PTC-type facilities (i.e., wind, closed loop biomass, open-loop biomass, geothermal, landfill gas, waste-to-energy, hydropower, and marine facilities) to elect to claim the Section 48 ITC in lieu of the PTC. The election can be made for wind facilities that are placed in service between 2009 and 2012, and other qualifying Section 45 PTC facilities that are placed in service between 2009 and 2013  
  • Elimination of Subsidized Financing Reduction for Section 48 Investment Tax Credits. Under current law, the Section 48 investment tax credit must be reduced if the property qualifying for the credit is also financed with tax-exempt private activity bonds or through any other federal, state, or local subsidized financing program. ARRA eliminates this limitation.

If you have any questions or would like to know more about how to apply for grants and loan guarantees, or how to qualify for credits please contact Patrick R. Gillard (gillard@ballardspahr.com, 215.864.8536), or Charles S. Henck (henck@ballardspahr.com, 202.661.2209)

ARRA makes the Davis-Bacon labor standards, requiring generally that prevailing wages must be paid on public works projects, applicable to projects funded directly by or assisted in whole or in part by and through the Federal Government under ARRA. 

ARRA makes the Davis-Bacon labor standards, requiring generally that prevailing wages must be paid on public works projects, applicable to projects supported by these loan guarantees.


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