On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA), which aims to strengthen the economy as well as promote green energy technology. The bill made available over 42 billion dollars for renewable and clean technology related programs, including 22 billion in energy-related tax incentives for projects utilizing favored clean technologies. Following are these tax benefits, as well as details surrounding the Loan Guarantee Program and current funding opportunities.

Tax Benefits and Incentives

Extension of Bonus Depreciation. In 2008, Congress temporarily allowed businesses to recover the costs of capital expenditures faster than the normal depreciation schedule would allow. Businesses were allowed to immediately write-off fifty percent of the cost of the depreciable property that was acquired in 2008 for use in the United States. The ARRA extends this benefit to qualifying property placed in service in 2009. For the case of property with a one year or longer production period and over $1 million in costs, it is extended through 2010.

Advanced Energy Investment Credit. ARRA establishes a new 30% investment tax credit for re-equipping, expanding, or establishing facilities that manufacture advanced energy property. It must be applied for through a competitive bidding process to receive an allocation of credits from the Secretary of Treasury in conjunction with the Secretary of Energy. Advanced energy property includes technology for renewable energy production and storage, as well as energy conservation, carbon capture and sequestration, and efficient electricity transmission and distribution. The Treasury has 180 days from the date of enactment to establish the program and can allocate up to $2.3 billion in credits.

Extension and Modification of Renewable Energy Production Tax Credit (PTC). The ARRA extends the production tax credit for wind facilities for three years, through December 2012. It also extends the production tax credit for three years, through 2013, for other qualifying facilities, including closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy, and marine renewable facilities. This credit is considered to be vital for developers of production facilities and the extension provides assurance that the credit will be available once developers reach production.

Temporary Election to Claim Investment Tax Credit (ITC) in Lieu of Production Tax Credit (PTC). Currently, facilities that produce electricity from solar are eligible for a thirty percent ITC in the year the facility is placed in service (2009-2012). Facilities that produce electricity from wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy, and marine renewable facilities are eligible for a PTC, payable over a ten-year period. The ARRA allows these facilities to now claim the ITC in lieu of the PTC if the facility is placed-in-service 2009-2013.

Cash Grants in Lieu of Tax Credits. Currently, taxpayers can claim a PTC for electricity produced by certain renewable energy facilities, and an ITC for certain renewable energy property (see above). The ARRA allows taxpayers to receive a grant from the Treasury Department in lieu of tax credits. The grants will operate like the current-law investment tax credit, reflecting an amount equal to thirty percent of the cost of the renewable energy facility. It will be paid within sixty days of the facility being placed in service or within sixty days of the Treasury receiving the grantapplication. Eligible facilities include fuel cell, solar, small wind, combined heat and power, and geothermal heat pump. The facility must be place-in-service in 2009 or 2010 or, if construction begins in 2009 or 2010, before the applicable placed-in-service deadline.

Repeal of Subsidized Energy Financing Limitation on the Investment Tax Credit (ITC). Current law states that the ITC must be reduced if the qualifying property is also financed with industrial development bonds or through any other Federal, State, or locally subsidized program. The ARRA repeals this limitation on the ITC so that businesses can qualify for the full amount of the ITC.

Removal of Dollar Limit on Wind Energy Credits. Current law states that businesses are allowed to claim a 30% tax credit for qualified small wind energy property, capped at $4,000. The ARRA repeals this cap, making these properties eligible for an uncapped thirty percent credit.

Loan Guarantee Program

In addition to numerous benefits and tax incentives for the renewable energy industry, the ARRA also allocates tens of billions of dollars in loan guarantees to support a green energy economy. These funds, to be allocated by the Department of Energy (DOE) Loan Guarantee Program, guarantee funding for renewable energy projects and manufacturing that are rapidly installed. Though their authority to make the loan guarantees expires on September 30, 2011, the ARRA has improved the existing program, making the loans more accessible.

Prior to the ARRA, a project only qualified if it utilized new or significantly improved technology. Under the ARRA, a project currently employing the technology is eligible. Eligible projects include:

1. existing commercial technologies in wind/solar/geothermal
2. commercial projects that manufacture components related to renewable energy generation
3. electric power transmission systems, including upgrading and reconducting projects
4. pilot and demonstration scale biofuels projects that are likely candidates for full commercial use as transportation fuels.

The conditions for each project are that it must (1) commence construction before September 30, 2011, and (2) comply with the Davis Bacon Act in establishing wage rate requirements for federal-like construction projects.

The ARRA resolves another issue of the existing program which is the payment of credit subsidy cost for guaranteed projects. It used to be that applicants were required to pay a subsidy fee which supported the cost of potential defaults. Now, the ARRA has appropriated $6 billion dollars to cover these costs, eliminating the up-front fee that loan applicants previously had to pay.

The ARRA’s updates to the Loan Guarantee Program come at a critical time. With available equity having diminished greatly in the wake of the recession, the DOE’s temporary Program provides a promising method to finance clean and renewable energy projects. The $6 billion in funds will guarantee $60 billion in new loans.

The Program does have some restrictions regarding the allocation of that $60 billion. No more than $500 million may be used for biofuel projects. Also, in reviewing electric transmission project applications, the DOE may consider: (1) the viability of the project without the guarantee; (2) the availability of other federal or state incentives; (3) the importance of the project; and (4) the effect of the project in meeting energy and environment goals, including climate change.

The DOE is aiming to begin offering the funds in early summer. Energy Secretary Steven Chu has stated that he intends to implement changes in his department to more effectively administer the loan guarantees, including streamlining and simplifying the loan application paperwork. He also explained that applications will be reviewed on a rolling basis as they are submitted, rather than after the application deadline, to expedite the process.

On March 20, 2009, Solyndra, Inc. received the first loan guarantee to be supported through ARRA. The $535 million dollar loan will support the company’s construction of a commercial-scale manufacturing plant for its cylindrical solar photovoltaic panels.

Renewable Energy Funding Opportunities

Geothermal
(1) Advanced research and development projects that will develop innovative technology for the cost-effective creation, management, and utilization of EGS in reservoir environments. Total funding for this award could equal $10 million in 2009, with an additional $25 million in 2010 and 2011. DOE anticipates making 20 to 30 awards under this FOA. Applications are due on April 30, 2009.

(2) Demonstration projects that will demonstrate and validate reservoir creation techniques that sustain sufficient fluid flow and heat extraction rates for five to seven years and produce at least 5 MW per year per project. Awards made under this FOA will be cooperative agreements requiring a 50% cost share from the applicant. Total funding for this award could equal $10 million in 2009, with additional funding of up to $39 million from 2010 to 2014. DOE anticipates making five to ten awards under this FOA. Applications are due on May 14, 2009.

Biofuel
(1) Integrated biorefinery projects to validate biofuel production technologies that employ various combinations of feedstocks and conversion processes. (See FOREcast Vol. 2). That FOA was designed to address the high technical risks associated with converting biobased feedstocks to biofuels (as opposed to converting feedstocks to heat and power). Integrated biorefineries qualifying for funding would produce, as their primary product, a liquid transportation fuel that would support the renewable fuels standards of the Energy Independence and Security Act of 2007.

On March 11, 2009, DOE extended the project’s eligibility to any feedstock that is an "acceptable feedstock" if the primary product is an "advanced biofuel." The modification also states that a project must plan to use at least one domestically available, high impact, lignocellulosic, or algae feedstock for a commercial-scale project.

DOE seeks to award up to $40 million for these projects and is particularly interested in applications that propose novel or breakthrough technologies and include collaboration between and among industry, academia, and government- funded facilities. The deadline for submitting an optional letter of intent is March 20, 2009, and the application deadline is May 29, 2009.

Electric Drive Vehicles
(1) Establish development, demonstration, evaluation, and education projects to accelerate the market introduction and penetration of advanced electric drive vehicles. DOE’s goal is for the vehicles and electric technologies to achieve a fast market introduction and high volume production, substantially reducing petroleum consumption. One of the electric drive technologies that will be emphasized in this project are Plug-in Hybrid Electric Vehicles (PHEV), which directly supports the President’s goal to Get One Million Plug-In Hybrid Cars on the Road by 2015. Furthermore, advanced electric drive technologies will allow manufacturers to meet increased fuel economy standards while reducing vehicular emissions of greenhouse gases. The applications are due on May 13, 2009.

(2) Support the construction (including production capacity increases of current plants) of U.S.-based manufacturing plants to produce batteries and electric drive components for use in advanced vehicles, including electric drive vehicles (EDVs). The FOA contains multiple "Program Areas of Interest" including (1) cell and battery manufacturing facilities, (2) advanced battery supplier manufacturing facilities, (3) advanced lithium ion battery recycling facilities, (4) electric drive component manufacturing facilities, and (5) electric drive subcomponent manufacturing facilities. DOE is also interested in applications that combine certain of these Areas of Interest in one project. Approximately $2 billion total in federal funds is expected to be available for new awards under this announcement. The applications are due on May 19, 2009.

Carbon Capture & Storage
Four separate FOAs for improving the techniques used to clean or capture and store the emissions from coal-fired power plants and other heavy industrial sources:

1. Geologic Sequestration Training and Research;
2. Carbon Capture and Sequestration from Industrial Sources;
3. Site Characterization of Promising Geologic Formations for CO2 Storage;
4. Amendment to Re-Open the FOA "Clean Coal Power Initiative- Round 3."

Other Incentives

In addition to the numerous federal tax incentives, state and local jurisdictions have also aggressively pursued the alternative energy industry. Thousands of varying local tax incentive opportunties may be available. For more information or assistance in identifying and capturing potential incentives for your business, please contact William Mueldener with our credits and incentives practice at wmueldener@heincpa.com or 303.298.9600.

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