Stimulus Law Provides Billions to Support an Array of Energy Programs

February 16, 2009


Tomorrow President Obama will sign into law the American Reinvestment and Recovery Act, the highly anticipated, $787.2 billion economic stimulus package. Significantly, the law provides close to $70 billion in funding and tax benefits for energy-related investments. Some provisions strengthen existing programs by expanding the eligibility criteria and/or providing additional funding. Other provisions extend the length of existing programs and tax benefits, or create entirely new funding programs or benefits.

Companies in the energy or transportation industries, companies that offer energy-efficiency solutions, companies that rely on energy-intensive processes, or companies that invest in these industries, may wish to take advantage of these federal funds and credits. The Energy, Natural Resources and Environment Practice Group at O’Melveny & Myers can help companies (1) monitor implementing regulations, (2) determine eligibility for these programs and credits, (3) advise on tax consequences, (4) assist with drafting applications, and (5) handle the compliance inquiries and audits that are certain to follow. Please contact Charles Read, Gregory Thorpe, Todd Triller, Winston Chang, or Brian Anderson if you have any questions about these provisions.

The following are highlights of the law’s energy components.

Energy Generation and Transmission:

Renewable Energy Loan Guarantees

  • $6­­ billion in additional funding (anticipated to support up to $60 billion in loans) for loan guarantees for renewable energy systems that generate electricity, electric power transmission systems and “leading edge” biofuel projects. Will be deployed through the existing Department of Energy (“DOE”) loan guarantee that was established in the 2005 Energy Policy Act, allowing for relatively quick deployment. Unlike the existing program, however, there is no requirement that a project involve a “new or significantly improved technology,” thereby dramatically expanding eligibility. Loan guarantee agreements must be executed by September 30, 2011, but there is no deadline for when project construction must be completed. There is a $500 million cap on biofuel projects, but not for renewable generation or transmissions system projects.

Carbon Capture and Sequestration (“CCS”)

  • $3.4 billion additional funding to DOE’s Fossil Energy Research and Development Program for research, development and demonstration of CCS projects. Conference report indicates funding should be allocated as follows: $1 billion for research and development; $800 million additional funding to the Clean Coal Power Initiative Round III funding announcement (which has already closed); $1.52 billion for a competitive solicitation for a range of industrial CCS projects; $50 million for a competitive solicitation for site characterization activities in geologic formations; and $20 million for geologic sequestration training and research grants.

Smart Grid/Transmission

  • $4.5 billion for a variety of activities for upgrading, enhancing and modernizing the electricity grid. Among the activities specifically identified are installing “demand responsive equipment,” enhancing security and reliability of the energy infrastructure, energy storage research, demonstration and deployment, and facilitating recovery from disruptions to the energy supply. $100 million set aside for related worker training activities.
  • Expands the preexisting Smart Grid program under the Energy Independence and Security Act of 2007 (“EISA”) by expanding eligibility to parties other than utilities and increasing the matching fund program to provide grants for up to 50% of the qualifying Smart Grid investment (up from 20%). DOE required to publish a notice of intent to issue grants within 60 days.

Tax Incentives for Renewable Energy Production:

Qualifying Advanced Energy Project Credit

  • New 30% investment tax credit for investments in certain tangible property (excluding buildings) with respect to qualified advanced energy projects. Qualifying projects generally include the refurbishment, expansion, or establishment of facilities for manufacturing property for renewable energy; energy storage; energy conservation; efficient transmission of electricity; carbon capture and sequestration; and plug-in electric vehicles. Credit available only for projects that are certified by the Secretary of Treasury, in consultation with the Secretary of Energy, through a competitive process that takes into account commercial viability, extent of job creation, impact on greenhouse gas emissions, lead time, and other factors. Secretary of Treasury required to establish a certification process within 180 days and may allocate as much as $2.3 billion in credits.

Renewable Energy Production Tax Credit (“PTC”) and Investment Tax Credit (“ITC”)

  • Three-year extension of the PTC for electricity derived from wind facilities placed in service before January 1, 2013; and closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash combustion, and qualified hydropower facilities placed in service before January 1, 2014. Two-year extension of the PTC for electricity derived from marine and hydrokinetic renewable facilities placed in service before January 1, 2014. (PTC currently provides a 2.1¢ per kilowatt-hour (kWh) credit for wind, geothermal, and closed-loop biomass and a 1¢ per kWh credit for other eligible technologies for the first ten years of a renewable energy facility's operation.)
  • New law offers a temporary provision under which an irrevocable election may be made to claim the 30% ITC instead of the PTC for certain tangible property (excluding buildings) that would otherwise be eligible for the PTC — generally includes wind facilities placed in service between 2009 and 2012; and closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash combustion, qualified hydropower, and marine and hydrokinetic facilities placed in service between 2009 and 2013.
  • Companies now have option of electing to receive a grant from the Treasury Department in lieu of the PTC or ITC with respect to certain property. The grant is available in the amount of 30% of the cost of depreciable wind, closed-loop biomass, open-loop biomass, specified geothermal, landfill gas, trash combustion, qualified hydropower, marine hydrokinetic, fuel cell, solar and small wind property. Similar grants available in the amount of 10% of the cost of other specified geothermal, qualified microturbine, combined heat and power system, and geothermal heat pump property. The grant is available only if the property was placed in service in 2009 or 2010, or construction began during 2009 or 2010 and property was placed in service by a specified date (December 31, 2012, 2013 or 2017, depending on the type of property). Grant applications must be received by the Treasury Department before October 1, 2011.

Extension of Bonus Depreciation

  • One-year extension of the bonus depreciation schedule for capital equipment expenditures incurred in 2009. Schedule allows businesses to take immediate write-off of 50% of the cost of many types of depreciable property (e.g., property with depreciable lives of less than 20 years, qualified leasehold improvement property, and certain computer software).

Clean Renewable Energy Bonds

  • Additional $1.6 billion of new clean renewable energy bonds to finance facilities that generate electricity from wind; closed-loop biomass; open-loop biomass; geothermal; small irrigation; landfill gas; trash combustion; qualified hydropower; and marine and hydrokinetic facilities. Funding will be divided evenly among qualifying projects of (1) governmental bodies, (2) public power providers, and (3) electric cooperatives.

Energy Efficiency Programs:

Energy Efficiency Block Grants

  • $3.2 billion for DOE’s Energy Efficiency Block Grant Program authorized under Title V of EISA. Eligible projects under the EISA include: development of energy efficiency and conservation programs; residential and commercial energy audits; installation of onsite renewable energy at government facilities; and implementation of energy distribution technologies that significantly improve efficiency; and establishment of financial incentive programs for energy efficiency improvements. Grant money allocated as follows: 68% to eligible units of local government; 28% to States, 2% to Indian tribes; and 2% for competitive grants.

State Energy Programs

  • $3.1 billion to Secretary of Energy for additional grants under the State Energy Program, which provides grants to state energy offices to design and carry out their own renewable energy and energy efficiency programs. Grants made only if governor of recipient state notifies DOE Secretary that applicable state regulatory authority will implement policies for each electric and gas utility over which it has ratemaking authority that ensure utility financial incentives are aligned with helping customers use energy more efficiently; the state, or applicable local governments, has adopted up-to-date and energy-saving building codes; and that the state will prioritize grants toward energy efficiency and renewable energy projects.

Energy Efficiency and Renewable Energy Research and Development

  • $2.5 billion to DOE for energy efficiency and renewable energy research, development, demonstration, and deployment projects. $800 million allocated for biomass energy technology development and $400 million for geothermal projects.

Greening Federal Buildings

  • $5.5 billion to the General Services Administration (GSA) for federal building repair and construction projects. More than 80% ($4.5 billion) set aside for transforming existing federal buildings into High-Performance Green Buildings through projects to improve energy efficiency, such as roof solar panels, high performance lighting systems, and energy efficient mechanical systems. Funding also set aside for development of a federal green building standard.

Weatherization Assistance Program

  • $5 billion for DOE’s Weatherization Assistance Program, which covers part of the cost of insulating low-income residences. Also raises income eligibility limit for receiving services from 150% to 200% of federal poverty level and maximum amount of funding allowed per residence from $2500 to $6500.

Advanced Vehicle Batteries and Components

  • $2 billion to provide grants for manufacture of advanced vehicle batteries and components produced in U.S. including advanced lithium ion batteries; and hybrid electrical systems, components and software.

Clean Cities Vehicles Grant Program

  • $300 million to DOE to distribute grants through Clean Cities Program, which provides funds to state and local governments, metropolitan transportation authorities, air pollution control districts, and private entities for alternatively fueled vehicles that utilize fuel cell, electric, or hybrid drive system technologies.