The American Recovery and Reinvestment Act of 2009 (the “Act”) is being signed into law today by President Obama in Denver, Colorado. The Act builds on previous energy policy legislation such as the Energy Improvement and Extension Act of 2008 (“Energy Improvement Act”), the Energy Independence and Security Act of 2007 (the “Energy Security Act”), and the Energy Policy Act of 2005 (“Energy Policy Act”). The Act contains $20 billion in tax incentives and $30 billion in spending for various renewable energy initiatives. In addition to several new programs, many of the appropriations are for pre-existing programs administered by the Department of Energy (“DOE”) under the legislation mentioned above. The Act also includes energy related tax credits and tax-based subsidies.

ENERGY APPROPRIATIONS

Smart Grid (Grant Programs)

“Smart grid” refers to technological improvements to the U.S. electricity grid. The program’s goal is to address grid reliability, security, efficiency, and the grid's ability to incorporate renewable energy sources. Previous legislation contained federal and state research and development programs designed to address these issues. The most notable of these was the Smart Grid Investment Matching Grant Program, administered by DOE, under which the federal government would reimburse investors for up to 20 percent of the cost of certain qualifying smart grid investments.

The Act's “smart grid” provisions include:

• Appropriating $4.5 billion for electricity delivery and energy reliability programs. This appropriation expressly provides that the funds are also for implementation of the Smart Grid Investment Matching Grant Program.
• Increasing the eligible percentage of federal matching grant funds available for qualifying smart grid investments from 20 percent to 50 percent.
• Financial support for smart grid demonstration projects, including in areas where transmission and distribution assets are controlled by investor-owned utilities.
  

Loan Guarantee Program

The DOE Loan Guarantee Program (the “LGP”) was established under Title XVII of the Energy Policy Act, and is designed to encourage the early commercial use of new or significantly improved technologies in “qualifying” energy projects. “Qualifying” projects include renewable energy systems, hydrogen fuel cell technology, advanced nuclear energy facilities and carbon capture and storage projects, among others. Under the LGP, DOE may guarantee up to 100% of an eligible project's debt (capped at 80% of project cost). Under the Act, $6 billion in new funds have been appropriated to support the LGP.

Carbon Capture and Storage

Several provisions in the Act (i) promote investment in advanced energy projects for carbon capture and storage, (ii) clarify the requirements of a carbon tax credit enacted last year, and (iii) increase government funding for existing carbon capture and storage programs.

Municipal Bonds

Clean Renewable Energy Bonds (“CREBs”) were created under the Energy Policy Act. Qualified Energy Conservation Bonds (“QECBs”) were created under the Energy Improvement Act. Under these programs, project-specific bonds may be issued by state, local, or tribal governments, and electricity cooperatives for qualifying public (government) renewable energy projects or energy efficiency and conservation projects.

The Act authorizes an additional $1.6 billion of new bonds under the CREB program to finance facilities that generate electricity from qualifying renewable energy sources such as hydropower, landfill gas, marine renewable, and trash combustion facilities.

The Act further authorizes an additional $3.2 billion of new bonds under the QECB program to finance public (government) programs designed to reduce greenhouse gas emissions. The Act also provides that QECBs may be issued to make loans and grants for capital expenditures to implement “green” community programs.

TAX PROVISIONS

Production Tax Credits Time Extension

Owners of qualifying renewable energy projects (e.g., wind and solar) are eligible to take a production tax credit (“PTC”) equal to approximately two cents per kilowatt hour of energy produced during the first 10 years of operation, beginning on the placed-in-service date. The Act extends the placed-in-service date for wind facilities through December 31, 2012. The Act also extends the placed-in-service date through December 31, 2013, for certain other qualifying facilities such as closed - and open - loop biomass; geothermal; hydropower; landfill gas; waste-to-energy; and marine renewable facilities.

Investment Tax Credit: Option to Choose PTC or ITC

Currently, owners of qualifying energy facilities that produce electricity from solar technology are eligible to take a 30 percent investment tax credit (“ITC”). Owners of facilities that produce electricity from other sources such as wind, closed- and open-loop biomass, geothermal, hydropower, landfill gas, waste-to-energy, and marine renewable facilities are eligible to claim the PTC but not the ITC. The PTC is payable over a 10-year period. By contrast, the ITC can be claimed in the year when the renewable energy facility is placed into service. The Act allows owners of certain qualifying renewable energy facilities to elect to claim the ITC in lieu of the PTC. Further, the Act allows taxpayers who are eligible to claim the PTC or ITC to instead elect to receive a grant from the Treasury Department (in lieu of tax credits) in an amount equal to 30 percent of the applicant's basis in “specified energy property.” To qualify for the grant, such projects must be placed in service before the end of 2010.

Please refer to the March issue of The Energy Law Advisor for more information.

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