Financing Clean Energy Projects Under the Reinvestment Act of 2009

Transcription

1 Financing Clean Energy Projects Under the Reinvestment Act of 2009 Major ARRA Provisions for Project Financing William D. Hewitt Pierce Atwood LLP June 11, 2009

2 Pierce Atwood LLP 125+ attorneys Offices in Maine Massachusetts New Hampshire Rhode Island Washington, DC Stockholm, Sweden Energy Practice national and international Renewablesstrengths in biomass, biogas, tidal/hydro, solar and wind Value Proposition: Metropolitan market talent, mid-market rates

3 Outline ARRA at a glance Major ARRA programs for Renewables Non-ARRA Regional Considerations Take Aways

4 ARRA at a Glance $787 billion package $43 billion in clean energy stimulus $22 billion in tax incentives Direct federal funding opportunities DOE DOD Funding through various state programs Energy efficiency & conservation block grants State energy programs

5 DOE ARRA funding to date EERE = Office of Energy Efficiency and Renewable Energy Loans= Loan Guarantee Program EM = Office of Environmental Management OE= Office of Electricity Delivery and Energy Reliability SC = Office of Science FE = Office of Fossil Energy ARPA-E = Advanced Research Projects Agency Energy WAPA = Western Area Power Administration

6 Who s on First? ARRA s effect on RE project finance Expansion/extension of traditional programs New programs Unexpected funding sources Developers need a score card to sort out and track available options as they evolve

7 Familiar Faces Federal tax incentives PTC ITC Twist: Treasury grant in lieu of ITC DOE loan guarantees Funded through DOE sinnovative Technology Loan Program $6 billion to fund $60 billion in loans

8 Production Tax Credit Per-kWh tax credit for sales of electricity generated by qualified resources Facility must enter service Wind 2.1 /kwh before Dec. 30, 2013 (2012 for wind) Must be sold to unrelated third party Disqualifies most power generated by on-site resources Open-loop biomass 1.0 /kwh Closed-loop biomass 2.1 /kwh Geothermal 2.1 /kwh Landfill gas 1.0 /kwh Municipal solid waste 1.0 /kwh Qualified hydro-electric 1.0 /kwh Marine and hydrokinetic 1.0 /kwh

9 Investment Tax Credit Business tax credit equal to 30% of certain expenditures on eligible systems Realized in first year of commercial operation, vests linearly over five years (IRS can recapture if facility is sold) Previously only available for solar, geothermal, fuel cells, certain other technologies Eligibility expanded by ARRA: if facility is eligible for the PTC, then may elect to receive ITC in lieu PTC eligibility rules still apply: facility must begin commercial operation before 12/30/13 Election of ITC in lieu of PTC is irreversible Procedural guidance on ITC election issued 6/5/09 in IRS Notice

10 ITC Cash Grant New program administered by Treasury Provide cash grants of up to 30% of cost basis Funds must issue within 60 days of application For facilities eligible for the ITC that are Placed in service in 2009 or 2010, or Begin construction in 2009 or 2010 and begin service by 2014 (for biomass, dates vary for other technologies) Other notes Grant is excluded from gross income Depreciable basis reduced by half of grant amount

11 DOE Loan Guarantees Program well-known for long, intense vetting process Under ARRA, significant changes in eligibility, contribution requirements, etc. $6 billion appropriation expected to fund $60 billion in loan guarantees for: Renewable energy systems that generate electricity Electric power transmission systems, (including upgrading and reconductoring projects) Leading edge biofuel projects Projects must commence construction before 9/30/2011 Recent overhaul of process/department expected to expedite review by DOE Full DOE rules for new program expected this summer

12 Office of Energy Efficiency and Renewable Energy (EERE) $16.8 billion in total appropriations Includes funding for home weatherization, state energy programs, energy efficiency and conservation block grants, advanced battery manufacturing, ARPA-E $2.5 billion for Applied Research, Development, Demonstration and Deployment Specific appropriations for biomass ($800 million) and geothermal ($400 million) Remainder at discretion of EERE New FOAsalmost weekly Grants.gov, FedConnect, DOE e-center Wide range of technologies and projects, demonstration grants usually require partnerships and 20-50% cost sharing

13 Example: EERE Geothermal FOAs Geothermal Technologies Program: $170 million Validation of innovative exploratory drilling technologies, $100 million (grants of $3-5 million) Funding may be used for production wells Grants for demonstration of generation from nonconventional geothermal resources, $50 million (grants of $1.5-5 million) Low temperature resources Coproduced fluids from oil and gas wells Geopressured gas resources Single grant for geothermal data collection ($20 million) Issued 5/27, applications due 7/22

14 Example: EERE Geothermal FOAs Ground Source Heat Pumps: $50 million Mid-or large-scale (i.e., provide tons of heating and/or cooling) cost-shared technology demonstration projects that incorporate innovative business and financing strategies and/or technical approaches designed to overcome commercialization barriers that currently exist for GHPs. Individual grants of up to $5 million Issued 6/2, applications due 8/2

15 Example: EERE Solar FOAs Solar Market Transformation: $37 million To scale up Solar America Cities projects, $10 million Focused projects that: Accelerate demand for solar technologies Technical, regulatory, institutional, financial and educational solutions to market transformation barriers Solar installer instructor training, $27 million over four years Issued 5/27, applications due 7/30

16 Example: EERE Solar FOAs High Penetration Solar Deployment: $17.5 million Demonstration of PV and energy storage for smart grids, $5 million Integrate PV and energy storage into Advanced Metering Infrastructure (AMI) pilot programs. Demonstration and modeling of circuits designed to accommodate high levels of solar PV, $3.6 million Demonstration of low-cost, easy-to-install, modular and scalable power architecture, $7.5 million Improved Modeling Tools, $1.75 million Issued 5/27, applications due 7/30

17 Other EERE Opportunities Look to state level: significant opportunities to collaborate with municipalities or state government Energy Efficiency and Conservation Block Grants ($2.7 billion in formula grants) Goal is to reduce emissions and fossil fuel consumption by local governments and regional authorities Includes using renewable energy to power government facilities Deadline extended to June 25, 2009 Additional funds for competitive grants forthcoming State Energy Programs ($3 billion) Funding varies by state, often include possibility of financial support for renewable energy projects in the form of loan guarantees and grants

18 Advanced Research Projects Agency Energy (ARPA-E) Modeled on the Department of Defense s DARPA (produced Internet, GPS) High risk, transformative R&D and small scale demonstrations Need to establish proof of viability, prepare for private investment ( valley of death ) Total appropriation: $415 million Initial FOA issued 4/27/2009 $150 million in funding Individual awards from $500k to $10 million Concept papers due 6/10/2009 Additional funding rounds to follow

19 Clean Renewable Energy Bonds (CREBs) $2.4 billion in funding $1.6 billion in ARRA supplements $800 million authorized late % must be used for capital expenditures for one or more qualified renewable energy facilities Same eligibility as PTC May be issued by: Electric cooperatives (33% cap) Government entities (33% cap) Public power providers (33% cap) Non-profit utility in receipt of RUS loans Qualified cooperative lenders 0% interest rate Apply to Treasury department Must be issued within 3 years of approval Applications opened 4/7/2009 Due 8/4/2009

20 DOD Opportunities ARRA includes $300 million for renewable energy and energy efficiency for weapons systems and military bases. 51 R&D projects identified in five general categories Includes Domestic Energy Supply/Distribution projects: waste-to-energy and waste-to-fuel technology research and demonstrations landfill gas use biomass and algae fuel oil production multijunction solar PV ocean wave and thermal energy wind power and relieving turbine noise control Ongoing bid/procurement process, all contracts to be awarded by February 2010

21 Smart Grid Debate is no longer If, but How Smart?, How Soon? and How Much? Provides consumers RT information for DR Assist grid operators in meeting RE challenges Obama support Industry is responding (Cisco, IBM others) New England T&Ds are working with ISO-NE

22 ARRA Smart Grid $4.5 Billion to Office of Electricity Delivery and Energy Reliability Demonstration Projects, $615 million In collaboration with local utilities, in three areas: Regional demonstrations Utility-scale energy storage demonstrations Grid monitoring demonstrations Up to 50% of investment costs Matching Grant Program, $3.375 billion Matching grants of up to 50% of cost of smart grid investments by utilities Individual grants of up to $200 million Final guidelines for matching grants are expected 6/17/2009

23 ARRA Only Goes So Far Developers also want/need other resources to spur RE development Guaranteed offtake Improved transmission infrastructure Demonstration areas for offshore wind

24 Guaranteed Offtake Long-term PPA s Lenders want them Counterparty risk Utilities pose less risk, but many are out of the generation business States adopting Feed in Tariffs Prolific in EU (Germany, Spain) Showing up in the US under various names E.g., Connecticut s Project 150; Maine s pending RFP Avoid PURPA history Price based on cost plus, not avoidedcost Build in technology efficiency incentives

25 Improved Transmission Infrastructure Transmission infrastructure improvements are critical New England challenged N to S and E to W Guess where our dominant RE resources are located relative to load? T & D Utilities are responding CMP s MPRP Bangor Hydro/National Grid NSTAR/NU/HQ exclusive 1,200MW+ thru NH Investors see an opportunity in merchant transmission TDI s Maine Express; NEIT s Green Line

26 ISO-NE Studies to Watch New England Governors RE Blueprint Studying NE Region s RE potential and necessary transmission improvements to accommodate development Focus is primarily on wind development potential (on shore and off) Among other things, predicts energy costs, ability to achieve environmental policies (emissions, RPS, etc.) ISO draft report to issue in July Wind Integration Study How to operate the grid assuming significant wind development in the region (10,000+ MW) ISO report to issue in next 9-12 months

27 Demonstration Areas for Offshore Wind States are Active Maine Maine Offshore Wind Energy Research Center Demonstration areas to be defined by 12/15/09 Massachusetts Oceans Act (2008) Comprehensive ocean management plan and mapping 7/1/09 Draft; 12/31/09 Final Rhode Island Straight to RFP in April 08; Deepwater Wind Site selection under way

28 Take Aways ARRA presents new and evolving RE financing opportunities Track the programs as they evolve and consider innovative finance and business structures to take advantage of available resources State and Regional energy policies are being shaped and must also be closely monitored to ensure project success

29 William D. Hewitt Pierce Atwood LLP One Monument Square Portland, ME Tel: Thank You!