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Treasury and DOE Issue Guidance on Grants in Lieu of Tax Credits

    Client Alerts
  • July 24, 2009

Section 1603 of the American Recovery and Reinvestment Act (ARRA) allows an eligible applicant that places in service specified energy property to receive a federal cash grant of up to 30% of the cost of eligible property.  An applicant who elects to receive the Treasury grant will forgo production and investment tax credits otherwise available.  On July 9, 2009, the Treasury Department and the Department of Energy published program guidance, terms and conditions and the grant application. 

The goal of the Treasury program is to provide relief from the diminished investor demand for tax credits that have been so important to renewable energy development in the United States.  This alert provides an overview of the published information.

Application Procedure and Eligibility

  • Applications may only be submitted after the property to which the application relates is placed in service, or is under construction.
  • To be eligible for the Treasury grant the following criteria must be met:  (1) construction of the project must have commenced during 2009 or 2010; (2) an application must be submitted to the Treasury no later than October 11, 2011; and (3) the project must be in service by January of the applicable credit termination date as specified in the Act and explained in the Guidance.
  • If property is placed in service during 2009 or 2010, an application may be submitted anytime after the property is placed in service but before October 1, 2011.  Treasury will review applications and make payments within 60 days from the date the completed application is received
  • For property not placed in service in 2009 or 2010, but for which construction begins during those years, applications must be submitted after construction commences but before October 1, 2011.  For property not in service at the time of the application, Treasury will review applications and notify the applicant if all eligibility requirements that can be determined prior to the property being placed in service have been met.
  • Property not placed in service by the credit termination date will not be eligible for the grant.  For example, the credit termination date for large wind is January 1, 2013.  For open-loop biomass the date is January 1, 2014.
  • The following entities are not eligible for the Treasury Grant:  (1)  Federal, state and local governments, political subdivisions; (2) organizations under 501(c) that are tax exempt under 501(a); (3)  entities referred to in paragraph (4) of section 54(j) of the IRC; and (4) any partnership or other pass-thru entities.
  • Payment must be to the owner or lessee of the property, who must have originally placed the property in service.


Key Terms Explained in the Program Guidance Document

Specified Energy Property:  Qualified property is limited to "specified energy property," which includes tangible property that is an "integral part of the facility."  Qualified property includes only tangible property that is both used as an integral part of the activity performed by the facility and located at the site of the facility.  Property is an integral part of the facility if the property is used directly by the facility and is essential to the completeness of the activity performed by the facility and located at the facility.

Placed in service: Qualified property must be originally placed in service between January 1, 2009 and December 1, 2010 and before the credit termination date if construction of the property begins between January 1, 2009 and December 31, 2010.  Qualified property includes expansions of an existing property that is qualified property under section 45 or 48 of the IRC.  Placed in service means that the property if ready and available for its specific use.

Beginning of construction:  Construction begins when physical work of a significant nature begins.  The guidance provides three definitions for "significant nature."

  • Self construction:  Construction begins when physical work of a significant nature begins.  Physical work does not include preliminary activities such as planning or designing, securing finance, exploring or researching.  If a facility such as a wind turbine and tower unit is to be assembled on-site from modular units manufactured off-site and delivered to the site, construction begins when physical work of a significant nature commences at the off-site location.
  • Construction by contract:  Construction begins when physical work of a significant nature begins under the contract.  The contract must be binding.  A contract is binding if it is enforceable under State law against the applicant or a predecessor, and does not limit damages to a specific amount. A contractual provision which limits the damages to an amount equal to at least 5% of the total contract price will not be treated as limiting the contract to a specified amount.
  • Safe Harbor:  When an applicant incurs or pays more than 5% of the total cost of the property, physical work of a significant nature will be considered to have begun. 

Units of Property: All components of a larger property are a single unit of property if the components are functionally interdependent.  For example, for a wind farm, the electricity generating wind turbine, its tower and its supporting pad are a single unit of property.  A control system on a wind farm that optimizes the operation of the farm is a unit of property that is separate from the wind turbines. 

Following are links to the Guidance and related documents:

The application is available at: www.treasury.gov/recovery

The guidance document is available at: 
http://www.treasury.gov/recovery/docs/guidance.pdf

The terms and conditions are available at: 
http://www.treasury.gov/recovery/docs/energy-terms-and-conditions.pdf

A sample application form is available at:
http://www.treasury.gov/recovery/docs/Application.pdf

Members of Parker Poe's Eco-Business Team are available to assist you in evaluating a potential project or completing your project grant application.  Please contact:

Henry Campen, 919.890.4145 
henrycampen@parkerpoe.com

Bruce Thompson, 919.890.4147 
brucethompson@parkerpoe.com

Tracy Kimbrell, 919.835.4628 
tracykimbrell@parkerpoe.com

Katherine Ross, 919.835.4671 
katherineross@parkerpoe.com