How green is the stimulus package Renewable Energy Provisions Cai Steger, Energy Policy Analyst NRDC

1
How green is the stimulus package? - Renewable
Energy Provisions Cai Steger, Energy Policy
AnalystNRDC Center for Market Innovation
August 27, 2009
2
Key messages

• Sections of the Stimulus Act (ARRA) related to
  renewables were passed to both ease capital
  constraints and provide an array of incentives to
  drive renewable deployment
• So far, early impact of Stimulus on renewables
  investment has been more muted than anticipated
• Long-term forecast for renewables is still very
  promising, with Stimulus provisions expected to
  boost deployment significantly
• For developers, primary current focus is on cash
  grants and loan guarantees programs. Both
  programs are launching now, and have a variety of
  complex requirements and guidelines

3
Capital investment available for renewables has
vanished

• In 2008, tax equity investment and other sources
  of financing dried up due to economic downturn,
  eliminating primary source of funding for
  renewable projects
• From 5.4 billion in transaction volume in 2007
  among 20 investors, the current tax equity
  universe now has only a few investors.

Source Additional Observations About the
Impact of Stimulus Action on Energy and
Environmental Policy Hudson Clean Energy
Partners, L.P, http//www.seia.org/galleries/pdf/N
eed_for_Refundability.pdf
4
Stimulus Act should improve access to capital
while providing new incentives to drive renewable
investment and deployment

• Topics of Discussion Today
• Provides 30 cash grants in lieu of renewable
  energy tax credits
• Expands and improves existing clean energy loan
  guarantee program significantly
• Additional Provisions in Stimulus that Will
  Benefit Renewables (and Efficiency)
• Provides PTC-qualified facilities option to elect
  the ITC instead of the PTC
• Extends the PTC through 2012 for wind, and
  through 2013 for other eligible technologies.
• Removes subsidized energy financing penalty that
  reduced value of ITC
• Extends 50 bonus depreciation to qualified
  renewable energy projects in 2009.
• Removes ITC dollar cap on residential small wind,
  solar hot water, and geothermal heat pump and on
  commercial small wind.
• Adds 1.6 billion in new Clean Renewable Energy
  Bonds
• Adds 2.4 billion in Energy Conservation Bonds to
  state, local, and tribal programs to finance
  clean energy projects
• Adds 3.1 billion for the State Energy Program
• Adds 4.5 billion for new RDD investment in
  efficiency and renewables.
• Establishes a 30 ITC for clean tech manufacturing

Source Renewable Energy Project Financing
Impacts of the Financial Crisis and Federal
Legislation http//www.nrel.gov/docs/fy09osti/449
30.pdf
5
So far, near-term impact of stimulus measures on
renewables has been muted, but expectations for
the future are still promising
Stimulus Objective
Early Concerns
Future Expectations

• Monetization of depreciation tax benefits still a
  concern
• Government funding delays (per above)

• Improved project economics should drive new
  investment

• Overcome existing financial barriers

6
Long term impact of Stimulus is expected to boost
renewables deployment well above current EIA
B.A.U.
Source Renewable Energy Project Financing
Impacts of the Financial Crisis and Federal
Legislation http//www.nrel.gov/docs/fy09osti/449
30.pdf
7
Cash grants should provide needed capital and
will be available soon

• Treasury Department Grants in Lieu of Renewable
  Energy Credits
• Overview
• Allows renewable energy project developers (or
  associated parties) to receive a upfront cash
  grant of 30 of project costs in place of current
  production or investment tax credits.
• Designed to mimic the investment tax credit (ITC)
  with only a few exceptions. Government expecting
  5,000 projects to apply and to distribute 3
  billion.
• Now accepting applications at http//www.treas.gov
  /recovery/1603.shtml. The application is a
  fairly simple form, but extensive supporting
  documentation will be required
• Submission Deadline
• Submission deadline is September 30, 2011.
  Different requirements for projects in service,
  and projects still under construction before end
  of 2010
• Other
• Almost all renewable technologies eligible,
  although some qualify only for a 10 grant.
• Government and tax-exempt entities cannot access
  grants (nor pass-through entities that include
  either entity)
• Grant must be paid within 60 days of receipt of
  application, once project in service. Grants can
  be assigned to other entities
• Multiple units of production (e.g. wind turbines)
  can be treated as a single unit for application
  purposes
• Recapture possible on multiple occasions,
  including if entity sold or disposed to
  ineligible entity or if property ceases to qualify

8
Loan Guarantee process complicated but should
provide cheaper debt

• Loan Guarantee Program
• Overview
• EPACT 2005 established an loan guarantee program
  for innovative GHG-abating projects. For a
  number of reasons, no loan guarantees have been
  provided until this year. The hoped-for result
  of the Stimulus Act is to provide more loan
  guarantees at a lower cost for more projects
• On July 29, DOE issued 2 new project
  solicitations
• First supports up to 30 billion in guarantees
  for efficiency, renewables and advanced
  transmission projects. Renewables, transmissions
  or biofuels projects will qualify to have credit
  subsidy cost funded by government. Other select
  projects can still qualify for loan guarantees
  but must pay credit subsidy cost, among other
  requirements
• Second supports 7.5 - 15 billion in guarantees
  for transmission infrastructure
• Recent Cash for Clunkers extension has reduced
  loan guarantee availability for commercial
  technology projects, but this is expected to be
  addressed in future
• Application Process
• Two parts to application. Part I gives basic
  project overview DOE will determine if project
  merits further consideration. If so, more
  complex Part II application needs to be submitted
• Several rounds of applications the deadline for
  Part I applications in Round 1 is September 16,
  2009. Applications reviewed on a first come,
  first serve basis. Additional fees in the
  application
• Numerous other eligibility requirements related
  to technology, GHG-abatement, equity contribution
• Evaluation criteria for both solicitations will
  include credit worthiness, construction plan,
  legal/regulatory risk, technical attributes,
  environmental benefits
• Interest rate is expected to be low 25 to 50
  bps above comparable US Treasuries

9
Additional Information Sources

• NREL/LBNL
• Renewable Energy Project Financing Impacts of
  the Financial Crisis and Federal Legislation
  http//www.nrel.gov/docs/fy09osti/44930.pdf
• PTC, ITC, or Cash Grant? An Analysis of the
  Choice Facing Renewable Power Projects in the
  United States, http//www.nrel.gov/docs/fy09osti/
  45359.pdf
• Government Websites
• Loan Guarantees - http//www.lgprogram.energy.gov/
  
• Grants - http//www.treas.gov/recovery/1603.shtml
  
• Stimulus - http//www.treas.gov/recovery/
• Law Firms
• Milbank http//www.milbank.com/en/NewsEvents/Clie
  ntAlerts/ProjectFinanceClientAlertsandNewslet
  ters.htm
• Orrick http//www.orrick.com/publications/practic
  e_home.asp?practiceEnergyandProjectFinancepra
  cticeid13
• Skadden http//www.skadden.com/Index.cfm?contentI
  D6viewType2
• Chadbourne http//www.chadbourne.com/publications
  /list.aspx?KeywordPhraseenergycriteriaTextenerg
  y
• Van Ness Feldman http//www.vnf.com/news-area-43.
  html