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Treasury Guidelines - How to Apply for Renewable Energy Grants in lieu of Tax Credits

Authors: Sabino (Rod) Rodriguez
Publisher: Day Pitney Alert
7/10/2009

The United States Treasury Department has issued procedures for applying for cash grants for expenditures constituting eligible basis for renewable energy projects in lieu of claiming tax credits that otherwise would be available with respect to such property. The Renewable Energy Grants are authorized as part of the stimulus spending under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 ("Section 1603"). It is estimated that $3 billion in Renewable Energy Grants will be paid out, but there is no cap on the grant total and Treasury will accept applications from all eligible renewable energy developers.

Overview:

Renewable Energy Grants are made available to eligible applicants with respect to specified energy property "placed in service" during 2009 or 2010 (and for qualifying property placed in service after 2010 if construction began in 2009 or 2010 and the project is placed in service before the applicable credit termination date).

Renewable Energy Grants for 30 percent of eligible basis are available for projects for:

  • Energy-generating wind,
  • Solar,
  • Biomass,
  • Geothermal,
  • Landfill gas,
  • Solid waste,
  • Qualifying hydroelectric,
  • Marine and bydrokinetic systems, and
  • Fuel cells.

Renewable Energy Grants for 10 percent of eligible basis are available for projects using:

  • Microturbines,
  • Geothermal heat pumps, and
  • Combined heat and power plants.

The Treasury will make payments within 60 days of a completed application.[1]

Application Procedures:

Application Form/Time for Filing. An application for a Renewable Energy Grant may be submitted online at www.treasury.gov/recovery once a qualifying property is placed in service or is under construction. A completed application must include the signed and complete application form, required supporting documentation, the signed terms and conditions and complete payment information. A single application may be submitted for multiple units of property that are treated as a single, larger unit of property in which the components are functionally interdependent. The guidelines and these forms are available at http://www.treas.gov/recovery/1603.shtml. All applications must be received before October 1, 2011.[2] Applicants will be required to have a Data Universal Numbering System (DUNS) number (which can be obtained at no cost from Dun and Bradstreet (1-866-705-5711). Applicants must also register with the Central Contractor Registration (CCR) before payment can be made.

Time of Payment. Qualified applicants will receive payment within 60 days from the date the application is complete. If the project is placed in service by the time the application is complete, Treasury will make payment within 60 days from the date the application is complete. If the property has not yet been placed in service, Treasury will review the application and will notify the applicant if all of the application requirements have been met. Once the project is placed in service, the applicant will have 90 days to submit supplemental information for Treasury to make its final determination and make payment to qualified applicants within 60 days after the supplemental information is received. If the application is not approved because the applicant has not submitted sufficient information for Treasury to make a determination, the applicant will be so notified and given 21 days from the date of the notice to submit additional information.

Form of Payment. Approved applicants will be notified by Treasury and will receive payment by Electronic Funds Transfer within five days of the notice.

Applicant Eligibility:

Ineligible Persons.[3]

Only the owner or lessee of the property that originally placed the property in service is eligible to receive a Renewable Energy Grant.[4] However, Renewable Energy Grants will not be available to the following persons:

  • federal, state or local governments, and their political subdivisions, agencies or instrumentalities.
  • tax exempt organizations described in section 501(c) of the Code or
  • clean renewable energy bond lenders, and cooperative electric companies (under Section 54(j)(4) of the Code).

In addition, Renewable Energy Grants will not be available to any partnership or other pass-through entity, if any direct or indirect partner (or other holder of an equity or profits interest) of these entities itself would not be eligible for a Renewable Energy Grant (unless it only owns an indirect interest in the applicant through a taxable C corporation). However, if all of the direct and indirect interest holders in a partnership or other pass-through entity are individually eligible to receive Renewable Energy Grant, the entity itself will be eligible.[5]

Property and Payment Eligibility:

Placed in Service: Qualified property must be originally placed in service between January 1, 2009 and December 31, 2010 or placed in service after 2010 and before the applicable credit termination date if construction of the property began between January 1, 2009 and December 31, 2010. The applicable credit termination date and percentage of eligible cost basis varies based on the type of energy project. "Placed in service" means the property is ready and available for its specific use. The concept is identical to the application of the term for purposes of determining eligibility for the investment tax credit.

Beginning of Construction: Construction begins when physical work of a significant nature begins, whether by self construction or construction by contract. The guidance offers a safe harbor that an applicant may treat physical work of a significant nature as having begun when the applicant incurs or pays costs that are more than 5 percent of the total cost of the property (including the costs of all units if multiple units on the same property are treated as a single unit of property).

Specified Energy Property Installed on Other Property: Only the portion of the property that is covered under Section 48 of the Code is included in computing the Renewable Energy Grant, even if the eligible property is integrated with other types of property. For example, only the costs associated with solar panels installed on the roof of a building will be taken into account, not the costs associated with the entire building.

Location of the Property: Property that is used predominantly outside the United States (based on the amount of time that it is or is not physically located in the United States) is not eligible for a Renewable Energy Grant.

Original Use: The original use of the property must begin with the applicant. If new property is originally placed in service by a person and sold to an applicant and leased back to the original person within three months, the applicant-lessor is considered the original user of the property and the property is considered to be placed in service not earlier than when used under the lease back.

Required documentation: Specific supporting documentation must be submitted with the application to indicate that the property meets the eligibility requirements and that it has either already been placed in service or that construction began in 2009 or 2010 if it has not yet been placed in service.

Types of Eligible Property: According to the guidance, property eligible to receive Renewable Energy Grants is known as "specified energy property" and includes only tangible property that is an integral part of the project. The tangible property is tangible personal property and other types of tangible property as defined in the Treasury Regulations. Qualified property must be used as an integral part of the activity performed by the qualified facility by the owner or lessee of the property and must be located at such facility. A building is not qualified property but some its structural components may qualify. The guidance also sets forth specific requirements for certain types of facilities and projects.

For purposes of Section 1603, specified energy property includes the following types of facilities and property described in Section 45 of the Code and Section 48 of the Code:

Section 45 Qualified Facilities:

  • Wind facilities
  • Closed-loop biomass facilities
  • Open-loop biomass facilities
  • Geothermal facilities
  • Landfill gas facilities
  • Qualified hydropower facilities including incremental hydropower facilities and nonhydroelectric dams
  • Marine and hydrokinetic renewable energy facilities

Section 48 Energy Properties:

  • Solar property
  • Geothermal property
  • Qualified fuel cell property
  • Qualified microtube property
  • Combined heat and power system property
  • Qualified small wind energy property
  • Geothermal heat pump property

Eligible Basis

The basis of the property is determined in accordance with the general rules for determining basis for purposes of federal income taxation and is generally its cost (unreduced by any adjustments such as depreciation) and includes all items properly included in the depreciable basis of the property. Costs that will be deducted in the year in which they are paid or incurred are not included in basis for purposes of Section 1603. Section 1603 basis will not include portions of basis that are attributable to years prior to 2009 and will not include the portion that is attributable to non-qualifying activities. Applicants will be required to submit documentation of cost basis of the property along with the application.

Leased Property

An eligible lessor of property may elect to pass through the Section 1603 payment to the lessee pursuant to the rules in the Code that currently allow lessees to receive energy tax credits. The lessor and lessee must agree that the lessor waives all rights to a Section 1603 payment or production or investment tax credit with respect to the eligible property. Both the lessor and lessee must be eligible to receive a Section 1603 payment and a written agreement between the lessor and lessee with respect to the election must be filed with the lessee's original application for a Renewable Energy Grant. As noted above, in a sale-leaseback transaction, the lessee may claim the Section 1603 payment under certain conditions.

Recapture

An applicant is required to repay the Renewable Energy Grant to Treasury if the property is disposed of to a disqualified person or if the property ceases to be a specified energy property within five years from the date the property is placed in service. A disposition to a disqualified person includes a sale of an interest in the property or the applicant or in any partnership or pass-through entity that is a direct or indirect owner of an interest in the applicant to a party that would itself be an ineligible applicant. Property ceases to qualify as a specified energy property if the use of the property changes such that it no longer meets the qualifications for specified energy properties. Selling or otherwise disposing of the property to an entity other than a disqualified person does not result in recapture provided the property continues to qualify and the purchaser of the property agrees to be jointly liable with the applicant for any recapture.


[1] Applicants who receive grants under Section 1603 are not eligible for the production or investment tax credits available under Sections 45 and 48 of the Internal Revenue Code of 1986, as amended (the "Code") with respect to the same property and credits previously received under Section 48 of the Code will be subject to recapture.

[2] Applications with respect to property in service in 2009 or 2010 must be filed after the property has been placed in service but before October 1, 2011. Applications with respect to property not placed in service in 2009 or 2010 but under construction in 2009 or 2010 must be submitted after construction begins but before October 1, 2011.

[3] A foreign person or entity may be eligible for a Renewable Energy Grant if the person qualifies for the exception in Section 168(h)(2)(B) of the Code for certain property subject to United States tax and used by foreign person or entity

[4] Note that Renewable Energy Grants are not available for non-business property and for residential energy efficient property, as described in Sections 25C and 25D of the Code.

[5] Neither Real Estate Investment Trusts (REITs) nor cooperative organization described section 1381(a) of the Code are pass-thru entities for this purpose.



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Related Practices: Energy Regulation and Compliance, Infrastructure Development and Investment and Mergers & Acquisitions

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