Among the many incentives for the development of renewable energy projects enacted by the American Recovery and Reinvestment Act of 2009 (ARRA), Section 1603 has been one of the most important and long-awaited. On July 9, 2009, the U.S. Treasury Department (Treasury) and U.S. Department of Energy released Program Guidance, Terms and Conditions, and a draft application providing critical details for eligible applicants to obtain cash grants under Section 1603 of the ARRA. The grants, which are available in lieu of traditional renewable energy production or investment tax credits, are intended to provide incentives for businesses to move forward with renewable energy projects in 2009 and 2010 in spite of the economic downturn and severe constraints confronting the current tax equity market. According to the Program Guidance, “Section 1603 will temporarily fill the gap created by the diminished investor demand for tax credits.”
The Treasury grant program authorized under Section 1603 of the ARRA provides grants of either 30 percent or 10 percent on the basis of eligible project costs (depending on the type of technology used, as discussed below) for certain renewable energy property that traditionally qualified for the Section 48 Investment Tax Credit (ITC) or Section 45 Production Tax Credit (PTC). While the Treasury has published Program Guidance and a draft application, it is not currently accepting applications through its web-based application process (expected to become available in August 2009).
As highlighted below, substantial detail is provided in the Program Guidance and Terms and Conditions with which it will be critical to understand and comply in order to successfully apply for and receive a 1603 grant once the application becomes available. Following is a summary of some of the major provisions of the Program Guidance:
As set forth on page five of the Program Guidance, the chart below sets forth:
1) Eligible technologies that will qualify for the 1603 Grant as Specified Energy Property;
2) The date by which each type of eligible energy property must be placed in service in order to qualify for the 1603 Grant; and
3) The applicable percentage of the eligible costs basis of the project, which the applicant can receive in the form of a grant.
To view table click here.
Once available, applicants will apply using the Treasury’s web-based application portal, which is expected to be very similar to the six page application form released on July 9, 2009 by the Treasury. Applications for eligible property placed in service in 2009 or 2010 may not be submitted until the eligible property is placed in service, as discussed below. Applications for properties that are not placed in service by December 31, 2010, may be submitted any time after construction commences on an eligible project so long as construction commences before October 1, 2011.
- Timing: The Treasury will review applications and issue payments of grants within 60 days of a completed application’s receipt. In cases where the Treasury determines additional information is required to make its eligibility determination, it will notify the applicant requesting such additional information. Failure to submit requested additional information within 21 days of the Treasury’s request will result in a denial of the application.
- Documentation: All applicants must submit project design plans; final engineering design documents certified by a licensed engineer; commissioning reports; an interconnection agreement if the project will be connected to the energy grid; a cost breakdown; and an independent accountant’s certification if the project’s costs exceed $500,000. Additional documents may be required by the application website.
- Review of Applications: Once submitted, the applicant will receive an e-mail confirmation. However, the 60 day clock for the Treasury’s response does not begin to run until the Treasury deems an application complete. The National Renewable Energy Laboratory will review the technical aspects of each application. Applicants can expect to be telephoned or emailed if additional information is required throughout the application process. If an application is submitted post-2010 for a project still under construction, the application will not be complete until subsequent information relating to the placed in service requirement is submitted to update the initial application. Once an application is deemed complete it will be placed in queue for deposit of funds.
A property’s eligibility will be determined based on the placed in service date; the construction start date; whether original use of the property began with the applicant; the submission of required documentation; and the qualification of the property as a “specified energy property,” as discussed above.
- Ineligible Parties: Federal, state, or local governments, tax exempt 501(c) organizations, qualified issuers of clean renewable energy bonds under IRC Section 54(j)(4), and any partnership or other pass-thru entity where the above ineligible parties are direct or indirect members are not eligible for these grants. However, ineligible organizations or private parties may own interests in an eligible project through a taxable C corporation. A foreign person or entity may be eligible depending on whether they meet certain qualifications under IRC Section 168(h)(2)(B).
- Ineligible Property: Property used predominantly outside the United States is not eligible for a 1603 Grant.
- Original Use Requirement: The original use of the property must begin with the applicant. With regards to leased property, a lessor who is eligible to receive a Section 1603 Grant may also pass through the 1603 grant payment to an eligible lessee.
- Registration: All applicants must obtain a Data Universal Numbering System (DUNS) number, which can be obtained from Dun and Bradstreet (1-866-705-5711). Applicants must also register with the Central Contractor Registration (CCR) before payment can be disbursed. (www.ccr.gov/startregistration.aspx)
- Placed in Service Requirement: As explained above, property may be eligible if placed in service between January 1, 2009, and December 31, 2010, or if construction has commenced before October 1, 2011, and is placed in service by January 1, 2013, 2014, or 2017, depending of the type of generation facility (See Chart Above). Placed in service is defined as the date by which the property is ready and available for its intended use.
- Commencement of Construction Requirement: Physical work of a significant nature must have commenced at the time an application is filed for a project to be considered under construction. This requirement is not fulfilled by the commencement of project planning, financing, or other preliminary activities.
While this bulletin provides some of the key program guidance, it is for informational purposes only, and should not be relied upon or applied to a specific project without further review of Section 1603 and the implementing Guidance.