Show Me the (Stimulus) Money

Show Me the (Stimulus) Money

[Editor's Note: The American Recovery and Reinvestment Act (ARRA, more commonly known as the Stimulus Bill) was signed into law by President Obama on February 17, 2009, and contains almost $94 billion in funds for green jobs, clean technology, and other environmental innovations.

Stoel Rives, the law firm of Graham Noyes and Janet Jacobs, has published a guide to the opportunities for businesses for stimulus funds. The guide, called “Show Me the Money: The Law of the Stimulus Package,” is available electronically at: http://www.stoel.com/showmethemoney]
Janet F. Jacobs Janet F. Jacobs
ARRA is a sweeping act that contains opportunities for all sectors of the clean energy industry. The downside of the bill is that its language and its references to other acts (notably, the Internal Revenue Code) can be confusing to companies looking for funding opportunities.

The concept behind our stimulus guide, “Show Me The Money,” was to clarify the various programs and potential sources of federal funding for all of the energy industry sectors, including wind, solar, biofuels, biomass, smart grid, green building, energy efficiency, and many others.
Graham Noyes Graham Noyes
The guide describes how the direct spending and tax provisions of ARRA will boost the implementation of clean energy projects over the next 18 months. Specifically, ARRA provides $26 billion in grants focused on energy efficiency, $17 billion on smart grid and $21 billion on transportation, while also providing $16.5 billion in tax incentives directed towards renewable energy.

The clean energy grants will be administered primarily through the offices of the Department of Energy and state programs. The funds will be disbursed through a variety of means, including $11.3 billion that has been allocated to the states. The state funds are further broken down into: Energy Efficiency and Conservation Block Grants ($3.2 billion), weatherization ($5 billion) and the State Energy Program ($3.1 billion).

We have already seen these tax impacting project financing in the renewable energy sector. Before the collapse of the global financial markets, most clean energy projects depended on the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) to attract lenders, who could offset tax liabilities against their investments in the projects.

But in the last 12 months, as traditional lenders have posted heavy losses due to the accumulation of toxic assets in their portfolios, these lenders have lost their need for offsets. And with their departure, the financial structures that had been driving growth in the renewable sector collapsed.

Fortunately, the stimulus bill made structural changes to the tax incentives to overcome this market challenge. One of the biggest changes from the ARRA is its expansion of the ITC program to encompass renewable sectors like geothermal and wind that did not previously have access to this program. In addition, the Treasury grant program further speeds project development by allowing profit-starved companies to choose a Treasury grant in lieu of the ITC, and as a result receive a federal rebate for up to 30 percent of the cost of qualified renewable energy projects.

Another opportunity created by the stimulus bill is the expansion of the Department of Energy's Loan Guarantee Program. This program has been in existence for years, but has been plagued by a burdensome application process, expensive credit subsidy fees and a reluctance by the DOE to release funds.

The ARRA boosts the program's funding by 60 percent, increasing it from $10 billion to $16 billion of mandatory funding. Because these are leveraged funds that will only be used in cases where borrowers default on their guaranteed loans, we anticipate that the program will actually enable even more loan guarantees than the appropriated funds: The typical leveraging factor is about 10 times, so loan guarantees could reach a total of $160 billion.

Given the continuing challenge for projects seeking debt financing, these loan guarantees are likely to become a significant tool for renewable energy projects in 2009 and 2010.

We are also expecting further changes to this program's structure and other aspects of the stimulus bill, including the Food Energy and Conservation Act, the Energy Independence and Security Act, the Energy Policy Act and significant state programs. We will include these and any other changes to the stimulus in the second edition of “Show Me the Money: The Law of the Stimulus Package,” which is already underway and will be released this summer.

Graham Noyes is an attorney in the energy and telecommunications practice group at Stoel Rives in Seattle, focusing on the development and improvement of renewable energy companies and cleantech ventures. Janet F. Jacobs is an attorney in the corporate, securities and finance group at Stoel Rives in Seattle, as well as in the renewable energy practice groups.

Stoel Rives is a business law firm with offices throughout the U.S. For regular updates on energy policy and stimulus information, visit http://www.stoel.com/alerttypes.aspx?Type=2296]


Solar energy panel image CC licensed by Flickr user Mountain/\Ash.