By Jane C. Luxton and Todd B. Reinstein
The renewable energy industry received a hoped-for holiday gift when President Obama signed the bipartisan tax bill, H.R. 4853, on December 17, 2010. One of the bill's key provisions extends an important tax grant program that has proven to be the magic ingredient in closing many successful renewable energy deals. The program was set to expire December 31, but passage of this legislation authorizes the Treasury Department to provide grants through the end of 2011.
Section 1603 of the American Recovery and Reinvestment Act of 2009, more familiarly known as ARRA or the "Stimulus Bill," allows renewable energy developers to convert eligible federal investment tax credits to an upfront grant equal to the value of the credit. This infusion of money for cash-strapped renewable energy start-ups and their investment partners at the outset of a renewable energy project has been the needed glue holding some deals together. According to the Obama administration, this program has contributed to the success of 4,000 clean-energy projects. The Treasury Department has disbursed more than $5.8 billion as of the date of this article under the Section 1603 program.
Section 1603 payments are available for solar, wind, geothermal, combined heat, biomass, and landfill gas energy investments placed in service or when construction has begun in 2009, 2010, and now 2011. The 10 percent or 30 percent cash grants (depending on the underlying renewable energy source) generally are delivered within 60 days of Treasury's review of an application. Certain tax-exempt entities are not eligible to receive cash grants, one of several factors that places an emphasis on knowledgeable structuring of deals seeking to take advantage of these grants. Treasury's determination is final and no appeal is available, another reason for proceeding carefully in this area. Treasury has published guidance on the tax grant program, available at http://www.treasury.gov/initiatives/recovery/Pages/1603.aspx. Section 707 of H.R. 4853, which extends the grant program, can be found on page 17 of this document: http://www.gpo.gov/fdsys/pkg/BILLS-111hr4853enr/pdf/BILLS-111hr4853enr.pdf.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.
This article is republished with permission of Pepper Hamilton LLP. Further duplication without the permission of Pepper Hamilton LLP is prohibited. All rights reserved.
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Jane C. Luxton and Todd B. Reinstein