Status of Federal Spending and Tax Incentives for Cleantech R&D and Projects

Connect Public Policy ForumMay 20, 2010

PL-38668-v2

Fred GregurasPalo Alto Office

fred.greguras@klgates.com650.798.6708

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Federal Incentives for Cleantech R&D, Manufacturing and Project Deployment

R&D

ARPA-E (https//arpa-e-foa.energy.gov)

Other Funding Opportunity Announcements

More targeted and still primarily single deadline rather than rolling submission FOAs

How to Protect Intellectual Property in Department of Energy Funding Programs, K&L Gates White Paper, January, 2010, available for download at   http://tinyurl.com/ybljw55

Federal section 1603 30% cash grant in lieu of investment tax credit or ITC (http://www.treas.gov/recovery/1603.shtml)

ITC in lieu of production tax credit (http://www.irs.gov/irb/2009-19_IRB/ar07.html)

50% bonus depreciation (expired 12/31/09) (not cash)-has not been extended

Manufacturing Tax Credit (http//www.energy.gov.recovery/48C.html)

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Federal Incentives for Cleantech R&D, Manufacturing and Project Deployment

Loan guarantee program (www.lgprogramenergy.gov)

Timing, application costs and complexity, conservative positions

FIPP program also moving slowly

Clean Renewable Energy Bonds (CREBs) (www.ustreas.gov/press/releases/tg333.htm)

$2.2B in bond issuances approved in October, 2009 by U.S. Treasury for qualified issuers such as local utilities, electric coops, etc.

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Federal Cash Grant in Lieu of Investment Tax Credit

30% cash as opposed to investment tax credit in the deployment of certain renewable energy projects

Simpler ITC may be acceptable to investors with tax liability since no application is needed but this market has not recovered

Cash grant payments by Treasury have been key to the financeability of wind and solar project projects

Project must be “under construction” by December 2010

Many projects will not make this deadline

Legislation proposed to extend and modify – Feinstein/Schumer

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Manufacturing Tax Credit

$2.3B in awards fully allocated by Treasury in a detailed application process

Not eligible for cash grant in lieu of ITC although proposed legislation would increase allocation, extend and authorize cash grant option

Administration has publicly stated it wants to increase by $5B

Not assignable – may be used only by the tax payer that entered into the award agreement with Treasury

Incentive has the potential for meaningful job creation

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Summary

Targeted R&D programs

No single federal and/or state incentive is sufficient for project finance; combination of incentives is needed that can be applied at the same time

The federal 30% cash grant is the single most important incentive for deployment of renewable energy projects but is not sufficient by itself

Bonus depreciation should be extended so it has time to be a financing tool

Manufacturing tax credit allocation should be increased and availability extended

American Power Act may be the legislative vehicle in which various pending legislation is consolidated

Best case this year for extensions may be late year action, particularly on cash grant