Laidlaw Energy Group, Inc.(fka LLEG)

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Biomass conference will address project finance options
By Rona Johnson


Posted September 13, 2010, at 8:56 a.m.

The U.S. Department of Treasury’s Section 1603 grant program has been a popular funding mechanism for biomass project developers, but it’s also caused a lot of confusion.

Gregory Jenner, an attorney with Stoel Rives LLP, will clear up that confusion during his presentation, Planning for Section 1603 in 2010 and Beyond, at the Southeast Biomass Conference & Trade show that will be held Nov. 2-4 in Atlanta.

“There are a lot of deals that are getting done based on 1603,” Jenner said. “It really has been a game changer. In fact, I think it has kept the renewable energy industry alive for these past two years.”

The U.S. Department of Treasury’s Section 1603 grant program was offered to renewable energy project developers in lieu of the Investment Tax Credit. The program gives developers the ability to offset project costs through a 30 percent (depending on the type of energy project) grant, and is expected to provide about $3 billion for the development of renewable energy projects around the country.

“Actually this came about as a result of the Stimulus Bill and it basically is cash in lieu of tax credits,” Jenner said. “So for the first time, you don’t have to go through all of the various structuring in order bring investors in to take advantage of the tax credits, this is just cash on the line.”



The problem is that the program sunsets at the end of this year and in order for projects to qualify they must have begun construction before the end of 2010. It’s the “beginning construction” requirement that is causing all the confusion.

“Nobody has ever dealt with this beginning construction requirement before,” Jenner said. “You either have to place your facility in service by the end of 2010 or you have to begin construction by then.”

Jenner points out that there are two ways to meet the beginning construction requirement and benefit from the program. “One of them requires that you pay or incur more than 5 percent of the total project costs,” he said. “When you think pay or incur, most laymen or nontax people think, ‘Oh well, if I just pay it that’s enough,’ but it isn’t. Pay or incur has a very specific meaning in the tax world and it’s gotten a lot of people in trouble when they think the rule goes one way and it goes another.”

The Treasury Department has also deemed that physical activity (MOVE IN THE BULLDOZER) that occurs before the end of the year can meet the beginning construction test but the activity must be continuous. That means that a developer can’t go out on New Year’s Eve and start digging around and then cease activity for a year, he said. “On the other hand, it doesn’t have to be the developer itself that begins construction,” he added. “Beginning construction can be met by work off-site, and so there are different ways that you can meet that requirement as well.”

Developers should also take a closer look at any contracts they’ve entered into to build renewable energy facilities. “Quite frankly, if they have contracts in place they may very well not be up to snuff,” Jenner said. “There are certain requirements that have to be met for the contract itself to qualify. And if they don’t meet that requirement they could be in trouble.”

Jenner will be joined on the panel by Hamang Patel, an attorney with Michael Best & Friedrich. His presentation, Biomass New Market Tax Credit Financing, will focus on how biomass project developers can take advantage of the new market tax credit program, which directs money to businesses located in low-income census districts.

http://www.biomassmagazine.com/article.jsp?article_id=4091