Leadership Lyceum

Leadership Lyceum: A CEO’s Virtual Mentor

This podcast series focuses on corporate and industry strategy and trends from the direct vantage point of key industry leaders. Subscribe to the podcast at Apple iTunes. Interviews with Tom Fanning and Bob Flexon are available, as well as one with Joe Rigby, Bob Skaggs and Les Silverman.

See Podcasts

Public Utilities Reports

PUR Guide Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

ARRA Sunset

A renewable incentive expires with the Treasury grant program.

Fortnightly Magazine - October 2010

Many public utilities have entered into long-term power-purchase agreements for power produced by wind, solar, biomass and geothermal projects. Some utilities have embraced these technologies and taken on ownership and operation of renewable assets. Whether a utility is merely buying power from a third-party developer or has a stake in the facility, many renewable energy projects rely on federal tax incentives for financing. However, the economic downturn has dramatically reduced the profits (and tax liabilities) of the banks and life companies that historically have funded tax equity, severely limiting the availability of tax credits for renewable energy projects.

In response to the dearth of tax equity, the American Recovery and Reinvestment Act of 2009 (ARRA) created the Treasury grant program. The program was designed to allow the owner of commercial wind, solar or other qualifying renewable energy generation projects to receive a cash grant equal to 30 percent of the owner’s tax basis in the project (in lieu of taking the 30-percent solar investment tax credit (ITC), and the corresponding guidance which was released in July. Applicants are eligible for the Treasury grant only if they commence construction on projects by Dec. 31, 2010, and complete construction by Dec. 31, 2012 for wind, and by Dec. 31, 2016 for solar. The Treasury grant program has been very successful, supporting the deployment of 303 solar energy systems (283 solar electric systems and 20 solar thermal systems) as of the end of February 2010. Since guidance for the grant program was released in July of last year, the manufacture and construction of these systems has supported roughly 10,100 jobs—direct, indirect and induced.

In July, the Treasury issued new guidance in the form of questions and answers (FAQ) as to when “construction begins” for renewable energy projects that may be eligible for a cash grant in lieu of an ITC. The new guidance is important and timely because of the impending deadlines for the cash grant program. To qualify for a grant, qualified energy property must be placed in service in 2009 or 2010 or, if “construction begins” in 2009 or 2010, it must be placed in service by the applicable credit termination date—currently the end of 2012 for wind, the end of 2013 for biomass, geothermal and other resources, and the end of 2016 for solar. Because of the deadline and the uncertainty surrounding extension, many project developers will attempt to “begin construction” this year on those projects that have a practical chance of crossing that threshold in 2010.

There are two ways to show that construction has begun. One is to begin physical work of a significant nature. The other is to meet a 5-percent safe harbor.

Physical Work of a Significant Nature

To begin physical work of a significant nature means that physical work on the specified energy property has started. Physical work of a significant nature includes any physical work on the