bhfs.com john herrick building public/private partnerships in energy: post stimulus presented by:...
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John Herrickbhfs.com
BuildingPublic/Private Partnerships
in Energy:
Post Stimulus
Presented by:
John A. HerrickSenior Counsel
Brownstein Hyatt Farber Schreck
Denver, CO
Former Chief CounselU.S.Department of Energy
Golden, CO
webinar Renewable Energy: Legal Challenges and Solutions
For the Green Economy
American Bar AssociationStanding Committee on
Environmental Law
University of Denver Sturm College of Law, Denver,
ColoradoNovember 20, 2009
Denver, CO
November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick
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What Direction Will DOE Take Post Stimulus? The New Energy Economy is on the drawing board:
Recession created the opportunity to implement Elections have consequences How is it being drafted?
Stimulus Package (American Recovery & Reinvestment Act of 2009) Omnibus Appropriation Act of 2009 New Energy Policy Act Legislation:
Will expanded upon the Energy Independence & Security Act of 2007.
Climate Change Legislation American Clean Energy & Security Act 0f 2009 (Markey-
Waxman)
November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick
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What Does This Mean to Energy Project Financing?
New era of public involvement in the energy sector
Opportunity to re-direct the Nation’s energy resources
Opportunity to set new priorities in the energy sector
Establishes the foothold for the New Energy Economy
There will be winners & losers
Ascendance of Public/Private Partnerships in Energy Project Financings:
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The American Recovery and Reinvestment Act of 2009Federal Tax Incentives
Extension of Renewable Energy Production Tax Credit for 3 years 2.1 cents per kilowatt-hour for wind, closed-loop biomass, geothermal,
and solar -- 1 cent per kilowatt-hour for open-loop biomass, municipal sold-waste, and qualified hydropower through 2011. (This is a 10 year declining tax credit for the production of electrons)
Expansion of Investment Tax Credit till 2016 The investment tax credit is a one-time, up-front tax credit equal to 30%
of the cost of the facility. Had been available for solar & small wind. those firms qualifying for the PTC will now have the option to take the
ITC instead.
November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick
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The American Recovery and Reinvestment Act of 2009Federal Tax Incentives
Election of Renewable Energy Investment Grants (§1603 grant) firms may elect to receive direct grants in lieu of the PTC or ITC, which
will benefit firms that may not have otherwise had sufficient tax liabilities to take advantage of the credits.
If elected, must take the credit in terms of the ITC. encourages investment in renewables for companies that do not have an
immediate tax appetite.
Advanced Energy Manufacturing Tax Credit (48C Credit) The Act establishes a 30% tax credit for investment in projects that
reequip, expand, or establish manufacturing facilities that produce renewable energy and related activities.
$2.3 billion for these manufacturing credits to be allocated by the Treasury in a competitive bidding process. Applications end October 16.
November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick
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DOE Public-Private Partnerships
GRANTS
TECHNOLOGY
INVESTMENT
AGREEMENTS
Up to 80 % federal cost share Up to 50% federal cost share
Research Development Demonstration - Commercialization
Equity Contribution
Debt Participation
LOAN
GUARANTEES
COOPERATIVE
AGREEMENTS
§1703 §1705
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Current Problems in Implementing Stimulus
DOE regulations and boilerplate were built around research & development projects
Many Stimulus projects are more commercial-type enterprises.
Federal Property Liens are problematic for private sector financings
Program income rules need to be adapted to commercial projects.
November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick
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DOE Loan Guarantee Program
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Current § 1703 DOE Loan Guarantee Program
Loan Guarantees - Priority for new administration
Eligible projects must: Avoid, reduce or sequester air pollutants of anthropogenic
emissions of greenhouse gases Employ new or significantly improved technologies as
compared to commercial technologies in service in the United States at the time the guarantee is issued.
Must be deployed commercially, must show revenue steam. Specifics:
Applicants must pay the project “Subsidy Costs”. Loans that are backed by these guarantees can not be more
than 80% of total project costs DOE is now looking at a 60% - 40% debt – equity split. DOE is also requiring definitive off-take agreements
Guarantee can be 100% of loan amount
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Current § 1703 DOE Loan Guarantee Program
Tortured history since 2005. $4 billion in loan authority authorized for first solicitation issued in 2006
“Sweet sixteen” announced in 2007– first guarantee issued in September 2009.
$10 billion made available for EE & RE projects in second solicitation issued July 2008
$8.5 billion made available for EE & RE in third solicitation in July 2009 Under the 2009 Omnibus Legislation – other § 1703 loan guarantee
authorities: $18.5 Billion for nuclear power $2 Billion for “front-end” of advanced nuclear facilities $6 Billion for carbon sequestration projects $2 Billion for coal gasification projects
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New § 1705 Loan Guarantee Program Under Recovery Act
Up to $60 - $100 Billion in New Energy Loan Guarantee Partnerships
Establishes a new round of loan guarantee authority (§ 1705 Program) in addition to the current Innovative Technology Loan Guarantee Program (§ 1703 Program)
conventional renewable energy systems, electric power transmission systems, and Pilot scale & demonstration scale biofuels projects .
Must begin construction by September 30, 2011.
Must meet Davis/Bacon Requirements for Construction
Government will pay project Subsidy Costs
$6 billion available
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New § 1705 Loan Guarantee Program
First Solicitation under § 1705 Included within the §1703 Solicitation in July 2009. Projects must be also be “New & Innovative” $2.5 billion in subsidy costs available
$500 million set aside for biofuels Guarantee can cover 100% of Project Debt Guarantee supported Debt can not be > 80% of total project cost
Second Solicitation Issued October 7, 2009 Solely for RE generation projects. $750 million available to pay subsidy costs Establishes the “Financial Institution Partnership Program” (FIPP)
Developers must form relationship with Banks. Privatize the due-diligence process Banks must file application.
Guarantee can only cover 80% of project debt. Guarantee supported debt can not be > 80% of total project cost
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Total Project
Cost
Total Project
Cost
80% of total project cost covered by
private - sectorloan
80% of loan amount
guaranteed by DOE
100% guaranteed by DOE
80% of total project cost covered by FFB
loan,
Financial institution at risk 20% of
loan
Equity Equity
FIPP NonFIPP
Comparison of FIPP to Non-FIPP DOE Guarantees
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Contact
John HerrickBrownstein Hyatt Farber Schreck
Denver, Colorado - Washington, DC
(303) 223-1122 [email protected]