Legal Perspectives: Reliability Funding in the Stimulus
Operators of mission-critical facilities can take advantage of numerous potential opportunities for enhancing their facilities provided that their requests are coupled with energy efficiency, renewable energy, or sustainability.
Several benefits apply to synchronous on-site cogeneration that provides both reliability and the economic benefit of using of waste heat to generate hot water or steam. For example, the Act permits accelerated capital depreciation for 2009 capital expenditures of 50% of the cost. Although this provision is not limited to energy-related capital expenditures, it is an incentive for commercial property owners to install on-site cogeneration, renewable generating facilities, or other energy-related improvement.
The Act provides new benefits such as grants and facility funding for manufacturing advanced batteries and components.
An effective EMS can be very helpful in reducing a facility’s exposure to sudden loss of power and in facilitating the transition from grid power to on-site power. The EMS can be essential when the on-site power system supplies only critical systems within the facility. EMS and energy-efficiency measures reduce demand and help to level the load curve of the facility, resulting in energy and cost savings. The Stimulus Act provides for $3.2 billion in energy efficiency and conservation block grants, much of which is directed to states and local communities to be used for projects to increase energy efficiency in the building sector, reduce energy use, or reduce emissions.
The Stimulus Act provides numerous incentives for renewable energy. Renewable energy produced domestically confers many advantages but will often come up short economically when compared to the cost-effectiveness of fossil fuel delivered by an established supply system. For example, landfills that supply biogas to utilities and nearby off-takers or provide fuel for electric generation provide convenient and local reliability (important for mission critical facilities), since the fuel need not be transported over long distances or supplied by foreign sources. Landfill developers also spare the fuel purchaser the commodity price uncertainties of purchasing natural gas that must be protected by hedging against commodity cost fluctuations in adverse market conditions. Biogas produced by farm waste and anaerobic digesters has similar advantages as those of landfill gas. Biogas is not only favored by the Stimulus Act but also is likely to receive substantial advantages under two pending House and Senate bills to promote biogas production, both of which provide for a business tax credit for the production, sale, or use of biogas.
The Stimulus Act provides a variety of tax incentives for these and other types of renewable energy projects. These benefits and incentives include Production and Investment Tax Credits (PTCs and ITCs), grants in lieu of PTCs and ITCs (see below), clean renewable energy bonds, and the repeal of the subsidized energy financing limitation on the ITC.
The Act provides $6 billion for a temporary loan guarantee program for renewable energy systems (including facilities of component manufacturers of renewable energy technology), biofuel projects, and electric power transmission systems (including upgrading and reconductoring projects). Eligible projects must commence construction by September 30, 2011. Funding for biofuel projects is limited to $500 million.
The Act provides for Treasury Department (Treasury) energy grants to renewable energy projects in lieu of PTCs or ITCs. The Treasury will issue a grant in an amount equal to 30 percent (10 pecent in certain cases) of the cost of a qualifying renewable energy facility-including wind, biomass, landfill gas, waste-to-energy, hydropower, marine renewable facilities, geothermal, combined heat and power, microturbine, and geothermal heat pump property-subject to restrictions on the construction and in-service date of the facility.
However, the question remains: If opportunities presented in the Stimulus Act will enhance or enable the reliability of energy supply or mechanical ability of mission critical facilities, how can these opportunities be accessed? Significant portions of the Stimulus Act either extend or enlarge existing benefits, which presumably can be accessed from various departments much as before to the extent that these are unchanged. For example, the grant application process for funds allocated for energy efficiency and conservation block grants, which originally were created by the Energy Independence and Security Act of 2007 and are administered by the Department of Energy (DOE), will remain unchanged. The Treasury, the DOE, the Internal Revenue Service, the Environmental Protection Agency, other federal agencies, and individual states and local communities will allocate funding. Funding for energy projects according to their respective jurisdictions. For its part, the DOE has stated that it hopes to streamline its distribution of the $40 billion allocated to energy projects in the Stimulus Act, most notably in the “rapid deployment” of loan guarantees.
The Stimulus Act recognizes that the government must play a significant role if renewable energy and energy-efficiency projects are to be developed and sustained despite fluctuations in the cost of oil and other hydrocarbons, as Europe has demonstrated for several years. Facility managers and owners must be attentive to opportunities to improve existing mission critical capabilities and to upgrade the energy posture of their facilities. Professionals familiar with those opportunities who are able to navigate the complexities of the Stimulus Act and its implementing regulations can assist in understanding and accessing the opportunities within its energy provisions.