Client Alert: "Updated Guidance on Section 1603 Cash Grant Program"
Last month, the U.S. Department of Treasury posted updated guidance with respect to the Section 1603 grant program for specified energy property in lieu of tax credits. This program, which stems from the American Recovery and Reinvestment Act of 2009, allows cash grants for certain renewable energy projects for up to 30 percent of qualified costs.
While these grants were originally scheduled to apply only with respect to certain property placed in service (or with respect to which construction otherwise began) before the end of 2010, such deadline has been extended through the end of 2011. In addition to updates relating to this extension, the Treasury’s changes to the program guidance and frequently asked questions clarify that the 1603 grant program is intended to stimulate investment in renewable energy technology given the perceived lack of private sector investment activity, and as such has different policy goals than the Internal Revenue Code Section 45 and Section 48 tax credits. The updated guidance includes:
- The guidance has been updated to remove a requirement that only property located at a single site can be included as “specified energy property” eligible for a Section 1603 grant.
- The definition of a "qualified facility property" has been further defined as a property that is an integral part of a qualified facility including facilities using wind, closed loop biomass, open loop biomass, geothermal or solar, landfill gas, trash, qualified hydropower, as well as marine and hydrokinetic sources. This and related changes confirm that modifications to previously placed in service projects may potentially qualify for grants.
- The guidance also includes a clarification that if a “facility uses a gas or liquid derived from open-loop biomass, closed-loop biomass, or municipal solid waste to produce electricity, equipment used to produce and process such gas or liquid may be an integral part of the facility.” However, there are restrictions related to equipment used to cultivate, collect or transport such products.
- A safe harbor provision is included for purposes of determining whether construction beings in or prior to 2011, which safe harbor applies if five percent of the total cost of the project has been incurred prior to the end of 2011. Language related to this provision that previously excluded land costs and preliminary activities, including “planning, designing, securing financing, exploring or researching,” has been removed.
For further information of the 1603 program, click on the updates to the guidance and FAQ sections.