Energy Law Wisconsin Blog

Topic: Finance & Incentives

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Finish 2011 on Target (Part 1)

Monday, October 31st, 2011

Last Minute Solar Projects Need to Be Aware of Critical Treasury Department Guidance

Required Formal Disclaimer:  Since this entry involves some discussion of legal principles, there is at least a theoretical possibility that one of you out there may read this blog entry and conclude that: (a) you and I have entered into an attorney client relationship; or (b) I am offering you specific legal advice for your specific legal situation.  In the unlikely event you reach either conclusion, I must inform you that sadly, it is not true.  Persons accessing this site are encouraged to seek independent counsel for advice regarding their individual legal issues.

As the Section 1603 payment program draws to a close, solar project developers and owners need to pay attention to two critical sources of guidance issued by the United States Department of Treasury.

The first is the “begun construction” guidance, advice regarding the steps applicants must take to ensure that their project will qualify for federal reimbursement funding, if it is not placed in service by the end of the Section 1603 program on December 31, 2011.

The second type of guidance addresses situations in which Treasury will scrutinize reimbursement requests from solar PV projects.

I addressed both types of guidance at the Solar Wisconsin Fall Conference held at the Monona Terrace Convention Center on October 25. A copy of my presentation outline is here: (Section 1603 Guidance Presentation). I will address the first of these types of guidance in this entry and the second type in another entry that I will post in a few days.

 

Begun Construction Guidance

Under a document titled “Frequently Asked Questions and Answers Begun Construction” (the “Begun Construction Guidance”), the Treasury Department has indicated that if a Section 1603 applicant wants its renewable energy project to be eligible to receive a Section 1603 reimbursement payment equal to up to 30 percent of the eligible cost basis, and cannot place it in service (i.e., have it commissioned
and, if applicable, connected to the grid) by the end of 2011, then the applicant must meet one of the two Treasury “begun construction” tests:

Commence actual physical work on the project. This means actual work at the site or actual work by a project contractor on renewable energy project components that are being made specifically for the project.  Items taken out of existing inventory will
not qualify.  Nor will preliminary activities such as site clearing, demolishing existing structures or money spent to obtain financing or secure permits.

5% Safe Harbor Rule. To qualify for the safe harbor, the applicant must have paid (if a cash-basis taxpayer) or incurred (if an accrual basis taxpayer) an amount equal to 5% of the eligible cost-basis of the renewable energy system. Whether or not an expense has been incurred is determined by reference by a multi-part test established under earlier Treasury regulations.  It is important that the monies be spent under a contract that is enforceable under state law and and one that does not limit damages, in the event of breach by the applicant to less than 5% of the total contract price.

 

There are advantages and disadvantages to either approach. If an applicant opts for the physical onsite work approach, there is no established minimum amount of work that must be done. However, once work is begun, it must be continuous. On the other hand, the 5% test does not include the continuous work requirement, only that the threshold amount of money be spent. The 5% Safe Harbor test is not without its own risks: If the applicant spends 5% of the eligible cost basis, as it appears to be in 2011, but if in 2012, the project costs increases so that with 20/20 hindsight the money spent turns out to be less than 5% of the final eligible cost basis, the applicant will fail the 5% Safe Harbor Test.

The requirements in the Begun Construction Guidance are detailed, and require applicants to look carefully at the scheduling of their projects and even the contracts they enter into to create their project, to be sure that they can pass the applicable tests. If you have specific questions about the Begun Construction Guidance, you can go on to the Department of Treasury’s 1603 Program website to  review the guidance. You are also welcome to email me with any questions or comments.

What is “Energy Law Wisconsin” : A Collection of Actual Project Photos

Wednesday, August 4th, 2010

Many people have asked me, “Just what is Energy Law?”  I have quickly learned that to answer this question with precise details of the laws in place and tasks involved is a good way to make peoples’ eyes glaze over.

It is easier to explain what I do is by showing the results, so here are a few pictures.  These are the types of projects I help people with:

Wind Energy

Kewaunee Wind Farm

Solar Farms

Efficient Cogeneration Power Plants

MGE Cogeneration Facility

LEED Certified Buildings

Wisconsin Energy Conservation Corporation Headquarters

Other types of projects I work on that are not pictured above include replacing coal with biomass as a fuel for power generation, helping energy startup companies  get off the ground (kind of like holding your hands around a newly struck match while starting a campfire on a windy day), and helping municipalities convert garbage and sewage into energy.

There are a host of legal issues wrapped up in the journey from start to finish on all of these types of projects.  They include legal issues relating to raising money, protecting new ideas, getting government approvals, contracting for labor and materials, connecting to the electrical grid, putting together a financial package of grants, tax credits and other incentives and positioning the project for optimal use of renewable energy certificates and carbon credits it may produce.

My plan is to share a few of my stories from my practice. I’ll try to weigh in on some of the issues that people face when trying to change the energy status quo.  If you have any comments I’d love  to hear from you.  I’ll do my best to answer questions, time permitting.

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