Energy Law Alert: Energy Financing Opportunities in the 2008 Farm Bill

Jun 1, 2009 - Stoel Rives, LLP

Lately, a lot of attention has been focused on energy financing opportunities in the American Recovery and Reinvestment Act (the Stimulus Bill) (see our recent publication Show Me the Money: The Law of the Stimulus). However, there are still exciting opportunities for financing renewable energy systems contained in other existing sources. One such act with enormous potential is the Food, Conservation, and Energy Act of 2008 (the "2008 Farm Bill"). The 2008 Farm Bill has numerous renewable energy funding opportunities. For example, on May 26, 2009, the U.S. Department of Agriculture ("USDA") published a Notice of Solicitation of Applications under the Rural Energy for America Program. This notice comes just a few weeks after President Obama directed the USDA to implement financing opportunities from the 2008 Farm Bill.

Rural Energy for America Program

The Rural Energy for America Program ("REAP") is designed to help agricultural producers and rural small businesses reduce energy costs and consumption and to help meet the nation's critical energy needs. REAP provides funding for energy audits1 and energy development assistance. This program can be used to fund either rural energy efficiency projects or rural renewable energy production. Grants under this program may fund up to 25% of project costs (capped at $500,000), and loan guarantees may fund up to 75% of project costs (capped at $25 million). Awards under this program will be made based upon the type of renewable energy system to be purchased, the quantity of electricity generated, the quantity of energy savings, the estimated period before the energy savings will equal the cost of the system, the expected energy savings, and other appropriate factors. So far, $255 million has been appropriated for this program, and USDA has the ability to use an additional $25 million in annual discretionary spending until 2012.

Other Energy Provisions in Title IX of the 2008 Farm Bill

Title IX of the 2008 Farm Bill provides other funding programs for renewable energy sources, including the following programs:

• Biorefinery Assistance Program. The Biorefinery Assistance Program provides assistance in the development, construction, and retrofitting of biorefineries. Demonstration scale biorefineries are eligible for grants and loan guarantees, while commercial scale biorefineries are solely eligible for loan guarantees. Federal grants can provide up to 30% of project costs, and federal guaranteed loans can provide up to 80% of project costs. So far $320 million has been appropriated for this program, and USDA has the discretion to use provide an additional $150 million annually from 2009 through 2012.
• Repowering Assistance. Biorefineries in existence when the 2008 Farm Bill was passed are eligible for payments to reduce their dependence upon fossil fuels. USDA has $35 million available to help biorefineries move to renewable energy sources for heating and powering their facilities. USDA has $15 million in discretionary funds for each of the fiscal years from 2009 through 2012.
• Bioenergy Program for Advanced Biofuels. The Bioenergy Program for Advanced Biofuels provides payments to agricultural producers of feedstocks for advanced biofuels. Advanced biofuels include fuels derived from renewable biomass other than corn kernel starch, such as sugar and starch, waste material, biodiesel made from renewable biomass, biogas produced through the conversion of organic matter from renewable biomass, butanol or other alcohols produced through the conversion of organic matter from renewable biomass, and other fuels derived from cellulosic biomass. So far, $300 million has been appropriated for this program, and USDA has the ability to use an additional $25 million in annual discretionary spending until 2012. Facilities that exceed total refining capacity of 150 million gallons per year are able to receive only 5% of these funds.
• Biodiesel Education Program. The Biodiesel Fuel Education Program provides $1 million annually to educate fleet owners about the benefits of biodiesel.
• Biomass Research and Development. Funding has been allocated for biomass research and development. Research projects under this section are more likely to get funded if they have a partnering agreement with universities, national laboratories, or other research agencies. So far, $118 million has been appropriated, and USDA has an additional $35 million in annual discretionary funds until 2012.
• Rural Energy Self-Sufficiency Initiative. The Rural Energy Self-Sufficiency Initiative provides grants for community-wide energy assessments. Community-wide energy assessments are audits of a community's (rather than an individual user's) energy use and analysis of where energy savings can be obtained. Additional grants are also available under this program to develop and install integrated renewable energy systems. From now through 2012, $5 million in annual appropriations is available.
• Feedstock Flexibility Program. The Feedstock Flexibility Program for Bioenergy Producers has been created to help promote sustainable ethanol and other biofuels. Under this program, USDA will purchase sugar that would otherwise be forfeited to the Commodity Credit Corp. and sell it as a feedstock to bioenergy producers.
• Biomass Crop Assistance Program. The Biomass Crop Assistance Program ("BCAP") has been created to support the production of eligible crops for the conversion to bioenergy. Under BCAP, the government will provide funding for up to 75% of the cost of establishing an eligible perennial crop within a BCAP project area. Applicants must provide a letter of commitment from a biomass conversion facility to buy the crops, evidence that the biomass conversion facility has enough equity to be built (if not in operation yet), and assurances that the facility will be operational when crops are harvested. Under this program, USDA can also provide matching payments to feedstock producers of up to $45 per ton to assist with the collection, harvest, storage, and transportation of the biomass feedstock.
• Forest Biomass for Energy Program. The Forest Biomass for Energy Program provides grants to encourage the use of forest biomass for energy. The program provides $15 million in annual funding through 2012 to research projects that are intended to develop technology to use low-value forest biomass, integrate production of energy from forest biomass into biorefineries, create new transportation fuels from forest biomass, and improve the growth and yield of trees intended for renewable energy production.
• Community Wood Energy Program. The Community Wood Energy Program provides grants to state and local governments to develop community wood energy plans. Eligible recipients can receive matching grants of $50,000 to acquire wood energy systems for public facilities.

Updates to the Rural Electrification Act of 1936

The 2008 Farm Bill has also provided new funding opportunities for electrification and energy efficiency under the Rural Electrification Act of 1936. Title III of the Rural Electrification Act has been amended to allow loans to be made to support renewable energy generation for resale to rural and nonrural residents. Eligible renewable energy resources under this program include solar, wind, hydropower, biomass, and geothermal energy conversion systems. USDA now has the ability to guarantee up to $1 billion in loans under the Rural Electrification Act.

Tax Provisions in the 2008 Farm Bill

In addition to the direct grants and loans available in Title IX, the 2008 Farm Bill also created tax incentives for the production of biofuels. In general, cellulosic biofuel producers may qualify for a credit of up to $1.01 for each gallon of qualified cellulosic biofuel produced.

If you have questions about any of these programs or other renewable energy issues, or would like to discuss the possibility of your local project applying for 2008 Farm Bill or other government funds, please contact:

Janet F. Jacobs at (206) 386-7582 or jfjacobs@stoel.com
David L. Benson at (206) 386-7584 or dlbenson@stoel.com
J. Graham Noyes at (206) 386-7615 or jgnoyes@stoel.com
John M. Eustermann at (208) 387-4218 or jmeustermann@stoel.com
John S. Laney at (206) 386-7559 or jslaney@stoel.com

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1 Energy audits involve the survey of a party's energy usage and analysis of where potential energy savings could be captured.