Building Public/Private Partnerships in Energy : Post Stimulus

1. BuildingPublic/Private Partnerships in Energy:Post Stimulus Presented by: John A. Herrick Senior Counsel Brownstein Hyatt Farber Schreck Denver, CO Former Chief Counsel U.S.Department of Energy Golden, CO webinar Renewable Energy: Legal Challenges and Solutions For the Green Economy American Bar Association Standing Committee on Environmental Law University of Denver Sturm College of Law, Denver, Colorado November 20, 2009 Denver, CO John Herrick

2. 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

3. November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick

4. 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 inEnergy Project Financings: November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick

5. 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

6. 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

7. DOE Public-Private Partnerships ResearchDevelopmentDemonstration - Commercialization Up to 80 % federal cost share Up to 50% federal cost share GRANTS COOPERATIVE AGREEMENTS TECHNOLOGY INVESTMENT AGREEMENTS LOAN GUARANTEES §1703 §1705 Equity Contribution Debt Participation November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick

8. 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

9. DOE Loan Guarantee Program November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick

10. 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 November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick

11. 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 November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick

12. 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 November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick

13. 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 November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick

14. Comparison of FIPP to Non-FIPP DOE Guarantees November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick

15. Contact • John Herrick • Brownstein Hyatt Farber Schreck • Denver, Colorado - Washington, DC • (303) 223-1122 • jherrick@bhfs.com November 20, 2009 Legal Challenges and Solutions for the Green Economy John Herrick