PL-38668-v2

1. Status of Federal Spending and Tax Incentives for Cleantech R&D and ProjectsConnect Public Policy ForumMay 20, 2010 PL-38668-v2 Fred Greguras Palo Alto Office fred.greguras@klgates.com 650.798.6708

2. Federal Incentives for Cleantech R&D, Manufacturing and Project Deployment • R&D • ARPA-E (https//arpa-e-foa.energy.gov) • Other Funding Opportunity Announcements • More targeted and still primarily single deadline rather than rolling submission FOAs • How to Protect Intellectual Property in Department of Energy Funding Programs, K&L Gates White Paper, January, 2010, available for download at   http://tinyurl.com/ybljw55 • Federal section 1603 30% cash grant in lieu of investment tax credit or ITC (http://www.treas.gov/recovery/1603.shtml) • ITC in lieu of production tax credit (http://www.irs.gov/irb/2009-19_IRB/ar07.html) • 50% bonus depreciation (expired 12/31/09) (not cash)-has not been extended • Manufacturing Tax Credit (http//www.energy.gov.recovery/48C.html)

3. Federal Incentives for Cleantech R&D, Manufacturing and Project Deployment • Loan guarantee program (www.lgprogramenergy.gov) • Timing, application costs and complexity, conservative positions • FIPP program also moving slowly • Clean Renewable Energy Bonds (CREBs) (www.ustreas.gov/press/releases/tg333.htm) • $2.2B in bond issuances approved in October, 2009 by U.S. Treasury for qualified issuers such as local utilities, electric coops, etc.

4. Federal Cash Grant in Lieu of Investment Tax Credit 30% cash as opposed to investment tax credit in the deployment of certain renewable energy projects Simpler ITC may be acceptable to investors with tax liability since no application is needed but this market has not recovered Cash grant payments by Treasury have been key to the financeability of wind and solar project projects Project must be “under construction” by December 2010 Many projects will not make this deadline Legislation proposed to extend and modify – Feinstein/Schumer

5. Manufacturing Tax Credit • $2.3B in awards fully allocated by Treasury in a detailed application process • Not eligible for cash grant in lieu of ITC although proposed legislation would increase allocation, extend and authorize cash grant option • Administration has publicly stated it wants to increase by $5B • Not assignable – may be used only by the tax payer that entered into the award agreement with Treasury • Incentive has the potential for meaningful job creation

6. Summary • Targeted R&D programs • No single federal and/or state incentive is sufficient for project finance; combination of incentives is needed that can be applied at the same time • The federal 30% cash grant is the single most important incentive for deployment of renewable energy projects but is not sufficient by itself • Bonus depreciation should be extended so it has time to be a financing tool • Manufacturing tax credit allocation should be increased and availability extended • American Power Act may be the legislative vehicle in which various pending legislation is consolidated • Best case this year for extensions may be late year action, particularly on cash grant