FINANCING BIOMASS-TO-POWER AND ADVANCED BIOFUELS

1. FINANCING BIOMASS-TO-POWER AND ADVANCED BIOFUELS EUCI Renewable Biomass For Affordable Power Generation ConferenceFinancing Biomass WorkshopMinneapolis, MNMarch 25, 2010 . Mark J. Riedy | Partner Mintz Levin Cohn Ferris Glovsky and Popeo P.C. 701 Pennsylvania, NW Work: 202-434-7474 Cell: 703-201-6677 mjriedy@mintz.com www.mintz.com

2. Mark J. Riedy, Esq. • Has Represented Clients In Renewable Energy (Fuels and Power) Project Finance Since 1978, Government Funding Initiatives (Grants, Loans, Loan Guarantees, Etc.) Since 1980, And Clean Tech Private Placements Since 1999, Domestically And Internationally. • A Founder And Original General Counsel: • Renewable Fuel Association –1979-1984. • Clean Fuels Development Coalition – Since 1985. • Clean Fuels Foundation – Since 1990. • American Council On Renewable Energy – Since 2001. • Latin American Council On Renewable Energy - Since 2009. • Assisted Clients In The Creation Of The Alternate Energy Tax Incentives In The 1978 And 1980 Tax Acts, And Their Expansions and Extensions Thereafter. • Assisted Clients In The Renewable Fuels And Renewable Power Industries In The Development Of Provisions In The 1978 Public Utility Regulatory Policies Act, 1983 Caribbean Basin Economic Recovery Act, 1990 Clean Air Amendments (And Reformulated Gasoline Regulations thereto), 1992 Energy Policy Act, 2005 Energy Policy Act, And The 2007 Energy Independence And Security Act, 2008 Food, Conservation And Energy Act, and 2009 American Recovery And Reinvestment Act.

3. I. INTRODUCTION • This presentation principally will address the financing of biomass feedstocks into biomass-to-power and advanced biofuels facilities. These facilities may be independent projects or, in some instances, are located together as part of an integrated biorefinery complex. • The American Recovery And Reinvestment Act of 2009 ("ARRA"), a $787 billion stimulus package enacted on February 17, 2009, extended and/or expanded upon a number of existing renewable energy tax credits and Federal government funding programs. It also created various new tax incentives and government stimulus financing programs. Through the ARRA, President Obama seeks to double the percentage of renewable energy from 7.5% to 15%, and create $5 million new jobs, in the next three years. • The ARRA and other forms of government funding aim to make the United States the world leader of the clean energy economy. This is one of the Administration’s top priorities, as evidenced by increasing levels of government funding for clean technology and the central role energy policy played in the recent State of the Union address. • I will examine tax incentives and government programs below. I also will examine some additional incentives that may be available in the near future. 1

4. II. STATUS OF BIOMASS INDUSTRIES A. Status Of The Biomass-To-Biofuels Industries 1. At year end 2009, U.S. ethanol capacity was about 11.5 billion gallons per year while production reached a record 10.75 billion annual gallons. 2009 production had been targeted at 13.2 billion gallons per year. 2009 biodiesel installed capacity was approximately 2.68 billion gallons per year. However, 2009 production amounted to less than 200 million gallons per year, or approximately 10% of capacity, due to a significant countervailing duty in the European market. These biofuels predominantly are first generation with principal feedstocks consisting of foodgrade grain--corn--for ethanol and edible oils (soy, canola and palm), animal fats and recycled greases for biodiesel. 2. Second generation biofuels, or advanced biofuels, have feedstocks that are inedible. These advanced and cellulosic biofuels' feedstocks will consist principally of cellulose, lignocellulose and hemicellulose for cellulosic ethanol (e.g. switchgrass, wood chips, etc.), municipal solid waste-to-fuel and other combustion-to-fuel products, and biodiesel (algae and jatropha-based). 2

5. II. STATUS OF BIOMASS INDUSTRIES 3. The CAPEX numbers are significantly higher for second generation versus first generation biofuels (approximately $5.00 per gallon to $10.00 per gallon versus approximately $1.00 per gallon to $3.00 per gallon). However, second generation biofuels operating costs should be significantly lower than those for first generation biofuels. 4. In February 2010 the Environmental Protection Agency (“EPA”) issued final rules for the National Renewable Fuel Standard program that require that life-cycle greenhouse gas ("GHG") emissions for advanced biofuels be at least 50% lower than the same GHG emissions for petroleum-based fuels (from a 2005 baseline) in order to qualify for the monetizable Federal renewable fuel standard ("RFS") credit. The cellulosic biofuels component of advanced biofuels will be required to meet a more stringent standard of life-cycle GHG emissions that are at least 60% lower than the same GHG emissions for petroleum-based fuels (again, from a 2005 baseline) to qualify for the monetizable RFS credit. 3

6. II. STATUS OF BIOMASS INDUSTRIES 5. The RFS for 2010 has been set at 12.95 billion gallons per year, with 950 million gallons per year for advanced biofuels, 650 million gallons per year for biomass-based diesel, and 100 million gallons per year for cellulosic biofuel. However, very small amounts of cellulosic ethanol are currently in commercial production and there is a low likelihood of meeting the 2010 target. 6. In response, the EPA has set the 2010 cellulosic biofuel standard at 6.5 million annual ethanol-equivalent gallons. While this volume is significantly less than that set forth for 2010 originally, a number of companies and projects appear to be poised to expand production over the next several years. The EPA also will make cellulosic credits available to obligated parties for end-of-year compliance, should they need them, at a price of $1.56 per gallon. 7. The EPA’s final rules on the National Renewable Fuel Standard program set the Federal RFS mandate at 36 billion gallons per year by 2022. The Obama Administration has stated it intends to increase the mandate to 60 billion gallons per year by 2030. 4

7. II. STATUS OF BIOMASS INDUSTRIES 8. Some of the challenges for advanced biofuels (including cellulosic biofuels) are the ability to: a. comply with life-cycle GHG emissions standards in order to obtain the RFS credit; b. finance these new second-generation biofuels technologies with debt during a period of time without demonstrable historical revenue-producing examples for each new technology--the so-called "valley of death" period (which Federal financing must address) and, thus, making substantial equity percentages and/or government-guaranteed debt a must; c. obtain technology construction and performance guarantees (or “project wraps”) when engineering and construction companies have little to no track record in developing such projects, and thus, the traditional EPC-engineering, procurement, construction option is generally not viable for emerging technology projects; 5

8. II. STATUS OF BIOMASS INDUSTRIES d. provide the required acquisition, transportation and storage of new and dense feedstocks for production purposes; e. overcome the expected "blend-wall" constraint by 2013 at EPA's 10% gasoline-blend volume waiver with approximately 140 billion annual gallons of U.S. gasoline consumption (by increasing EPA's blend waiver to E-12, E-15 or higher blends/increase in E-85 vehicles and E-85 dispensing pump infrastructure, which may occur by mid-Summer 2010); and f. develop new markets or demonstrate the ability to economically survive the European antidumping duties imposed on U.S.-subsidized and exported biodiesel in its traditional strongest marketplace of Europe. 6

9. II. STATUS OF BIOMASS INDUSTRIES 9. Biofuels projects would benefit immensely from the establishment of a new percentage ITC, similar to that accorded to renewable power applications as discussed below, which can: a. be used either as a tax credit in the year that the project is placed in service or taken as a cash grant/equity contribution at financial closure of the project financing instead of at the date of commercial operation; and b. avail government financing without any penalty. 7

10. II. STATUS OF BIOMASS INDUSTRIES B. Status Of The Biomass-To-Power Industries 1. Biomass-to-power plants burn organic wastes to produce steam that turn generators to produce electricity. Their typical size is approximately 20 MW. Small producers operate most such projects and sell the power to large utilities. 2. Biomass-to-power projects (nearly 11,000MW in the U.S.) currently constitute approximately 1% of U.S. power capacity and approximately 11% of U.S. renewable power. As such, this power source rivals wind power which most recently is growing faster than biopower at a 39% annual growth rate. Still, biomass-to-power grew by approximately 14% in 2009. It is significantly more prevalent than solar and geothermal power projects. 3. Of the current U.S. biomass-to-power capacity, wood-fired power projects represent nearly 60% of that capacity, while municipal solid waste (about 89 plants), landfill gas (approximately 300 plants), animal waste (a large number include anaerobic digestion-to-power plants) and agricultural refuse (several cornstalks/sunflower shells- to- power plants) make-up the remaining capacity of approximately 40%. 8

11. II. STATUS OF BIOMASS INDUSTRIES 4. Like the RFS and monetizable credits thereto for biofuels, the renewable portfolio standard ("RPS") (for the purchase and use of green power) and its monetizable renewable energy credits ("RECs") thereto for biomass-to-power (and other renewable power applications) are expanding the industry substantially, as RPS requirements are established in approximately 50% of U.S. states. As a result of the RPS growth and potential expanded Federal emissions restrictions, coal-fired power plants are being converted to biomass-to-power projects and thus increasing their normal MW size significantly. 5. Organic feedstocks for biomass-to-power emit approximately the same amount of carbon whether combusted in a power plant or allowed to decay in a landfill or simply on the ground. Thus, biomass-to-power plants are relatively carbon-free. 6. Furthermore, landfill decay can produce methane which is much more harmful than CO2 from a GHG emissions perspective. Also, biomass-to-power plants can emit relatively high levels of NOx and particulate emissions. 9

12. II. STATUS OF BIOMASS INDUSTRIES 7. Some of the challenges for biomass-to-power are the following: a. the energy value in a pound of coal is approximately 50% to 66% greater than that produced from a pound of wood chips or household trash, requiring transportation of large amounts of biomass within an approximate 75 mile radius of a plant to be economic when including transportation costs; b. 20MW biopower projects generally are less cost-efficient than a 500MW coal-fired power plant; c. the cost to produce biomass-to-power (approximately $3 million to $5 million per MW in CAPEX) generally is 90% greater than coal and 25% greater than wind; and d. feedstock availability and conversion can be problematic. e. unclear or conflicting definitions of “biomass” in Federal legislation may adversely impact financing - at present 16 biomass definitions appear in federal statutes, regulations, notices and guidances, with many of them in direct conflict. 10

13. II. STATUS OF BIOMASS INDUSTRIES 8. Many biomass technologies in the current depressed economic environment are nevertheless being funded by angel, venture and private equity participants principally located in the areas surrounding Silicon Valley, Northern Virginia, New York, New Jersey and Boston. Since the capital markets are generally unavailable, these technologies are pursuing additional private placement rounds. I recently have completed a Series A finance and bridge loan for a biomass compaction technology company, a follow-on Series A round of each funding, and have commenced a Series B funding for the same technology provider. 11

14. II. STATUS OF BIOMASS INDUSTRIES 9. The hope is that the lending community will recover, as these technologies are developed, to then pursue larger biofuels and biomass-to-power projects on a project finance basis. International markets still offer project finance opportunities for these projects, with multilateral and bilateral finance institutions taking the lead funding roles. I have completed venture capital and private equity funding, as applicable, on two biodiesel projects and ethanol projects in India; biomass-to-power projects in India and the Philippines; solar-powered water treatment projects in Greece, Turkey, India and Bangladesh; wind projects in India, and small hydro power projects in India. At present, I have been engaged for more than 1500MW of solar, wind and biopower projects in India and approximately 500MW of biopower projects in the Philippines. 12

15. III. ENERGY TAX INCENTIVES A. Energy Production Tax Credit For Electricity Produced From Renewable Resources 1. The ARRA includes a three-year extension of the renewable energy production tax credit ("PTC") for wind and refined coal energy facilities (through December 31, 2012, which otherwise expired on December 31, 2009) and for closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy, and marine renewable facilities (through December 31, 2013, which otherwise would have expired on December 31, 2010). 2. The Emergency Economic Stabilization Act of 2008 ("EESA") had extended the PTC from December 31, 2008 for one year on the wind, and two years on the second set of the above-listed, renewable power technologies. As originally authorized by the Energy Policy Act of 1992, as amended, Section 45 of the Internal Revenue Code ("IRC") provides a 10-year, inflation-adjusted, PTC for certain forms of renewable energy (described above). 13

16. III. ENERGY TAX INCENTIVES 3. The PTC is available from the date in which the power facility is placed in service/commences the generation of power. The PTC for biomass-to-power applications currently range from 1.0 cent/KwH (for feedstocks from municipal solid waste--landfill gas, trash combustion--and open-loop biomass--livestock, forest, agricultural waste--) to 2.1 cents/KwH (for feedstocks from organic plant material planted exclusively to produce electricity in closed-loop biomass-to-power projects). This tax incentive is available from the date of the generation of energy from the qualified facility. 4. Some other PTC-qualified renewable energy technologies instead may receive incentives in an range of the lower 1 cent/KwH incentive--small irrigation power, qualified hydropower, marine and hydrokinetic power--to the higher 2.1 cents/KwH incentive--wind, geothermal, pre-2006 solar power. 14

17. III. ENERGY TAX INCENTIVES B. Elections Of Investment Tax Credit In Lieu Of Production TaxCredit/Treasury Department Grants In Lieu Of Tax Credits And Removal Of "Double-Dipping" Penalty 1. IRC Section 48 provides an investment tax credit ("ITC") for certain forms of commercial energy technologies, including solar, fuel cells and small wind projects (all of which are eligible for a tax credit of 30% of the project's qualifying costs); as well as for microturbines, combined heat and power and geothermal projects (all of which are eligible for a tax credit of 10% of the project's qualifying costs). At present, only the ITCs for microturbine and fuel cell technologies are subject to a dollar cap. 2. The EESA generally extended the ITC for eight years from December 31, 2008 through December 31, 2016. However, the geothermal ITC has no expiration date and the solar ITC, unless otherwise extended, will reduce to 10%, rather than expiring completely at the end of 2016. 15

18. III. ENERGY TAX INCENTIVES 3. The ITC is realized in the year in which the facility is placed in service or commences its commercial operation. However, it vests linearly over a five year period. Therefore, should the project owner sell the project prior to the conclusion of its fifth year of operation, the Internal Revenue Service will recapture the unvested portion of the tax credit. 4. The ARRA, however, has provided a new election for owners of such PTC-qualifying facilities. It permits such owners to claim a 30% ITC against the qualifying cost basis of its particular project, when the property is placed in service, in lieu of taking the PTC. Approximately 92% - 95% of the cost basis constitutes eligible costs against which to claim the 30% ITC/cash grant. Moreover, the ARRA permits taxpayers to elect to receive grants/cash payments of equal value of the 30% ITC, on an un-capped dollar basis (but for the 30% cost basis limit), from the Treasury Department in lieu using the PTC. 16

19. III. ENERGY TAX INCENTIVES 5. If the grant/cash payment is elected, it is not included in project gross income. Furthermore, the "construction of the project”, defined in the July 2009 Treasury Guidance, must commence on or before December 31, 2010. Congress is considering extending the “in construction” deadline to December 31, 2012. It also is considering making the Section 1603 30% of CAPEX cash grants available to advanced biofuels projects. Notwithstanding, the commercial operations date need not occur until or before: a. December 31, 2013 for biomass-to-power and certain other renewable power technologies; December 31, 2012 for wind power; and b. December 31, 2016 for solar and certain other specified renewable energy property described in IRC Section 48. Also, the application for such a grant/cash payment must be made to the Treasury Department on or before October 1, 2011. 17

20. III. ENERGY TAX INCENTIVES 6. The Treasury Department will issue a grant/cash payment equal to 30% of the qualifying costs of the renewable energy facility within 60 days of the facility being placed in service (or, if later, within 60 days of receiving a completed application for the grant). Notwithstanding, some legal considerations/technicalities may exist with respect to the issuance of these cash grants. The Treasury Department, like all federal agencies dispensing ARRA funds, requires a determination of compliance with the National Environmental Policy Act ("NEPA"), before issuing cash grants. Congress has directed that all such compliance procedures be conducted on an “expeditious basis.” 18

21. III. ENERGY TAX INCENTIVES 7. This election generally will occur when the project owner/taxpayer has insufficient taxable income or the project owner is unable to secure a tax equity participant for the project. However, before making this election, the project owner/taxpayer must determine quantitatively (using various nominal discount rates to determine the net value of the ITC versus the PTC) whether the value of taking the one-time 30% ITC, at the time of placing the facility in service, exceeds the value of taking the PTC in each year of a 10-year period. 8. Whether the ITC is used or a grant/cash payment is taken, the election in lieu of taking an otherwise qualified PTC is irrevocable. Furthermore, the depreciable basis of the project must reduced by one-half of the amount of the ITC used or the grant/cash payment taken. 19

22. III. ENERGY TAX INCENTIVES 9. This cash grant election is to compensate for the substantial reduction in the number of tax equity investors (e.g., generally commercial banks, investment banks, insurance companies and other strategic investors) and provide cash infusions into qualified renewable power projects. Many of these traditional tax equity investors (which at one time numbered approximately 20-25 major players and then reduced to approximately 4-9 major investors due to the economic down turn) either ceased operations or no longer had taxable income requiring offsetting tax credits (as they were running at losses). As a result, the election is a way to fund these types of renewable energy projects. 10. Notwithstanding, it would have been even more lucrative to project developers had Congress shifted the point of eligibility for the cash grants from the commercial operation date to the date of financial closing. This eligibility date shift would have made the cash grant more of a valuable project equity infusion than a post-construction grant to offset other financing. It would have made such projects even easier to finance. 20

23. III. ENERGY TAX INCENTIVES 11. Finally, the ARRA removes the "double-dipping" penalty (i.e., otherwise reducing the ITC where the ITC-qualifying project was financed with tax-exempt industrial development bonds or through any Federal, state or local government subsidized financing--grants, loans, loan guarantees, etc--program) for project owners/taxpayers that elect to take the ITC or an ITC-equivalent grant/cash payment, in lieu of taking the PTC. The "double-dipping" penalty remains in place, however, for those electing to use the PTC. 21

24. III. ENERGY TAX INCENTIVES C. Power Project-- Bonus Depreciation 1. Any project owner/taxpayer of a project qualified for the PTC or ITC may write off 50% of the depreciable basis in the first year, with the remaining basis depreciated as normal according to the applicable schedules. 2. The ARRA extended this 50% bonus depreciation for one year from 2008 to December 31, 2009 to qualified renewable energy projects acquired and/or placed in service in 2009. Congress currently in proposed tax legislation is considering extending this bonus depreciation provision. 22

25. III. ENERGY TAX INCENTIVES D. Advanced Biofuels Project--Bonus Depreciation 1. A cellulosic ethanol project owner/taxpayer may take a 50% depreciation expense against the cost of the production facility in the year in which the facility is placed in service. 2. In a recent IRS Ruling, the IRS permits this depreciation expensing notwithstanding that the cellulosic ethanol is not produced directly from breaking down plant material. In this regard, the IRS rules that it is permissible to ferment the broken down plants and then produce the ethanol from that process. 3. The balance of the project cost is recovered through regular depreciation. Furthermore, the 50% bonus depreciation write-off is allowed against the alternative minimum tax. 23

26. III. ENERGY TAX INCENTIVES E. Advanced Energy Investment Tax Credit 1. The ARRA establishes a new 30 percent ITC for qualified investment in a “qualifying advanced energy project.” Qualified investments include tangible personal property that is depreciable and required for the production process. A qualifying advanced energy project is a project that re-equips, expands or establishes a manufacturing facility for the production of: a. property designed to be used to produce energy from renewable resources; b. fuel cells, microturbines, or energy storage systems for use with electric or hybrid electric motor vehicles; c. electric grids to support the transmission of intermittent sources of renewable energy; 24

27. III. ENERGY TAX INCENTIVES d. property designed to capture and sequester carbon dioxide emissions; e. property designed to refine or blend renewable fuels or to produce energy conservation technologies; f. new qualified plug-in electric drive motor vehicles, qualified plug-in electric vehicles or components designed to for use with such vehicles, or g. other advanced energy property designed to reduce greenhouse gas emissions. 2.These credits are available only for projects certified by the Secretary of the Treasury in consultation with the Secretary of Energy. Once certified, the project applicant has three years from the date of certification issuance to place the project in service. If the project is not placed in service during such period, then the certification will become invalid. A competitive bidding process applies in order to receive certification. Up to $2.3 billion of credits were available for certification under this program but, as of today, the entire $2.3 billion has been fully committed, and the RFP was oversubscribed more than 3 to 1. Congress may appropriate an additional $2.3 billion to $5 billion through pending legislative proposals. 25

28. III. ENERGY TAX INCENTIVES 3. The advanced energy ITC provision is silent regarding whether a double-dipping penalty is applicable to reduce this tax credit's percentage if the taxpayer also uses any tax exempt and/or government financing as in the case of the ITC/PTC discussion above. That said, developers of such advanced energy technologies might consider seeking a clarification of the new cash grant provision to include such technologies for grants in lieu of the new advanced energy ITC. 4. Nevertheless, if this advanced energy ITC is used, the taxpayer may not claim/use other IRC Section 48 tax credits, such as the ITC and PTC. 26

29. III. ENERGY TAX INCENTIVES F. New Market Tax Credit 1. The New Markets Tax Credit ("NMTC") Program permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities ("CDEs"). Substantially all of the qualified equity investment, in turn, must be used by the CDE to provide investments in low-income communities. 2. The credit provided to the investor totals 39% of the cost of the investment. It is claimed over a seven-year credit allowance period. 3. In each of the first three years, the investor receives a credit equal to five percent of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is six percent annually. Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period. 27

30. III. ENERGY TAX INCENTIVES 4. Throughout the life of the NMTC Program, the Community Development Financial Institutions Fund ("Fund"), directed by the Treasury Department, is authorized to allocate to CDEs the authority to issue to their investors up to the aggregate amount of$26 billion in equity against which NMTCs can be claimed. This amount includes $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone. 5. To date, the Fund has made 396 awards totaling $21 billion in allocation authority. In the most recent funding round, which took place in October of 2009, Treasury announced NMTC awards of $5 billion, including $1.5 billion made possible through the ARRA. An organization seeking to receive awards under the NMTC Program must be certified as a CDE by the Fund. A CDE application can take approximately 90 days to complete and file, as it is a time-consuming process requiring significant paperwork. 6. The Treasury hopes to expand and extend the NMTC program with a proposal in the FY 2011 budget that would appropriate an additional $10 billion to the program over the next two years. 28

31. III. ENERGY TAX INCENTIVES 7. To qualify as a CDE, an organization must: a. be a domestic corporation or partnership at the time of the certification application; b. demonstrate a primary mission of serving, or providing investment capital for, low-income communities or low-income persons; and c. maintain accountability to residents of low-income communities through representation on a governing board of, or advisory board to, the entity. 29

32. III. ENERGY TAX INCENTIVES G. Biofuels Tax Incentives 1. The following tax incentives are available for biofuels: a. volumetric ethanol excise tax credit (“VEETC”) of $0.45/gallon for the blending of grain-ethanol with gasoline; b. cellulosic biofuels tax incentive of $1.01/gallon for the production, blending and sale of cellulosic ethanol ($0.45/gallon VEETC and $0.56/gallon producer payment). 2. The following tax incentives for biodiesel expired December 31, 2009. They likely will be extended in a 2010 tax bill to at least December 31, 2010 with retroactive applications to the 2009 expiration date, as follows: a. a $1.00 gallon tax incentive for biodiesel regardless of whether the feedstock is virgin (e.g., non-recycled biomass such as plant oils, animal fats) or non-virgin (e.g., recycled biomass such as restaurant greases); b. a $0.50/gal tax incentive for co-processed renewable diesel; and c. a $1.00/gallon tax incentive for non co-processed renewable diesel. 3. Leaders of the advanced biofuel industry are calling upon Congress to create an investment tax credit for biorefineries that would apply Section 1603 cash grants to 30% of the qualified CAPEX of advanced biofuels projects. 30

33. III. ENERGY TAX INCENTIVES H. EESA/ARRA CO2 Capture Credits 1. The EESA, as fine-tuned by the ARRA, also provided a $10 credit per ton for the first 75 million metric tons of CO2 captured and transported from an industrial source for use in U.S. enhanced oil recovery. 2. It also provides $20 per ton credit for CO2 captured and transported from an industrial facility for permanent storage in a U.S. geological formation. 3. A qualifying facility must capture 500,000 metric tons CO2 per year. 4. The EESA authorizes $1.119 billion over the next 10 years for this opportunity. 31

34. III. ENERGY TAX INCENTIVES I. Clean Renewable Energy Bonds 1. The ARRA authorizes an additional $1.6 billion of new clean renewable energy bonds ("CREBs") to finance facilities that generate electricity from the following resources: closed-loop biomass, open-loop biomass, geothermal, trash combustion, wind, small irrigation, hydropower, landfill gas and marine renewable projects. 2. This CREBs funding is subdivided into the following amounts: 1/3 available for qualifying projects of state, local, or tribal governments; 1/3 available for qualifying projects of public power providers; and 1/3 available for qualifying projects of electric cooperatives. It expands upon the previous funding level for CREBs at $800 million. 32

35. III. ENERGY TAX INCENTIVES 3. Tax credit bonds, unlike taxable bonds, pay the bondholders by providing a credit against their Federal income tax. CREBs, in effect, will provide interest-free financing for renewable energy projects, including certain qualified biomass-to-power plants. Since the Federal government "pays the bond interest" through tax credits, the Treasury Department must allocate such credits in advance through the authorized funding levels. 4. To attract bondholders who will benefit from such an investment in the current economic downturn, the ARRA permits regulated investment companies to pass through the tax credits earned by such CREBs to their shareholders. The ARRA also provides a prevailing wage requirement to projects financed with CREBs. 33

36. IV. GOVERNMENT FUNDING PROGRAMS A. Department Of Energy 1. Integrated Biorefineries Grant Program a. On December 22, 2008, the Department of Energy ("DOE") issued a competitive Funding Opportunity Announcement ("FOA"), originally for up to $200 million over six years (Fiscal Years 2009-2014 subject to Congressional appropriations). This funding supports the development of pilot and demonstration scale projects, including the use of feedstocks such as algae for second generation biofuels and production of advanced biofuels (such as cellulosic ethanol, bio-butanol, green gasoline, green diesel, and other non-food based liquid transportation fuels). b. Edible oil-based biodiesel and corn-based ethanol were specifically excluded. Also, electric power production from biomass as a primary product was excluded. However, heat recovery and secondary power generation was included. c. This program aimed to increase the nation's energy, economic and national security by reducing our reliance on foreign oil, and reducing greenhouse gases by deploying increased biofuels usage through research and development of advanced biofuels technologies. 34

37. IV. GOVERNMENT FUNDING PROGRAMS d. The FOA had two topic areas for biorefinery development: i. Pilot-scale, minimum throughput of one dry ton of feedstock/day, with a minimum non­Federal cost-share of 30%/funding - $25 million (previously $15 million)/project. ii. Demonstration-scale, minimum throughput of 50 dry tons of feedstock/day, with a minimum non-Federal cost-share of 50%/funding-$50 million/project. e. In December 2009, the DOE awarded $564 million to 19 projects, 14 of which were pilot-scale, 4 which were demonstration-scale, and 1 which was an already existing refinery that had previously received Federal funding. An example of an awardee is Algenol Biofuels, which received $25 million, in addition to $34 million of private funding, to construct a refinery that will produce 100,000 annual gallons of ethanol from CO2 and seawater using algae. f. The intent of this FOA is to have integrated biorefinery projects at the pilot and demonstration scale levels operational within three to four years after applicants are selected. All projects must be located within the U.S., use feedstock from domestic biomass and demonstrate significant greenhouse gas reductions. 35

38. IV. GOVERNMENT FUNDING PROGRAMS g. These pilot and demonstration-scale facilities are intended to lead to commercialization in the near term. The projects selected will demonstrate the commercial viability for producing advance biofuels from a variety of biomass conversion technologies and non-food feedstocks, therefore reducing U. S. dependence on oil. h. Advanced biofuels produced from these projects are expected to reduce greenhouse gas emissions by a minimum of 50 percent, as determined by the EPA. i. It is possible that, over the coming year, additional funds will be allocated to create at least a new round of Integrated Biorefinery solicitations and awards. 36

39. IV. GOVERNMENT FUNDING PROGRAMS 2. Two Loan Guarantee Programs a. Title XVII of the Energy Policy Act of 2005 ("2005 Energy Act") established the DOE loan guarantee program (through Section 1702 but defined under Section 1703) with a particular focus on providing such guarantees for the commercialization of advanced biofuels, renewable power, certain other renewable energy/climate change, emissions-reducing fossil fuels and nuclear technologies/projects. The Energy Independence and Security Act of 2007 expanded on this program. The concept of loan guarantees originally was implemented in the Energy Security Act of 1980 for the DOE and the U.S. Department of Agriculture (“USDA”). It has continued to the present at the USDA, but, due to abuse, was ended at the DOE in 1981 until the 2005 Energy Act restored it. 37

40. IV. GOVERNMENT FUNDING PROGRAMS b. Before the enactment of the ARRA, the Title XVII DOE Loan Guarantee Program had approximately $42.5 billion in Congressionally-appropriated funds. Of this funding, Congress appropriated approximately $14.5 billion for the commercialization of advanced biofuels technologies, $18 billion for nuclear power and approximately $28 billion for the commercialization of renewable power, certain other renewable energy/climate change technologies and emissions-reducing fossil fuels. Total funding for the Loan Guarantee Program peaked at about $110 billion from congressional appropriations pursuant to authority established or expanded in EPACT, EISA, the ARRA, a 2009 Congressional appropriation and a line of credit from Treasury. Of this total funding, about $80 billion remains for commitment and issuance. c. DOE Section 1703 guarantee authority will cover up to 80% of the project costs and up to 100% of the project loan amount. Where 100% of the loan is guaranteed, however, the DOE's rules require that the Treasury Department's Federal Financing Bank provide the loan. Also, these loan guarantees cannot guarantee municipal bonds and generally guarantee loans with terms of five to 30 years. Loans of less than five years are questionably eligible for these guarantees. Loan guarantees can guarantee taxable corporate bonds. 38

41. IV. GOVERNMENT FUNDING PROGRAMS d. The ARRA expands the categories of commercial projects eligible for DOE Loan Guarantees through a new second program (through Section 1705 amending the 2005 Energy Act) and appropriates $6 billion in new funding to cover the credit subsidy costs (i.e., loan guarantee default contingencies) for guaranteed projects. This appropriation essentially will support an approximate additional $60 billion in new loan guarantees, depending on how the OMB scores the credit risks of the qualified projects. This amount was reduced by $2 billion, or $20 billion in loan guarantee authority, when the Congress redirected funds to the Cash-for-Clunkers Program. However, Congress currently is considering restoring to the Program the full $2 billion/$20 billion in loan guarantee authority through pending legislation. e. $500 million of the $6 billion originally was intended for advanced biofuels projects. If similarly extrapolated, this amount supports approximately $5 billion in loan guarantee authority. However, the DOE has not done so. f. In other words, the new Section 1705 loan guarantee program differs from the original Section 1703 loan guarantee program in several ways. Unlike the original loan guarantee program which required the employment of new/innovative or significantly improved technologies (i.e., generally a technology that over the past five years has not been used in more than three projects in the U.S.), the new program is not limited to innovative, first-of-a-kind technologies. The new program funding can apply to existing/proven commercial renewable energy (e.g., biofuels, biomass, wind, solar, geothermal, hydropower, hydrogen, advanced coal energy technologies, carbon capture and sequestration, pollution control, etc.) and electric transmission technologies. 39

42. IV. GOVERNMENT FUNDING PROGRAMS g. Section 1703 authorizes DOE loan guarantees for renewable energy and certain other projects. • Eligible projects must “avoid, reduce or sequester air pollutants” and “employ new or significantly improved technologies” rather than commercial technologies. • The principal goal of Section 1703 is to encourage early commercial use in the United States of “new or significantly improved technologies,” where there are not three or more substantially similar technologies in commercial operation in the United States in the last five years. h. Section 1705 authorizes DOE loan guarantees for three specific types of commercial renewable energy projects: i. Renewable energy systems. ii. Electric power transmission systems. Iii. Leading edge biofuel projects. • Note that “commercial renewable energy projects” are those where three or more substantially similar technologies are in commercial operation in the world in the previous two years. 40

43. IV. GOVERNMENT FUNDING PROGRAMS i. Nuclear and fossil fuel (e.g. coal-to-liquids) projects are ineligible in this new program, although Congress initially had considered authorizing up to an additional $50 billion for these technologies. Notwithstanding, the DOE decided to provide $3.4 billion for clean coal technologies outside of this program into other DOE programs. j. This new program requires a lesser payment of upfront fees (processing, etc.) than those that are characteristic of the initial program. Instead, it also may permit such fees to be paid at the loan closing or over the life of the loan. k. The coverage limits differ for Sections 1703 and 1705. Under Section 1703, borrower applicants can request that 100% of 80% of the total project costs be guaranteed, enabling them to obtain a loan from Treasury’s Federal Financing Bank at 22 to 75 basis points over U.S. Treasuries (or about a 4% interest rate) and 20-30 year tenures on the debt. Under Section 1705, the private lender, and not the borrower, is the applicant. Section 1705 provides loan guarantees of up to 80% of up to 80% of the total project costs, or coverage of up to 64% of the total project costs. Private lenders currently are providing project loans at approximately 7% interest rates and 1 - 7 year tenures. They presently characterize long-term loans at 7 - 10 years. Thus, it is difficult to finance projects in the current economic environment. 41

44. IV. GOVERNMENT FUNDING PROGRAMS l. Schedule of Five (5) Non-Refundable Fees Payable to DOE for Section 1703: • Application fee: 25% submitted with Part I; 75% submitted with Part II. • Facility fee: 20% submitted upon execution of Term Sheet; 80% upon closing of Loan Guarantee Agreement. 42

45. IV. GOVERNMENT FUNDING PROGRAMS • Maintenance Fee: $50,000 to $100,000 per year during the life of the loan guarantee. It shall be either (i) payable each year in advance, commencing upon the closing date of the Loan Guarantee Agreement, or (ii) payable as an one-time fee at the closing in a lump sum amount equal to the aggregate sum of such annual fees specified in the Loan Guarantee Agreement for the entire term of the loan guarantee, discounted to net present value. • Attorneys/Consultants fee: DOE is entitled to payment for additional internal administrative costs and related fees and expenses for its independent consultants and outside counsel. • Credit Subsidy Cost: The Credit Subsidy Cost is the net present value of the estimated cost to the U.S. government of the loan guarantee as determined under the applicable provisions of the Federal Credit Reform Act of 1990, as amended (FCRA). 43

46. IV. GOVERNMENT FUNDING PROGRAMS m. July 29, 2009 Section 1703 Solicitation for Energy Efficiency, Renewable Energy and Advanced Transmission and Distribution Technologies. • 7 rounds, 2 parts per round: 44

47. IV. GOVERNMENT FUNDING PROGRAMS n. Schedule of Four (4) Non-Refundable Fees Payable to DOE for Section 1705: • Application fee: $50,000, 25% with Part I and 75% with Part II. • Facility fee: 1/2 of 1.0% of guaranteed portion of Guaranteed Obligation, 20% payable upon the signing of a Term Sheet and 80% at closing. • Maintenance fee: Expected to be in the range of $10,000 to $25,000 per year and payable by the Borrower, the amount and payment due dates to be specified in the Loan Guarantee Agreement. • Attorneys/Consultants fee: DOE shall be entitled to payment for additional internal administrative costs and related fees and expenses for its independent consultants and outside counsel. • No Credit Subsidy Cost for Section 1705 loan guarantees. 45

48. IV. GOVERNMENT FUNDING PROGRAMS o. October 7, 2009 Solicitation for Section 1705 for Renewable Power Projects: • Part I may be submitted at any time prior to Part II. • Part II may be filed any time after the DOE notifies the applicant of an accepted Part I evaluation. • DOE evaluates Part I based on: • Eligibility of proposed project and lender. • Readiness of project to proceed and consistency with the objectives of the loan guarantee program. • 10 rounds in Part II. 46

49. IV. GOVERNMENT FUNDING PROGRAMS p. Additionally, the DOE may allow current applicants in the Section 1703 program to transfer their applications into the Section 1705 program to obtain better terms, such as the elimination of the Section 1703 credit subsidy payment. q. The DOE, through final rules released in December 2009, reversed its earlier decision to require a first priority lien and credit ratings on guaranteed projects. Nevertheless, the Secretary reserves the right to make determinations regarding first lien and credit support at his discretion. r. Section 1705, unlike Section 1703, imposes two major conditions: i. any eligible loan guarantee project must “commence construction” (an undefined term) on or before September 30, 2011 (as DOE's authority to allocate funds ends on that date); and ii. such projects must comply with the Davis-Bacon Act by adhering to wage rate requirements during construction. s. Energy Secretary Stephen Chu has noted his intentions to expedite the loan guarantee programs by streamlining and reducing paperwork, providing rolling appraisals on applications as submitted (instead of after application deadlines) and making decisions on applications expeditiously. t. There are currently three (3) open solicitations: i) the Financial Institution Partnership Program solicitation (October 7, 2009), under Section 1705, and ii) the Energy Efficiency, Renewable Energy and Advanced Transmission and Distribution Technologies solicitation, and iii) the Transmission Infrastructure solicitation (each announced on July 29, 2009) under Section 1703. 47

50. IV. GOVERNMENT FUNDING PROGRAMS u. The DOE issued the first loan guarantee under the 2005 Energy Act loan guarantee program on March 20, 2009 in the amount of $535 million to Solyndra, a California solar manufacturer, for the expansion of its manufacturing facility for solar photovoltaic panels. More recent loan guarantee recipients include Nissan, Tesla Motors, and Brightsource. v. No loan guarantee can be issued until after the completion of a successful NEPA assessment/certification. However, ARRA projects may be provided expedited NEPA considerations. w. Congress is being lobbied to extend the dates of these programs. If an energy bill is passed with the creation of the Clean Energy Development Agency (“CEDA”), the so-called “Green Bank”, then at least the Section 1703, if not the Section 1705, loan guarantee programs may be made permanent fixtures with annual appropriations thereto. 3. Stimulus Act Funding a. For FY 2009 the DOE's Office of Energy Efficiency and Renewable Energy (“EERE”) received nearly a tenfold increase over its FY 2008 funding levels through Stimulus Act funding of $16.8 billion. b. Much of this new funding will be available for direct grants/rebates for renewable energy and energy efficiency applications. Big funding winners are utility-scale biomass-to-power ($800 million) and geothermal energy ($400 million) projects. In January 2010, DOE awarded $78 million to two biofuels consortia, the National Alliance for Advanced Biofuels and Bioproducts (“NAABB”) and the National Advanced Biofuels Consortium (“NABC”), for research of advanced algae-based biofuel development. 48