How Federal cash grants help finance projects

Taylor Johnson, Senior Editor

Since passing the American Recovery & Reinvestment Act of 2009 (ARRA), the federal government has been eager to stimulate the renewable energy industry with tax credits and cash grants. So far, the government has awarded $4.6 billion of the $8.5 billion allotted. Cannon Power Group, a San Diego-based renewable energy company, recently secured its second Section 1603 Treasury cash grant. The funds will be used to expand the company’s Windy Point and Windy Flats wind project. At 400 MW, it is one of the largest in the U.S.

Cannon Power’s Michael Toke says the company was awarded ARRA grants totaling $220 million in two tranches, which will purchase wind turbines and pay for project costs. The money will also finance the project expansion from 400 to 500 MW. To date, Cannon’s total investment in the projects exceeds $1 billion.

“We applied for grants twice. The first one, around November 2009, was received in less than three weeks. The second tranche, in early 2010, took 100 days,” says Toke. The grant program, however, will end along with 2010. With the year’s end in sight, Cannon Power and its law firm Hunton & Williams LLP, share their experience securing funding from the Act.

“The ARRA stimulus package is a young program for the amount of impact it has had,” says Hunton & Williams’ attorney Thomas Trimble. “The grants issued over the last year or so have begun to stimulate the goals the government intended, which is to encourage developing more green electricity and create jobs. It has been a win-win for facility owners and rate payers. The government is providing funding that would otherwise be more expensive by borrowing for developers and others. In addition, the government has streamlined the application process. (About five steps according to its website at The Treasury Department issues the grants which are in lieu of the Production Tax Credit (PTC) and Investment tax Credit (ITC). These have been available to encourage investments by institutions with taxable incomes that could benefit from the credits. When the money markets turned down and other negative factors weighed in, the cash grant was made available. The application process has been simplified so applicants will find it relatively straightforward. Still, I’d recommend seeking advice of experienced counsel during the process,” he says.

There are a couple ways of qualifying for a grant. “One is to begin significant construction, although it’s a bit more complicated than that,” says Cannon Power’s Toke. “Another way is to spend money in the project. We are in the process of qualifying the next phase of Windy Point and Windy Flats. Ground must break before the year is out unless the government extends the program,” he says.

The grant, however, does not help much with up-front financing. “You must either have equity in the project and then wait until you get the grant, or you bridge the grant with some other form of financing. One way or another, you have to build the project and after reaching commercial operation, apply for the grant and hopefully get the money. Then companies can either prepay the loan, or pull out some equity.”

In a nutshell, the grant is monetized ITC. “For instance, the production tax credit is based on production. (It provides about $0.02/kWh) The ITC, to oversimplify things, provides about 30% of costs. So, the grant would be that amount in cash after the project begins commercial production, but you give up the ITC. Hence, there is no double dipping,” says Toke.

“There is also a capacity factor cut off for wind, at which the production tax credit is more beneficial. If a site has strong wind, the developer might be better off going with the production tax credit rather than the ITC. And that really depends on the project. For certain projects, the ITC may be better, and cash now is always better than cash later.”

Toke adds that his projects have procured a power purchase agreement from Southern California Public Power Authority. It’s a prepaid PPA, rather unique, for 20 years of power. “It’s a good deal for both of us. It is an efficient use of money because they used tax except bonds,” says Toke. WPE


  1. I’d like to see more information on the capacity factor cutoff values, so I would know when the PTC is more beneficial than the ITC. Does anyone know what that value is and can you provide a link for documentation?

Speak Your Mind