Green Energy Reporter

While the size of the stimulus — $787 billion — and its green slant have been widely covered, little has been said about some of the more fundamental structural changes brought on by this package.

One, is a provision that will see the federal government directly fund  renewable energy projects via nontaxable, direct cash payments from the Treasury Department. The stimulus allocates about $40 billion for clean energy investments, for more on this, see here.

This funding provision will help reshape the “way in which U.S. renewable/alternative energy assets are financed,” wrote international law firm Winston & Strawn in a recent briefing put together by its tax and energy practice.

Until the economic crisis, one common funding source for clean energy projects included tax credits. Because many developers did not have large enough profits to benefit from these fiscal incentives, they turned to financial institutions which in exchange for the credit opened the funding tap. With the economic crisis, that funding route has  all but evaporated.

The government grants will be made available for projects that either go in service in 2009 or 2010, or if construction on the projects  start in 2009 or 2010, says the Winston briefing.

With this hands on approach the firm ponders whether, moving forward there will even be  a role for tax equity investment structure.

The firm writes:

“With the advent of the Stimulus Act… the first question that has come to the minds of many developers and investors in renewable energy is whether there continues to be any need for any investment financing structures (with their expense and complications) at all. Instead of depending on an institutional equity investor to provide capital, based on its ability to use Production Tax Credits (PTC) or Investment Tax Credit (ITC), the thought is that the developer could simply collect an amount equivalent to the ITC from Treasury under the grant program and otherwise finance projects through more traditional, non-tax oriented sources.”

Winston adds that the government funds are only temporary and the coming months will provide a “better sense of what the market will adopt as the best financing structure” over the long-term.

Go to the Winston & Strawn briefing