Biomass conference panel to address finance options

By Bryan Sims | October 29, 2010

For biomass and biorefinery developers in the Northwest, finding much-needed capital to build a project can be a daunting task. At the Pacific West Biomass Conference & Trade Show Jan. 10-12 in Seattle, industry experts will explain how leveraging available state and federal tax incentives could fill that void in a panel titled, “Bridging the Gap: Maximizing Available State and Federal Incentives for Project Developers.”

Hamang Patel, partner at Milwaukee-based law firm Michael Best & Friedrich LP, will discuss how new market tax credit financing is an available option that can be applied solely or in conjunction with existing state and federal tax incentives that most biomass and biorefinery developers are aware of, such as the investment tax credit, producer tax credit and the U.S. Treasury’s Section 1603 grant program—also known as “the grant in lieu of the ITC,” he said.

“New market tax credits are a type of financing that supplements the other tax incentives well because this is a tax credit that goes not to the biomass developer but to the lender of a project,” Patel said.

The new market tax credit program, according to Patel, works by providing banks or other investors with a federal income tax credit equal to 39 percent of their investment in a qualifying business, such as a biomass/biorefinery project, located in a low-income census district.

“What a lender can then do is charge a much lower interest rate and also allow for a portion of the principle to be discharged at the end of the loan term,” he said. “Because the credit is used by the lender, it does not interfere with using any of the other traditional tax incentives that are specifically geared for biomass projects,” Patel said.

Patel added that developers can only pick one of the three—the ITC, PTC or Section 1603—in conjunction with the new market tax credit.

Jon Norling, vice president and general counsel for Columbia Energy Partners LLC, will discuss various federal and state incentives available for renewable energy projects in the Pacific Northwest and California, and how they apply to biomass and biorefinery projects. This timely presentation will also cover the Section 1603 grant program, which is set to expire at the end of the year. The program, created as part of the American Recovery and Reinvestment Act, provides renewable energy project developers the ability to offset 30 percent of their capital investment. ARRA, however, temporarily changed this to allow developers to get a cash grant from the U.S. Treasury in lieu of the ITC.

To the dismay of developers, though, there is a caveat within the Section 1603 grant program. As written, applicants that have not “begun construction” by the end of 2010 will not qualify for the grant. The biomass industry will be anxious to see if Congress will vote to extend or eliminate the “begin construction” requirement and prepare to potentially face a post-Section 1603 environment.

“It’s going to be a critical time to see whether [Section 1603] will be extended,” Norling said. “I think a lot of people are looking to the end of the year at some of the tax extender packages to see whether the ‘under construction’ requirement gets eliminated.”

Jon Sluis, certified public accountant and manager with Plante & Moran PLLC, also intends to talk about how new market tax credits are a viable financing option, including how it can be layered on top of USDA and/or Small Business Association loan guarantees.

“It has been done,” Sluis said. “It’s not necessarily an easy process, but it’s something that we’re seeing more and more projects beginning to think about and consider.”

Greg Jenner, attorney with Stoel Rives LLP, will round out the panel.

To register, or for more information on the Pacific West Biomass Conference & Trade Show, click here.