United States: Energy Industry Updates For July 2009

New Guidance on Claiming Cash Grants in Lieu of Investment Tax Credits for Renewable Energy Facilities

Long-awaited guidance on the implementation of Section 1603 of the American Recovery and Reinvestment Act (ARRA), which authorizes the U.S. Department of the Treasury (Treasury) to make cash payments to eligible persons who place in service specified renewable energy property by a certain date, was issued by the Treasury on July 9, 2009. The ARRA expanded investment tax credits (ITC) under Section 48 of the Internal Revenue Code and allowed the elective conversion of production tax credits (PTCs) under Section 45 of the Code for renewable energy properties into ITCs. Additionally, Section 1603 of the ARRA provides an option for taxpayers to choose to receive a cash payment in lieu of the ITC (including those facilities eligible for PTCs for which taxpayers are able to elect to claim the ITC) in an effort to fill in the gap created by diminished investor demand for tax credits.

The guidance provides clarification on a number of issues affecting the grant program, including the application procedure, who is eligible to receive the grant, what property qualifies for the grant, treatment of units of property, recapture, and other issues. In particular, the guidance clarifies that a tax-exempt entity or a governmental entity could invest in a qualified project through a blocker "C" corporation without affecting the eligibility for the grant. Additionally, the guidance liberalized the recapture rule so that a grant recipient may be able to sell its interest in a qualified project without triggering the recapture rule as long as the transferee is not a disqualified person and other conditions are met. The guidance also states that a lessor who is eligible to receive a Section 1603 grant may elect to pass through such grant to its lessee if certain conditions are met. Detailed Foley & Lardner LLP analysis of the guidance is available at Foley.com/arraenergy.

FERC Finds No Market Manipulation — Lake Erie Loop Flow

After a staff investigation into alleged manipulation in the New York Independent System Operator (NYISO) area regarding transmission flows in and around Lake Erie, FERC has concluded that there was no market manipulation. Highlights:

The matter however, is not fully closed. First, there were separate allegations regarding "wash transactions" into and out of New York that are still the subject of ongoing investigations. Second, FERC ordered the NYISO to deliver a report along with proposed tariff changes that would involve a comprehensive solution to the loop flow problem, including addressing interface pricing and congestion management. This report is due in six months. Of note, the order applies only to NYISO. However, it seems clear that any comprehensive solution is going to require the involvement, participation, and likely tariff changes by PJM Interconnection, Midwest ISO, and the Independent Electricity System Operator of Ontario.

Cleantech: Patent Analysis Reveals That Robust Licensing and Transaction Opportunities Are Likely to Continue

With so many inventors, venture capitalists, and corporations racing to ride on the "green" wave, it is critical that participants in this space understand how technologies are being patented in order to discern realistic opportunities for sustaining competitive edge and revenue generation. Foley's 2009 Cleantech Energy Patent Landscape Report Executive Summary highlights key findings from a review of nearly 600 granted U.S. patents specific to clean energy production, efficiency, and conservation technologies within nine focal categories:

This analysis offers insight on regional Cleantech activity, the specific technologies for which patent protection is being granted and who is obtaining these patents, focal points for venture capital investments, areas of patentable white space, and potential licensing availability for corporate entities. For example, particularly strong areas of interest include: photovoltaic solar cells, hybrid vehicles, and wind turbine technologies, yet venture capital activity suggests biomass and geothermal technology as valued interests.

Our report is the first in a series of annual analyses that identify and rank the specific Cleantech technologies that were patented in the United States throughout the year, for each of the nine focal categories. The analysis provides contrasting activity levels between corporate entities and individuals, compares venture capital funding for each category, and identifies the green technology areas where patentable white space may still exist. For further information, please see the Executive Summary.

U.S. Department of Energy Grants

The U.S. Department of Energy (DOE) continues to release new funding opportunity announcements (FOAs) for available grants under ARRA. In July, the DOE announced the following opportunities:

For regularly updated information on available energy stimulus grants, see the Foley Energy Stimulus Web page at Foley.com/arraenergy.

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