As the US economy slowed, the US Government stepped in with the $787 stimulus package passed in February 2009 as the American Reinvestment and Recovery Act (ARRA). A big chunk of the stimulus, about $67 billion worth, is designed to speed the development of renewable energy, clean transportation, and energy efficiency, as well as helping the economy. For many businesses tight on cash and credit these days this money can’t come quickly enough. While eager to access stimulus funds, these businesses often need help finding incentives with requirements that match their business, and finding their way through the application process. Greg Burkart of independent financial advisory and investment banking firm Duff & Phelps helps businesses to access this money.
Burkart and others at Duff & Phelps have worked with cleantech clients for years in the Detroit office of the firm, giving them a head start helping these clients. Funding opportunities from the stimulus package each have varying requirements for the stage of the business receiving funds, how much funding is provided, and the type of project proposed. Burkart sifts through all of the opportunities so that when clients call he knows what is available.
Burkart groups the incentives into a few broad categories:
1. Grants from the Department of Energy (DOE)
2. Subsidies from the Department of Agriculture, mainly for biomass and biofuel related businesses.
3. Grants that are used instead of tax credits for renewable energy
4. Tax credits
5. Loan guarantees for renewable energy projects
Since February the federal government has been sorting out how these incentives will work and money was slow to move through the system at first. Today stimulus money is moving through the system at an increasing pace, but even as the processes move forward they can frustrate and confuse those without experience. “People can be intimidated by the application process,” says Burkart.
For early stage businesses, applying for grants is usually the best path suggests Burkart, particularly grants from the DOE for the research and development of energy-related technologies. Many of the DOE grants expired in September 2009, soon to be released by a new set of funding opportunities for grants in the next fiscal year. “There’s a new batch coming up soon,” says Burkart. In general these DOE grants target the development, commercialization and implementation of technologies related to renewable energy (wind, solar, geothermal, biomass, fuel cells, smart grid, and components of these), energy efficiency, energy transmission, and transportation. To get funded proposals have to match the objectives stated for each of the grant opportunities.
Another important form of incentive included in the stimulus is loan guarantees. With the dramatic changes in the credit market in 2008 and 2009, many renewable energy projects have found it difficult to raise capital, stopping them in their tracks. Loan guarantees are designed to attract investors back to renewable energy projects, reducing the risk of these investments. Although ARRA provides for increased loan guarantees, implementation of these has taken time. Only one large deal has been approved in the last four and a half years in the existing loan guarantee program, but for loan guarantees in the stimulus construction must begin by Sept. 30, 2011, putting pressure on the process to speed up. In a recent solicitation, the loan guarantees can be applied to projects and technologies that are already commercially available rather than just research technologies, opening the door to greater use.
In the latest program for loan guarantees, financial institutions are added to the partnerships and the applicants for the guarantees are banks, who will act as aggregators of projects. Big US banks like JP Morgan and Bank of America are getting involved, as well as European and Asian banks who see using these loan guarantees for US projects as an opportunity to help component producers in their own country by promoting the sale of wind blades, for example. Banks are getting stalled wind and solar projects moving again by slapping a guarantee on them.
Given the time frame involved for loan guarantees, it will probably take more time for the guarantees to be approved and construction to get started on these projects.
Past measures to support renewable energy also included tax credits. Banks or other investors can “buy” these tax credits, helping to fund renewable energy projects. A wide variety of tax credits are still a key part of the incentives, including credits for manufacturing, investment tax credits and energy production tax credits.. The appetite for tax credits has been greatly reduced though because of the recession, hampering the availability of capital and stopping many projects in their tracks.
Another funding opportunity in the stimulus allows investors in renewable energy projects to receive a cash grant instead of tax credits. With the cash grants, 30% of the cost of the project can be returned as cash within 60 days after the project is placed in service, rather than waiting for filing taxes to receive the tax credit. The cash grant can be a very attractive proposition, and money for cash grants has already started to flow, with $550 million in funding in August 2009 and a similar amount expected for September.
In addition to helping businesses find a good funding match, Burkart also helps them navigate the application process. “For the stimulus to be used in a transparent way, there is a process to apply for funds,” says Burkart. “Many people have good projects, but haven’t been able to think through the process.”
One business Burkart has been working with is developing a technology for lithium ion batteries. They started with just 2 people four years ago, and got a small grant from the state, in Michigan. Building on this funding, they parlayed it into a federal grant, adding researchers and growing to 25-30 people. Then, then went back to the state and received funding allowing them to build R&D further up to 50 people, and $125 million in a refundable credit. The US DOE provided $150 million to develop manufacturing here in the US, and build a $275 million manufacturing plant.
When working with clients, Burkart has four key tips to increase the chances for getting funded. The first is to read requirements for programs and grants carefully, making sure that your technology is matched with what is being funded.
Also important for getting funded is demonstrating that jobs will be created. “People really need to flesh out in their application the economic modeling for the number of jobs being created or retained,” says Burkart.
A third area they should pay attention to is getting funding from other sources in addition to the federal government. Burkart has found that state and local funding provide good opportunities, often progressing quite rapidly, raising awareness, and validating the business.
Finally, Burkart advises businesses not to underestimate how much time reviewers will spend digging into a proposal or application. “They want to know if you are going to be around,” says Burkart. Part of their examination will involve looking through your financial plan and finances, looking for errors or unrealistic assumptions.
The stimulus funds may not be for every business, and are not necessarily a magic bullet, but for the right business with the right help navigating the process, they can provide valuable capital and a big boost that might not otherwise be available.
Glenn Croston is the founder of StartingUpGreen.com, helping to start and grow greener businesses and delivering the Green BizBlast to connect those seeking and selling green. He is also the author of "75 Green Businesses You Can Start to Make Money and Make a Difference", and the author of "Starting Green", a nuts and bolts guide to starting and growing a successful green business (Entrepreneur Press, September 2009).