Farm Energy

Decision Means Higher Energy Costs for Farms and Rural Businesses

(May 24, 2011) Today the House of Representatives’ Agriculture Appropriations Subcommittee will  vote to eliminate the popular and effective Rural Energy for America Program (REAP) in its 2012 appropriations bill. REAP is the only federal program successfully helping farmers and rural small businesses fight high energy costs with renewable energy systems and energy efficiency.

“Killing REAP leaves agriculture and rural businesses at the mercy of high oil and electricity prices,” said Andy Olsen, ELPC Senior Policy Advocate. (more…)

(April 14, 2011) Today USDA issued the FY2011 funding notice for the Rural Energy for America Program (REAP) and also issued the long-awaited Interim Rule for all components of REAP. Both the funding notice and the Interim Rule address: 1) grants and loan guarantees for clean energy projects; 2) grants for feasibility studies; and 3) grants for energy audits and renewable energy development assistance.

To help the public understand the new REAP rule, ELPC is holding a webinar on Wednesday, April 27, at 3:00 pm Central Time. The webinar will be recorded for later viewing if you are unable to participate. This article summarizes the funding notice and the Interim Rule.

Funding Notice

The Notice of Funds Availability (NOFA) announces the availability of $70 million in REAP funding this year, based on the 2008 Farm Bill’s mandatory allocation of the same amount. USDA will issue a supplemental NOFA for additional funding if Congress allocates additional discretionary funding in the still-uncertain FY2011 budget

Application deadlines are as follows:

• June 15 for clean energy project grants and combined grants and loan guarantees;
• June 15 for loan guarantees only;
• June 30 for renewable energy Feasibility Studies grants;
• June 30 for Energy Audits and Renewable Energy Development Assistance grants.

Please read the NOFA for additional important application information. Since it is based on the REAP Interim Rule also proposed today, the remainder of this article summarizes the Interim Rule.

Interim Rule

The REAP Interim Rule is effective today and issued on an emergency basis to reflect changes made three years ago in the 2008 Farm Bill. Although effective immediately, USDA is requesting comments on its proposal and may change the rule in response to comments. The deadline for comments is June 13, 2011.

Here are highlights of the new rule’s requirements, focusing primarily on changes from the existing REAP rules and prior funding notices. Please check back on FarmEnergy.org soon for a more comprehensive summary of all of the rule’s requirements.

ELPC also is holding a webinar on Wednesday, April 27, at 3:00 pm Central Time to discuss the new rule. The webinar will be recorded for later viewing if you are unable to participate.

Key points in the rule include:

General

• Flexible fuel retail blender pumps are now eligible for REAP grants and loan guarantees. To qualify for a REAP award, gas stations must be owned by a rural small business. These pumps dispense gasoline blended with ethanol or biodiesel. (Biogas pipelines, transmission lines from wind farms, and other conveyance equipment are not included in this proposal.)
  • Note: Blender pump applications can receive up to 25 scoring points unique to pumps, based on number of additional pumps and USDA’s discretionary authority.
• Eliminates the “rural restriction” for agricultural producers located in non-rural areas – for example, commercial nurseries.
• Includes ocean energy and small hydropower (under 30 megawatts) as eligible technologies. Removes the financial need requirement (was not in 2008 Farm Bill).
• All REAP agreements terminate 2 years after signing unless USDA agrees to extension.

Renewable Energy and Energy Efficiency Grants and Loan Guarantees

• Higher funding limits for loan guarantees – up to 75% of total project costs; and the maximum amount of the loan guarantee was increased from $10 million to $25 million.
• USDA makes clear that applicants also can use the production tax credit (PTC) and other passive third-party equity contributions (although tax rules still cause a “haircut” to the total PTC).
• Energy efficiency improvements are exclusively for existing capacity improvements – USDA will not issue grants or loan guarantees to support capacity expansion (intended to address use of REAP to purchase larger grain dryers).

Feasiblity Studies and Audits/Development Assistance

Apart from the changes discussed in “General” above, the rules for the feasibility study grants and the energy efficiency audits and renewable energy development assistance grants appear to be similar to prior agency guidance contained in funding notices. We will summarize those requirements in a forthcoming article.

What the Interim Rule Does Not Address

• No streamlined applications for smaller, “off-the-shelf” pre-certified equipments such as wind turbines and solar panels.
• Did not eliminate the costly and unnecessary “two meter” requirement for farms that install wind turbines and solar panels where some small portion of the power generated may flow to the home.
• No increase in feasibility study grant limits (currently $50,000 per project, which is very low for large community energy developments).
• Non-profit entities are not eligible to conduct energy efficiency audits and renewable energy development assistance.
• Unclear yet if USDA eliminated the application preference for loan guarantees.

(March, 2011) USDA Secretary Tom Vilsack recently announced grants were awarded to 68 American farmers and rural small businesses to conduct renewable energy feasibility studies under REAP – the Rural Energy for America Program.

“The Obama Administration is committed to helping our nation become more energy independent by helping rural businesses build renewable energy systems,” said Secretary Vilsack. The grants provide assistance for rural small businesses and agricultural producers to conduct feasibility studies for renewable energy system installations.

Feasibility studies help farmers and rural small businesses identify ways to cut energy costs and get new clean energy projects in the pipeline. The REAP Feasibility Studies Program pays up to 25% of the costs of the study.

The 68 feasibility study grants totaled $1.6 million and fund studies in 27 states and territories. A number of larger-scale geothermal power projects in the American West were funded, including one for 500 kw and one for 10 MW. Direct geothermal electric technologies have long planning times, where this support makes a big difference. Ohio had the largest number of awards – 10 – for digesters, solar and wind.

Table 1: Breakdown, by state, of the number of projects and the total amount of funding for those projects

Click on charts to zoom.

Breakdown of 2010 REAP Feasibility Study Funding, by Technology

Number of 2010 REAP Feasibility Study Awards, by Technology

(Feb. 8)  To spur more farmer and other locally-owned energy projects, Congressman Jeff Fortenberry (R-NE) has introduced the Rural Energy Equity Act. The legislation removes a key obstacle to financing local ownership of  these projects with Rural Energy for America Program (REAP) grants.

Current tax rules undercut the value of REAP grants for community wind and other locally-based energy projects. That’s because two critical funding programs – REAP and the federal Production Tax Credit (PTC) – conflict.

PTC regulations reduce the value of the REAP grant by as much as 50 percent, which is a serious problem. This “haircut” reduces the capital investment that local investors can bring to the project, lowers the value of the PTC credit to corporate investors (and therefore reduces the project’s financial returns), and delays the time at which project ownership “flips” from the corporate developer back to the local owners.

Representative Fortenberry’s Rural Energy Equity Act (H.R. 277) would solve these problems by exempting REAP grants from the PTC offset. This would ensure that REAP grant recipients receive the entire grant amount to which they are entitled and inspire corporate investment in locally-based community energy projects. Fortenberry’s common sense solution will facilitate financing for a host of farm energy technologies including wind, manure digesters and other biomass energy.

Representative Fortenberry sponsored similar legislation in the last Congress with Representative Herseth Sandlin (D-SD), who did not win re-election.

Representative Fortenberry needs your help – he is now seeking co-sponsors for this important legislation to help move it forward. You can ask your  U.S. Representative to sponsor H.R. 277, here.

The Omnibus Appropriations Bill introduced to the US Senate late on December 14 would cut Farm Bill clean energy programs by over $120 million and would eliminate the Biomass Crop Assistance Program. See the following list of cuts:

• Rural Energy for America Program, Section 9007. Cut from total $99.34 million in 2010 to $70 million in 2011.
• Biomass Crop Assistance Program, Section 9011, is denied administrative funds, effectively killing the program.
• Bioenergy Program for Advanced Biofuels, Section 9005 is reduced by $28 million.
• Biorefinery Assistance Program Section 9003 is reduced by $56 million. (more…)

The USDA has now released this year’s funding notice for feasibility studies under REAP – the Rural Energy for America Program. Feasibility studies evaluate the likelihood of renewable project success in consideration of technical, financial, management and other factors. USDA requires feasibility studies for project funding under REAP where project costs exceed $200,000.

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