USDA is accepting public comments on its BCAP proposal through April 9, 2010. Here is a copy of the proposal (opens in new window); otherwise, read on for more information on the proposal.

Short Summary

BCAP has become controversial in the last several months because of its exploding costs and other impacts. Congress had expected that BCAP would cost only about $70 million through 2012. Yet the program may ultimately cost more than $2 billion, in part because of an expensive interim matching payment program USDA initiated last summer. USDA is now proposing to rein in BCAP’s costs somewhat, largely through some restrictions in the types of renewable biomass materials that will qualify for BCAP funding.

As proposed, BCAP would promote two types of activities:

• Funding for farm and forest owners and others to receive matching payments for eligible crops and agriculture and forestry wastes sold to facilities which produce advanced biofuels, heat, power and bioproducts. These matching payments help offset the costs of collecting these materials and delivering them to the processing facility. Matching payments may continue for up to two years after USDA issues the first payment.

• Funding for farmers and other producers of eligible renewable biomass crops to receive establishment and annual payments to help offset the costs of establishing and producing these crops. Establishment payments may offset up to 75% of the cost of establishing eligible crops, and annual payments may run between 5 and 15 years for crop production.

Matching Payments

USDA’s implementation of BCAP has gotten off to a rocky start. In June 2009 USDA began to issue matching payments for the delivery of renewable biomass material through an interim notice of funds availability (NOFA).  Most of these payments were for ag wastes such as corn stover and forest product wastes such as sawmill dust. Most of the material is being used as a substitute for fossil fuels in boilers. The financial impact of the matching payments program is major, with payments under this interim program expected to exceed $300 million in the next two years.

Apart from financial costs, an unintended consequence of USDA’s interim matching payments program was in restricting the availability of cheap sawdust and other mill residues for the wood products and paper and pulp industries. Responding to their concern, and the unexpectedly high cost for a program that was supposed to cost only $70 million through 2012, USDA has terminated the  matching payments interim program and will replace it with the program proposed in this rule.

No Payments for Woody Biomass Materials with Higher-Value Uses

To avoid this problem in the future, USDA is proposing to disallow matching payments for wood wastes and mill residues typically used to produce higher value-added products such as particle board. USDA also is proposing several options to further restrict matching payments for all forms of eligible renewable biomass material. For example, for facilities that convert wood wastes into heat and power, USDA might allow payments only for eligible materials used to make heat or power above the facility’s historical baseline production of heat or power. USDA is seeking comment on all of these options.

In another departure from its June 2009 matching payments NOFA, USDA is dropping the 20% cap on Farm Bill Title I commodity crop agricultural residues (for example, corn stover and straw), on the basis that that the cap is inconsistent with the 2008 Farm Bill.

Establishment and Annual Payments

USDA’s proposal is the Department’s first effort to create a framework for establishment and annual payments. As required by the 2008 Farm Bill, USDA will make eligible payments only for eligible crops within a specified BCAP “project area.” Either producers or “biomass conversion facilities” can propose BCAP project areas to the Farm Service Administration (acting on behalf of the federal Commodity Credit Corporation).

Key requirements/conditions for project areas include:

• Long-term economic viability.

• Specific geographic boundaries.

• Compliance with other criteria in the 2008 Farm Bill, including consideration of impact on soil, water and related resources.

Notably, several types of land are not eligible to receive payments, including government-owned land and land already enrolled in the Conservation Reserve Program, Wetlands Reserve Program, or Grassland Reserve Program.

Payment Amounts

USDA is proposing to pay for up to 75 percent of the establishment costs for perennial crops, including woody biomass. (Annual crops do not qualify for establishment cost payments.)

For annual payments, USDA proposes to calculate payments on a per-acre basis and based on market-based rental rates sufficient to ensure producer participation in a project area. USDA also is proposing additional incentive payments for biomass crops that are especially likely to produce highly efficient bioenergy or biofuels, that preserve natural resources or that address specific resource conservation needs.

Annual payments would last up to 15 years for woody perennial crops and 5 years for annual and non-woody perennial crops.

The Bigger Picture

Congress intended BCAP to help solve the “chicken and egg” dilemma blocking development of sustainable biomass energy sources. Without an assured feedstock supply, many producers of advanced biofuels, bioproducts and bioenergy could not invest in new biomass energy plants. By the same token, farmers would not incur the substantial costs and risks of growing new biomass crops (like switchgrass) without the assurance of a market from a production facility. By paying farmers and others to establish, grow and deliver energy crops, BCAP overcomes these obstacles, reducing financial risk for both farmers and biomass energy plants.

BCAP Will Help Biopower First, Then Biofuels

USDA expects that most BCAP payments in the early years will support existing biomass conversion facilities using woody biomass as a feedstock (presumably to produce heat and power). BCAP expires in 2012, and according to USDA most biomass conversion facilities need to be in the pipeline now in order to qualify for BCAP benefits.

Reflecting these projections, USDA also expects that matching payments will consume most of the BCAP funds. Of the total expected $2.636 billion cost of BCAP, USDA projects that $2.1 billion will be for matching payments:

These projected costs are far higher than Congress’ expected $70 million cost for the BCAP program. Notably, Congress did not explicitly limit BCAP funding in the 2008 Farm Bill, so if BCAP costs as much as USDA predicts, it will become the highest-funded program in the 2008 Farm Bill’s Energy Title.

Environmental Considerations

BCAP’s environmental impacts, for both better and worse, will depend largely on how USDA implements the BCAP program. By emphasizing such factors as species diversity, habitat and natural resources protection, USDA would increase BCAP’s long-term success and public support. USDA is especially interested in how it takes environmental factors into account in implementing BCAP, and it is seeking comments on this issue in a number of different ways.

For Additional Information

• USDA’s BCAP Proposed Rule (from the Federal Register).

• USDA’s website for the BCAP program.

To help meet the fast-growing interest in farm energy, Congress allocated a total of $60 million for REAP in FY2009, and more funding is possible next year. Even so, demand for REAP’s funds far exceeds available funding.

This year, USDA announced record awards for 2009 for the Rural Energy for America Program (REAP). USDA awarded these funds as grants and loan guarantees to over 1,500 farmers, ranchers and rural small businesses across the country for renewable energy and energy efficiency projects.

For the first time ever, REAP awards include funding for feasibility studies to “get new projects in the pipeline.” A total of $1.3 million was awarded for 51 feasibility study grants.

REAP also now includes funding for Energy Technical Assistance, which helps farmers and rural small businesses understand how to cut energy costs and develop clean energy projects.The Energy Technical Assistance program proved popular with $2.2 for 22 projects around the country. An example is the Kit Carson Electric Cooperative of New Mexico, which received New Mexico’s first ever REAP grant in 2009 for $100,000.  The grant is for energy efficiency and solar projects, and will provide more energy audits and technical assistance. The grant helps the coop provide more energy audits and technical assistance for energy efficiency and solar electric development efforts.

USDA continues to release news on awards and we will continue to keep you posted.  You can find a full listing here and breakdown by state follows.

2009 REAP awards summarized by state.

Secretary of Agriculture Tom Vilsack recently visited the Flick Seed Company and Show Me Energy Cooperative as part of the Obama Administration’s Rural Tour. Secretary Vilsack praised the operation as a model to “create new opportunities in rural communities and new markets for farm products.”

Shortly after Secretary Vilsack’s visit, Show Me Energy Cooperative became the first in the nation to be approved under the USDA’s Biomass Crop Assistance Program (BCAP), providing a working model for sustainable biomass energy. Flick and his partners have developed an agricultural enterprise that provides jobs and increased income for growers – all while helping to slow global warming.

Show Me Energy Cooperative’s story began after founder Steve Flick decided to turn the waste material from his seed company, Flick Seed Company, into an alternative energy source. With the help of a Rural Energy for America Program (REAP) grant, Flick Seed developed a biomass pellet plant. Flick then worked with local farmers to start Show Me Energy Cooperative, a pioneering producer of energy crops, to add prairie grasses to his biomass mix for high energy pellets.

The biomass pellets have diverse uses. Show Me Energy markets for home heating fuel, fuel for small businesses and for generating energy at universities and utility companies. One ton of pellets contains as much energy as 190 gallons of propane, making it a useful renewable energy source.

In 2008, the co-op completed a 150-ton pellet co-firing test run at a coal power plant, keeping over 253 tons of CO₂ out of the atmosphere. The co-op’s partnership with Kansas City Power & Light may lead to biomass pellets entirely replacing other fossil fuel sources to generate electricity at that power plant in the future.

Local Benefits: Jobs and Income

The co-op’s operations reflect its mission to support the local community and economy. The 400 members’ farms provide biomass for the pellets and they are all within a 100 mile radius of the production plant, keeping energy use and transportation costs low. When using crop resideus, Show Me only accepts materials where at least 30% of residues were left on field. Show Me Energy also helps local businesses by blending in biomass residues from local commercial operations. Show Me Energy’s business model benefits local farmers and residents most by creating green jobs, new revenue streams for farmers, and a secure, clean energy source.

Economic Benefits and Global Warming Solutions

As Flick points out, the co-op’s model works for lots of different energy uses, from advanced biofuels, to heating and power—creating both economic and environmental progress. With this flexibility, Show Me Energy’s model could bring economic progress to communities across Rural America while helping us all cut carbon pollution that causes global warming.

For more information

• See Flick Seed Company’s FarmEnergy.org Success Story
• Articles about Secretary Vilsack’s visit
  • “Vilsack: Rural America heart and soul of country”
  • “Vilsack tours biomass facility, holds Rural Tour forum in Sedalia”
• Show Me Energy Cooperative website
• Obama Administration’s Rural Tour website

The control room at Show Me Energy's plant

Biomass pellet bags being prepared for delivery

A truck picks up a shipment of pellets to deliver to Northwest Missouri State University

For the 2009 REAP program, the USDA has tried to address this problem by changing how it allocates award funds. Now, each individual state Rural Development office has been provided an allocation of funds for its state. This will speed up awards of some grants and all loan guarantees. USDA has allocated a total of $27.7 million (46% of overall funding) to the states.

Enhancement made by Congress to the program, including energy technical assistance and feasibility studies, will also help states that have lagged in winning funding. In depth program information can be found at our “REAP Frequently Asked Questions” page.

If a given state’s allocation is exhausted, it can request additional funds from the national office “reserve,” but only for loan guarantees or grant-loan guarantee combinations. After the state allocation is used up, only loan guarantees will be funded from the state. The reserve has a total of $11.9 million (20% of overall funding).

If a state doesn’t use its allocation by September 8, 2009, the funds are pooled with other allocations and returned to the national office for distribution in final awards for FY2009.

The state allocation is one of five allocations created by the USDA to implement the new program enhancements added in the 2008 Farm Bill. The following table shows how the USDA has allocated total program funding:

REAP Budgetary Allocation, Fiscal Year 2009

The budget for each state can be found at the back of this official notice on the allocations.

Today, May 26, 2009, USDA issued a Notice of Solicitation for Applications (NOSA) for Rural Energy for America Program (REAP) grants, loan guarantees and feasibility study funding.  Applications are due on July 31.

The full Federal Register notice can be found here.

This year’s program highlights, including changes made in the 2008 Farm Bill, include:

Types of Funding Assistance

REAP provides loan guarantees and grants or combinations of the two.  Grants for feasibility studies are a new feature this year, with application instructions and ranking criteria explained in the NOSA.  NOTE: USDA is currently requesting comments on its feasibility study guidelines.

Maximum awards  are as follows:

• Renewable energy system grants – $500,000 or 25% of eligible project costs, whichever is less.
• Energy efficiency grants – $250,000 or 25% of eligible project costs, whichever is less.
• Loan guarantees – $25 million or 75% of eligible project costs, whichever is less.
• Feasibility studies – $50,000 or 25% of eligible study costs, whichever is less.

Small Grants, Feasibility Studies, Ocean/Hydropower

• 20% of REAP funding is set aside for grants of $20,000 or less (assuming it is used); USDA will add 10 points to the application score for these projects.
• 10% of REAP funding is set aside for feasibility study grants.
• Ocean and small hydropower projects (30 MW or less) are now eligible for REAP funding.

Applications and Scoring

The NOSA provides for four types of applications: loan guarantee only, grant only, loan guarantee plus grant (combo) and feasibility study only.  The official combo and feasibility study application options are new.

Although most applications can be submitted electronically through the Grants.gov website, applications for loan guarantees and combos must be submitted in hard copy form.

USDA has made a few changes to the scoring criteria, in part to reflect changes in the 2008 Farm Bill:

• Project “replicability” is removed as a scoring criterion.
• The expected energy efficiency of a renewable energy system is added as a criterion.
• For a combo application, the grant portion must score at least 20 points out of 35 for technical merit in order for the project to be considered eligible.

USDA also has added new application requirements:

• Only one type of application can be submitted for any one project -a feasibility study only, loan guarantee only, grant only or combo application.
• Projects can use either pre-commercial or commercial technologies, including foreign technologies, as long as an applicant can provide proof that the technology works and there are people available who can adequately install and service the project.

Loan Guarantee Changes

The maximum loan guarantee has increased from $10 million to $25 million. USDA will guarantee:

• 85% of a loan up to $600,000.
• 80% of a loan greater than $600,000 and up to and including$5 million.
• 70% of a loan greater than $5 million up to and including $10 million.
• 60% of a loan guarantee over $10 million.

Loan guarantees and combos cannot exceed 75% of project costs – this is an increase from 50% of project costs in previous years.

The annual fee for loan guarantees for 2009 is a 1% origination fee with annual renewal fee of 0.25% of the loan amount.

Congress added a separate section for this program in REAP in the 2008 Farm Bill. This new program offers grants to government entities, institutions of higher education, rural electric cooperatives and public power entities to implement energy audit and renewable energy development assistance programs that serve agricultural producers and rural small businesses to help cut energy waste and develop clean energy production.

An estimated $2.4 million will be available nationwide this year for this program. A single applicant may receive up to $100,000 for the year and the deadline for applications is June 9th. A 25% cost-share is required of an agricultural producer or rural small business receiving an audit from a grantee under this program.

To be clear – this particular REAP program is for government and rural electric cooperative/private power entities. Although the REAP statute suggests that other entities, such as non-profit trade associations, could be eligible to apply, this year USDA chose not to allow such entities to apply for program grants. We are encouraging USDA to  expand the program to include these types of organizations in future years.

Summary of Program Elements

Note: The following is a summary of the major elements of the program. Please review the NOSA for complete details.

· USDA’s Rural Business-Cooperative Service will administer this program.

· Deadline for submitting grant requests to USDA is June 9, 2009 (90 days from publication of the Notice in the Federal Register).

· Eligible applicants for this program include:

o Unit of state, tribal or local government

o Land-grant college, university or other institution of higher education

o Rural Electric Cooperatives

o Public Power entity

· Maximum $100,000 grant per applicant

· Grants can be used:

o To conduct energy audits that:

§ Describe current energy systems and use and price over the previous 12 months

§ List all potential energy-saving opportunities and the cost

§ Discuss how potential improvements might interact with existing systems

§ Estimate potential energy and cost savings from each improvement

§ Rank potential improvements by cost-effectiveness

§ Include any necessary spec and drawings and description of other benefits, such as reliability and durability

o Conduct and promote renewable energy development assistance.

o Only to support activities in rural areas (generally areas less than 50,000 people)

· Applications are submitted to the State Rural Development office or via Grants.gov

· Applications need to include:

o Form SF 424 – Application for Federal Assistance

o Form SF 424A – Budget Information, Non-Construction Programs

o From SF 424B – Assurances, Non-Construction Programs

o For legal entities, copies of documents showing the applicant’s legal existence and authority to perform activities under this grant

o Detailed scope of work:

§ Executive Summary

§ Plan and schedule for implementation

§ Anticipated number of ag producers and/or rural small businesses to be served

§ Itemized budget with cost per service and matching funds clearly identified

§ Geographic scope of the project

§ Detailed experience in performing similar services and administering state or federal funds

§ Resources, including personnel, technology and finances, that will be used to carry out the plan

§ Amount of funding being leveraged from other sources and paperwork to confirm the commitment of the funds

§ Description of proposed marketing efforts

§ Most recent financial audit or other financial information that shows the current standing of the applicant

o A Dun and Bradstreet Universal Numbering System Number

o Review comments from the State Single Point of Contact, designated by the federal Office of Management and Budget, or evidence the State decided not to review the project

· Eligible project costs include:

o Salaries

o Travel for purposes of conducting audits and assessments

o Office supplies

o Up to 5% of grant funding can be used for utilities, office space, office equipment and other administrative costs.

· Any rural small business or agricultural producer receiving an energy audit must pay the entity performing the audit a 25% share of the cost of the audit. This cost share is not required for a renewable energy assessment.

• USDA will score project applications using the following criteria, with a maximum possible score of 100 points:

o Up to 10 points – percentage of work that will be performed by in-house, qualified auditors or renewable energy specialists

o 10 points – if no funds are used for administrative expenses

o Up to 15 points – experience in completing the proposed activities

o Up to 10 points – geographic scope of project in relation to identified need (bigger is better)

o Up to 15 points – lower costs per audit/assessment are better

o Up to 25 points – potential of project to produce energy savings (including its environmental benefits)

o Up to 10 points – comprehensive marketing and outreach plan

o Up to 5 points – leveraging other funding commitments (more leverage is better)

• Awarding funds – USDA will decide, based on applicable regulations, whether to issue grants in advance or by reimbursement.

• Before a grant can be approved, an applicant must sign a grant agreement, which can be found at the end of the Federal Register notice.

• Grantees are required to monitor their performance and submit semi-annual performance and financial reports along with a final report 90 days after project completion.

• One year after completion, a grantee must also submit a report on results in terms of energy savings and renewable energy production

• Grantees are also required to keep detailed financial records and undergo an annual audit

• Applications must include consideration and documentation of environmental concerns in their proposed area of operation, the potential environmental impact of their plan and any alternatives considered for the purpose of mitigating any environmental impacts.

The Rural Energy for America Program (REAP), has been a key part of the USDA’s efforts to advance biodiesel production. Since the program’s inception in the 2002 Farm Bill, 24 projects have received funding for biodiesel production. These awards amount to over$16 million in grants and guaranteed loans, and represent projects that will produce a total of over 86 million gallons of biodiesel per year. All these projects have local owners.

Congress added a separate section for this program in REAP in the 2008 Farm Bill. This new program offers grants to government entities, institutions of higher education, rural electric cooperatives and public power entities to implement energy audit and renewable energy development assistance programs that serve agricultural producers and rural small businesses to help cut energy waste and develop clean energy production.

An estimated $2.4 million will be available nationwide this program. A single applicant may receive up to $100,000 for the year and the deadline for applications is June 9th. A 25% cost-share is required of an agricultural producer or rural small business receiving an audit from a grantee under this program.

To be clear – REAP’s energy technical assistance program is for government and rural electric cooperative/private power entities. Although the REAP statute suggests that other similar entities, such as non-profit trade associations, could be eligible to apply, this year USDA chose not to allow such entities to apply for program grants. USDA may expand the program to include these types of entities in future years.

Summary of Program Elements

Note: The following is a summary of the major elements of the program. Please review the NOSA for complete details.

• USDA’s Rural Business-Cooperative Service will administer this program.
• Deadline for submitting grant requests to USDA is June 9, 2009 (90 days from publication of the Notice in the Federal Register).
• Eligible applicants for this program include:
  • Unit of state, tribal or local government
  • Land-grant college, university or other institution of higher education
  • Rural Electric Cooperative
  • Public Power entity
• Maximum $100,000 grant per applicant
• Grants can be used:
  • To conduct energy audits that:
    • Describe current energy systems and use and price over the previous 12 months
    • List all potential energy-saving opportunities and the cost
    • Discuss how potential improvements might interact with existing systems
    • Estimate potential energy and cost savings from each improvement
    • Rank potential improvements by cost-effectiveness
    • Include any necessary spec and drawings and description of other benefits, such as reliability and durability
  • Conduct and promote renewable energy development assistance.
  • Only to support activities in rural areas (generally areas less than 50,000 people)
• Applications are submitted to the State Rural Development office or via Grants.gov
• Applications need to include:
  • Form SF 424 – Application for Federal Assistance
  • Form SF 424A – Budget Information, Non-Construction Programs
  • From SF 424B – Assurances, Non-Construction Programs
  • For legal entities, copies of documents showing the applicant’s legal existence and authority to perform activities under this grant
  • Detailed scope of work:
    • Executive Summary
    • Plan and schedule for implementation
    • Anticipated number of ag producers and/or rural small businesses to be served
    • Itemized budget with cost per service and matching funds clearly identified
    • Geographic scope of the project
    • Detailed experience in performing similar services and administering state or federal funds
    • Resources, including personnel, technology and finances, that will be used to carry out the plan
    • Amount of funding being leveraged from other sources and paperwork to confirm the commitment of the funds
    • Description of proposed marketing efforts
    • Most recent financial audit or other financial information that shows the current standing of the applicant A Dun and Bradstreet Universal Numbering System Number
  • Review comments from the State Single Point of Contact, designated by the federal Office of Management and Budget, or evidence the State decided not to review the project
• Eligible project costs include:
  • Salaries
  • Travel for purposes of conducting audits and assessments
  • Office supplies
  • Up to 5% of grant funding can be used for utilities, office space, office equipment and other administrative costs.
• Any rural small business or agricultural producer receiving an energy audit must pay the entity performing the audit a 25% share of the cost of the audit. This cost share is not required for a renewable energy assessment.
• USDA will score project applications using the following criteria, with a maximum possible score of 100 points:
  • Up to 10 points – percentage of work that will be performed by in-house, qualified auditors or renewable energy specialists
  • 10 points – if no funds are used for administrative expenses
  • Up to 15 points – experience in completing the proposed activities
  • Up to 10 points – geographic scope of project in relation to identified need (bigger is better)
  • Up to 15 points – lower costs per audit/assessment are better
  • Up to 25 points – potential of project to produce energy savings (including its environmental benefits)
  • Up to 10 points – comprehensive marketing and outreach plan
  • Up to 5 points – leveraging other funding commitments (more leverage is better)
• Awarding funds – USDA will decide, based on applicable regulations, whether to issue grants in advance or by reimbursement.
• Before a grant can be approved, an applicant must sign a grant agreement, which can be found at the end of the Federal Register notice.
• Grantees are required to monitor their performance and submit semi-annual performance and financial reports along with a final report 90 days after project completion.
• One year after completion, a grantee must also submit a report on results in terms of energy savings and renewable energy production.
• Grantees are also required to keep detailed financial records and undergo an annual audit.
• Applications must include consideration and documentation of environmental concerns in their proposed area of operation, the potential environmental impact of their plan and any alternatives considered for the purpose of mitigating any environmental impacts.