(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.