Congress created the Section 1603 grant program as part of the American Recovery and Reinvestment Act (ARRA) of 2009. The purpose of this grant is to encourage installation of specified energy property used in a trade or business. The grant reimburses a portion of the costs associated with these energy facilities. The Court of Federal Claims has recently limited the utilization of this grant program with a decision released January 12, 2015.
In W.E. Partners II LLC v. United States, No. 13-54 (Fed. Cl. Jan. 12, 2015), the Court held that a biomass cogeneration plant was only entitled to a fraction of the incentive which had been originally anticipated. W.E. Partners II applied for a grant under Section 1603 for the total cost of an open-loop biomass facility which used three boilers to burn biomass to produce the steam used to run a steam-turbine generator. The generator produced power which was used to power a chicken rendering plant.
The Court found that only one-third of the incentive was appropriate because they determined that only one boiler was actually necessary to drive the generator. The cost associated with the other two boilers was not used in calculating the grant. The Court believed that these two boilers were not actually producing any more electricity than just one boiler would and, therefore, did not contribute in energy production. The court basically said that these other two boilers were just producing steam.
If you take this holding into account, biomass facilities used entirely for production of electricity may qualify for the grant taking into account the full cost of the facility. If the facility is a cogeneration facility, which incorporates other industrial purposes, only a portion of the cost will be utilized to generate the grant. While this decision is directed at the ARRA 1603 grant, there are potential ramifications on the investment tax credit taken for these facilities.