Renewable Energy and Efficiency Grants and Loan Guarantees Available to Agricultural and Rural Small Businesses
The U.S. Department of Agriculture Rural Business-Cooperative Service is currently accepting applications for the Rural Energy for America Program (“REAP Program”). The REAP Program provides grants, guaranteed loans, and combined grant and guaranteed loan combinations to help agricultural producers and rural small businesses reduce energy costs and consumption and meet energy needs.
Under the REAP Program agricultural producers generally include persons or entities directly engaged in the production of agricultural products through labor management and operations, including the cultivating, growing, and harvesting of plants and crops (including farming); breeding, raising, feeding, or housing of livestock (including ranching); forestry products; hydroponics; nursery stock; or aquaculture, whereby 50% or greater of their gross income is derived from the operations. Rural small businesses include entities that meet Small Business Administration (“SBA”) size thresholds regarding net worth and average net income, number of employees, and annual receipts, and generally are not in a city or town that has a population of more than 50,000 inhabitants, and not in the urbanized area contiguous and adjacent to a city or town that has a population of more than 50,000 inhabitants.
Grants and loan guarantees may be variously used for Renewable Energy Systems (“RES”), Energy Efficiency Improvements (“EEI”), Energy Efficiency Equipment (“EEE”), Energy Audits (“EA”), and Renewable Energy Development Assistance (“REDA”).
- RES includes systems that produce usable energy from a renewable energy source (i.e. energy derived from wind, solar, renewable biomass, ocean (including tidal, wave, current, and thermal), geothermal or hydroelectric source, or hydrogen derived from renewable biomass or water using a renewable energy source) and includes distribution components necessary to move energy produced by such system to initial point of sale, and other components and ancillary infrastructure of such system, such as a storage system. Such a system may not, however, include a mechanism for dispensing energy at retail.
- EEI includes improvements to or replacement of an existing building or systems and/or equipment, owned by the applicant, that reduces energy consumption on an annual basis.
- EEE includes equipment or systems for agricultural production or processing that exceeds any of the following standards: (i) energy efficiency building codes, if available; (ii) Federal or State energy efficiency standards, if available; and (iii) energy efficiency standards determined appropriate by the Secretary of Rural Development. If no codes or standards apply to the EEE proposed, then the Secretary shall require such equipment or system to meet the same efficiency measurement as the most efficient available equipment or system in the market, although the Secretary shall not provide a loan guarantee for the purchase and installation of any energy-efficient equipment or system unless more than one type of such equipment or system is available in the market.
- EA include a comprehensive report that meets an Agency-approved standard prepared by an energy auditor or an individual supervised by an energy auditor that documents current energy usage; recommended potential improvements (typically called energy conservation measures) and their costs; energy savings from these improvements; dollars saved per year; and simple payback. The methodology of the energy audit must meet professional and industry standards. The final energy audit must be validated and signed off by the energy auditor who conducted the audit or by the supervising energy auditor of the individual who conducted the audit, as applicable.
- REDA includes assistance provided by eligible grantees to agricultural producers and rural small businesses including education, applicability, and implementation of renewable energy technologies and resources. The REDA may consist of renewable energy site assessments or renewable energy technical assistance.
For RES/EEI grant funding the maximum request for a RES grant application can be up to $1,000,000 and the maximum request for an EEI grant application can be up to $500,000, although funding will not exceed 50% of eligible project costs. The maximum amount of grant assistance to an entity will not exceed $1,500,000 in a fiscal year. An applicant is responsible for securing the remainder of the total project costs not covered by grant funds. Eligible project costs generally include the following if they are directly related to, and their use and purposes are limited to, RES or EEI: (i) purchase and installation of new or refurbished equipment; (ii) construction, retrofitting, replacement, and improvements; (iii) EEI identified by vendor/installer certification or in the applicable energy assessment or energy audit; (iv) fees for construction permits and licenses and fees required by an interconnection agreement; (v) professional service fees related to the project for qualified consultants, contractors, installers, and other third-party services; and (vi) for an eligible RES in which a residence is closely associated with the rural small business or agricultural operation, the installation of a second meter to separate the residence from the portion of the project that benefits the rural small business or agricultural operation, as applicable.
For RES/EEI combined grant and guaranteed loan funding, any combined grant and guaranteed loan shall not exceed 75% of eligible project costs and the grant portion shall not exceed 25% (or 50% as applicable to the source of grant funds and grant funding provisions) of eligible project costs. The loan portion must not exceed $25 million. Funding may be used for the items listed above as well as the following:
- Purchase and installation of new or refurbished RES;
- Purchase and installation of energy efficient equipment and systems by eligible agricultural producers;
- Certain guarantee lender fees;
- Professional service fees and charges related to the project, which may include non-deferred developer fees, provided the Agency approves the amounts as reasonable and customary in the area;
- Certain additional lender fees;
- Working capital, which may include interest on interim financing, debt reserves, rent payments, insurance, and packaging and origination fees;
- Land acquisition;
- Energy assessments, energy audits, technical reports, business plans, and feasibility studies completed and acceptable to the Agency, provided no portion was financed by any other Federal or State grant or payment assistance, including, but not limited to, a REAP energy audit or renewable energy development assistance grant;
- Land, building, and equipment for an existing RES; and
- Under certain circumstances, refinancing outstanding debt. The applicant must provide the remaining total funds needed to complete the project.
EA/REDA grant funding is limited to $100,000 and can be used for costs directly related to conducting and promoting EA and REDA, which include but are not limited to the following:
- Travel expenses;
- Office supplies (e.g., paper, pens, file folders); and
- Expenses charged as a direct cost or as an indirect cost of up to a maximum of 5 % for administering the grant. A grantee that conducts energy audits must require that, as a condition of providing the EA assistance, the agricultural producer or rural small business pay at least 25 % of the cost of the energy audit.
RES loan guarantees are generally available for the purchase of a new or existing RES, the purchase of a refurbished RES, or the retrofitting of an existing RES, although for the purpose of a loan guarantee only those hydroelectric sources with a rated power of 30 megawatts or less are an eligible RES. The RES project must also use commercially available technology, have technical merit, and be located in a rural area unless the borrower is an agricultural producer and the application supports the production, processing, vertical integration, or marketing of agricultural products. If the agricultural producer’s operation is in a non-rural area, then the application can only be for RES components that are both directly related to, and their use and purpose is limited to the agricultural production operation, such as vertically integrated operations, and part of and co-located with the agricultural production operation.
EEI loan guarantees are generally available for projects that use less energy on an annual basis than the original building and/or equipment that they will improve or replace as demonstrated in an energy assessment or audit. As with the RES loan guarantee, the EEI project must also use commercially available technology, have technical merit, and meet the “rural area” requirements noted above.
EEE loan guarantees are generally available for a project that includes the purchase and installation of energy-efficient equipment or systems for agricultural production or processing that exceed the following standards:
- Energy efficiency building codes, if available;
- Federal or State energy efficiency standards, if available; and
- Other energy efficiency standards determined appropriate by the Secretary subject to the requirements noted above. Again, the project must be for commercially available technology and have technical merit.
Application windows will continue through September 2024. For further information or assistance regarding these issues related to the REAP Program contact Stephen A. Campbell.
This publication is intended for general informational purposes only and does not constitute legal advice or a solicitation to provide legal services. The information in this publication is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional legal counsel. The views and opinions expressed herein represent those of the individual author only and are not necessarily the views of Clark Hill PLC. Although we attempt to ensure that postings on our website are complete, accurate, and up to date, we assume no responsibility for their completeness, accuracy, or timeliness.
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