Many companies are using stimulus funds to advance the hydroelectric industry. The four companies featured in this article are using funds from the Department of Energy, clean renewable energy bonds, production tax credits, and the manufacturing tax credit to modernize existing plants, expand facilities, and build new manufacturing plants.
On February 17, 2009, U.S. President Barack Obama signed into law a $787 billion economic stimulus package. This law included financial incentives for the development of some hydropower and other renewable energy sources. In addition, existing funds are available for use in developing new or expanding existing hydroelectric facilities.
Many companies in the hydroelectric industry are taking advantage of this available funding. Funding is being used to rehabilitate aging equipment, expand existing facilities, and build new manufacturing plants. For those who are in the process of or considering applying for the various funding methods available, learning about others’ experiences can provide valuable insight into the process. In this article, four companies discuss how they applied for and received funding from various sources.
Stimulus funds available for hydro
The stimulus package offers an array of alternatives to finance hydro development.
For example, the bill extended the project in-service date through December 31, 2013, to be eligible for production tax credits (PTC). Among eligible renewable technologies are small irrigation hydro, incremental hydropower from additions to existing plants, hydropower development at existing non-powered dams, ocean energy, and in-stream hydrokinetic.
Another provision would allow new renewable projects to claim a 30 percent investment tax credit in lieu of a PTC for the duration of the PTC extension.
In addition, hydropower equipment manufacturers are eligible to participate in a new 30 percent advanced energy manufacturing tax credit. Advanced energy property includes technology for the production of renewable energy, energy storage, energy conservation, efficient transmission and distribution of electricity, and carbon capture and sequestration. Advanced energy investment credits are available only for projects certified by the Treasury secretary, in consultation with the Energy secretary, through a competitive bidding process. The Treasury secretary was allowed to allocate up to $2.3 billion in credits.
The bill also authorizes $1.6 billion of new clean renewable energy bonds (CREBs) to finance development of facilities that generate electricity from renewables, including the hydro and ocean energy sources listed in the production tax credit section. The bonds are offered to entities that are not eligible for the tax credits: state, local, and tribal governments; public power providers; and electric cooperatives. This funding, combined with money made available by the Energy Improvement and Extension Act of 2008, resulted in total available CREBs of $2.2 billion. Of this, hydroelectric projects received about 24 percent.
In addition, the bill establishes Treasury Department energy grants (called 1603 grants) that can be used in lieu of investment tax credits or PTCs for electricity produced from renewable energy facilities. These grants are equivalent to 30 percent of the total project cost. Energy properties that are eligible for these grants include hydroelectric, marine, and hydrokinetic facilities.
The stimulus package also includes $37.5 billion in appropriations for investments in energy. These loan guarantees include $2.5 billion for energy efficiency and renewable energy research and $6 billion for standard renewables projects and for electricity transmission projects. The U.S. Department of Energy (DOE) is responsible for this 1703 loan guarantee program.
Other funds available include $750 million in federal loan guarantees for commercial technology renewable energy projects; a 20 percent tax credit for research and development expenditures in renewable energy; and a one-year extension in the bonus depreciation allowance for capital expenditures.
Examples of companies using stimulus funds
Several entities involved in hydroelectric generation are using these stimulus funds. Four examples include:
— Alcoa, which is rehabilitating its 122-MW Cheoah project;
— Holyoke Gas & Electric, which is replacing a unit at its 3-MW Boatlock Station facility;
— PPL Holtwood, which is expanding its 108-MW Holtwood plant; and
— Alstom, which is building a new turbine manufacturing facility in Chattanooga, Tenn.
Modernizing using DOE funds
Alcoa’s 122-MW Cheoah plant is one of the seven hydroelectric projects that DOE announced in November 2009 would receive stimulus funds. The company is using the $12.95 million it received to replace two turbines at its Cheoah plant on the Cheoah River in North Carolina. Cheoah is one of four powerhouses in the company’s 380-MW Tapoco project. This project provides power for Alcoa’s aluminum smelting and rolling operations in Alcoa, Tenn.
Over a period of four years, the four original Francis turbines at the Cheoah facility, which began operating in 1919, will be replaced with new stainless steel turbines and generators. In addition, the utility will replace the auxiliaries (such as the governors and the lubrication system), step-up transformers, and switchgear. This rehabilitation will increase capacity of the plant by 5.5 MW per unit, to 144 MW. Annual generation from the plant will increase by 95,000 megawatt-hours (MWh), a 23 percent increase.
The production of aluminum requires significant electricity consumption, says David Williams, program development manager for the Alcoa Technical Center. As a result, Alcoa has had a long-term relationship with DOE and a shared interest in reducing industrial consumption of electricity. Because of this relationship, Alcoa was aware that funding would become available for the hydro industry.
In July 2009, DOE announced its solicitation for applications for the $32 million in funding for hydro generating capability enhancements in the U.S, Williams said. Alcoa submitted a letter of intent to apply for funding that same month and submitted the completed application in August 2009. In November 2009, DOE announced its intent to award the funds to Alcoa and others.
Despite this quick turnaround, this was an extensive process, says Bill Bunker, hydropower operations manager with Alcoa. The application was 40 to 50 pages long, and the effort required to put together this type of application was 500 to 600 work-hours, Williams estimates. Work involved included documenting the background, project plan, technical approach, and personnel, as well as securing information from subcontractors and vendors.
Alcoa chose the Cheoah project for this funding opportunity for several reasons. First, the board of directors approved plans to rehabilitate Cheoah in 2008, but the work stalled because of the economic decline. Second, one of the elements of the DOE financing package was to fund shovel-ready projects, which essentially are activities that companies had stopped because of a shortage of capital funding. Third, this is the oldest and second largest of the four powerhouses in the company’s Tapoco project, so work on it would provide a large gain for the money expended.
Originally, Alcoa requested $15 million in funding for the Cheoah rehab project. This money will fund the two years of work needed to rehabilitate two of the four turbines and the substation. The DOE funds were allocated on an 80/20 cost sharing arrangement, meaning the utility would receive DOE funds equal to 20 percent of the total project cost and the utility would fund the remaining 80 percent of the costs, Bunker says. The utility was awarded $12.95 million.
As of early March 2010, Alcoa was still finalizing details of the grant with DOE, Bunker said. However, the utility anticipated signing the paperwork and begin obligating the money by April 2010. Fluor Global Services will manage the project, and Voith Hydro is the contractor for most of the work, including supplying the new turbines and generators. ABB and Southern States are equipment suppliers for the substation.
Work on the final two units at Cheoah will be performed after the work funded using the DOE grant is finished, Bunker says.
Alcoa’s impression of the overall experience is positive. “This is an incredible opportunity” says Bunker. “We have been wanting to upgrade Cheoah for many years. The stimulus funding allows us to move forward with this project, which is important to continue providing renewable power to the grid.”
Alcoa also applied for DOE funding for rehabilitation work at its 39-MW High Rock project on the Yadkin River in North Carolina. However, insufficient funding was available. If more funding is made available, the project will be considered under the original application, Williams says.
Using CREBs for a turbine replacement
Holyoke Gas & Electric Co. is using $2.5 million in CREBs to replace a 500-kW turbine-generating unit at its 3-MW Boatlock Station plant on the Connecticut River in Massachusetts. This plant, which contains three units, is part of the 50.7-MW Holyoke project.
This Francis unit began operating in 1921, but as the utility experienced issues with the turbine runner and some of the other turbine components, it opted to operate the unit at a lower output level, says Paul Ducheney, superintendent of electric production for Holyoke Gas & Electric.
Holyoke Gas & Electric began work preparing an application for CREBs funding for this project in February 2006. Nancy Skancke, an attorney with GKRSE, assisted the utility in completing the application. HDR|DTA was the engineer of record to provide an opinion on costs. The utility filed the application in April 2006. At the time, the utility estimated costs of $2.5 million; Holyoke Gas & Electric received notice in November 2006 it would be awarded this full amount.
The utility chose the Boatlock Station for CREBs funding for several reasons, Ducheney says. The primary driver was the fact that the Boatlock Station is located on the first level of a three-tier canal system, and this generating unit is needed to supply water to downstream facilities. In addition, the opportunity to increase the capacity of this unit to 700 kW meant the utility could not only boost generation at this plant but also provide energy improvements at downstream facilities by passing an additional 400 cubic feet per second of water to the lower-level canals.
On-site construction work on Unit 1 at Boatlock Station began in April 2009 with disassembly of Unit 1. The construction work includes the installation of a new vertical Kaplan turbine manufactured by Czech equipment supplier Mavel a.s. The project is expected to be complete by early fall 2010.
Expanding an existing facility
In an ambitious move, PPL Holtwood is moving forward on a plan to more than double the capacity of its 108-MW Holtwood project, on the Susquehanna River in Pennsylvania. PPL Holtwood had actually canceled the planned expansion in December 2008 in light of economic conditions at that time.
PPL said that incentives in the federal stimulus package made the project feasible again by offsetting the factors that caused the company to withdraw its original application. These incentives include an extension of the in-service date for qualification for production tax credits (PTCs); the potential to opt for an investment tax credit in lieu of the PTCs; and the possibility of obtaining loan guarantees from the DOE, says Lissette Santana, spokesperson for PPL Holtwood. PPL also may have the option to pursue federal grant money in lieu of credits.
Currently, hydropower projects placed in service before the end of 2013 are eligible to receive the ten-year, inflation-adjusted PTC, which was included in the Energy Policy Act of 1992. The American Recovery and Reinvestment Act of 2009 extended this in-service date and also provided the flexibility to elect to claim a 30 percent investment tax credit in lieu of the PTC. The PTC or investment tax credit are claimed on a taxpayer’s federal income tax return. The investment tax credit may be available on certain expenditures as the project progresses. However, final eligibility is determined when the facility is placed in service.
The Treasury Department is responsible for administering the program, including eligibility for grants in lie of credits. The Internal Revenue Service is responsible for reviewing tax credit eligibility and computations. FERC is responsible for certifying that a project achieves incremental hydropower production. DOE is responsible for loan guarantees.
As a result of these changing factors, PPL Holtwood submitted a new application for the expansion to the Federal Energy Regulatory Commission (FERC) in April 2009, and FERC approved this request in October 2009.
Construction on the $434 million project began in December 2009 and could be finished by the spring of 2013. Walsh Construction of Chicago is the general contractor for the project. The expansion will involve the construction of a new powerhouse on the site of a former coal-fired power plant adjacent to the existing ten-unit powerhouse. Voith Hydro will supply the two turbine-generator units. This expansion will add enough renewable energy to power 100,000 homes. In addition, as part of the expansion PPL Holtwood will modify the existing fish lift and the Unit 1 outflows to improve fish lift performance. This change will better enable migratory fish to reach spawning areas upstream of Holtwood Dam, Santana says. The expansion could create more than 200 construction jobs.
PPL is working to obtain loan guarantees from the DOE, Santana says. PPL began the effort in July 2009 and hopes to have a decision from the DOE in the near future.
Gaining the manufacturing credit
In January 2010, a total of $2.3 billion in tax credits were awarded to advanced energy manufacturing companies. As part of this award, Alstom Inc. received a $63 million tax credit to build a turbine manufacturing facility in Chattanooga, Tenn. Initially, the facility will be used to manufacture steam turbines with a unit capacity of up to 1,700 MW. However, Alstom anticipates that demand eventually will necessitate expanding the scope of the facility to manufacture new hydroelectric turbines and retrofit existing hydro turbines with higher-efficiency technologies.
Alstom learned about the manufacturing credit from both the DOE and the National Hydropower Association. The company then analyzed its business opportunities and investment plan, as well as the details of the tax credit opportunity. DOE communications originally restricted the credit to “new renewables,” says Timothy S. Brown, director, communications, U.S. and Canada, for Alstom. While it was fairly clear that such projects included hydro, it was not clear if it included nuclear projects, Brown says. Alstom’s tax department obtained clarification from DOE to both confirm eligibility of nuclear and reconfirm eligibility of hydro.
Alstom applied for the advanced energy manufacturing tax credit in October 2009 and received the award in January 2010. Alstom received the full credit it requested. “The effort to secure tax credits is part of a larger strategy to meet the country’s clean power needs by investing in clean technology solutions,” Brown says.
Alstom must earn the tax credits it has been awarded, Brown says. This depends on the actual work performed at the Chattanooga facility, the timing and amount of credits earned as a result of that work, and the company’s larger financial and tax strategy at that point in time, he says.
Elizabeth Ingram is associate editor of Hydro Review.
Two NHA conference sessions focus on federal stimulus funding