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Alta Wind Owners Win Back USD 206m of Renewable Grant

1 November 2016
InfraAmericas

Investors of six wind projects in California have been awarded USD 206m for renewable cash grants that the Treasury had refused to pay, potentially setting a precedent for other project owners in a similar situation to sue the government.

In a ruling on 28 October, the Court of Federal Claims ruled in favor of the wind project owners who had accused the government of underpaying them by more than USD 206m in awarding them a federal cash grant available for renewable energy projects.

David Burton, partner at Mayer Brown, told InfraAmericas that the ruling may cause other renewable project owners that had received a smaller cash grant than they had asked for to consider suing the government. 'There are developers out there who have said, 'litigation is expensive, let me see how the early cases play out,'" he said.

About a dozen cases regarding reduced cash grants are still pending and there are "tens, if not hundreds" of renewable projects that had received a smaller cash grant than project owners had asked for, Burton said. Most renewable projects that applied for the cash grant since late 2011 had received a smaller amount than they had asked for due to a Treasury "haircut" regarding valuation, he added

Pending cases include Invenergy's 211MW Bishop Hill Wind and SolarCity's solar portfolio. Owners of the former asset claim to have received USD 12.7m less in grants, while owners of the latter are claiming USD 14.6m.

Background

The six wind projects, originally constructed by Terra-Gen, are known as Alta Wind projects (Alta Ito Alta VI). The project owners had applied for cash grants available under Section 1603 of the American Recovery and Reinvestment Tax Act for renewable projects. That cash grant was meant to mimic the investment tax credit (ITC), which provides 30% of the "basis of such property-"

Owners of the Alta Wind projects include Citi, Google, GE, MUFG, as well as EverPower, which bought Alta VI in 2012, according to the court order.

The Alta Wind project owners had argued that the "basis" referred to purchase prices of their wind farm facilities minus those for ineligible property like land, according to the court order from the US Court of Federal Claims published on 31 October.

The government, however, interpreted the "basis" to be a smaller portion of the purchase price. The government's interpretation relied on the value of each wind facility's grant-eligible constituent parts and its development and construction costs.

The Department of Justice can appeal within 60 days of the judgment and it will likely appeal, Burton said.

The Section 1603 cash grants have terminated for renewable projects that began construction after 2011: they are still

available for wind and solar projects if they started construction before the end of 2011 and are placed in service before year-end 2016.

The case has implications for the ITC more broadly, Burton said. "Section 1603 is supposed to mimic ITC and the court's analysis regarding fair market value and basis allocations should apply to ITC-eligible projects as well, unless the government appeals and the Federal Circuit reverses."
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