Advice for the ARRA Applicant

Securing a piece of the $67 billion American Recovery and Reinvestment Act (ARRA) funds designated for alternative energy initiatives is not a task for the faint of heart. Like most government programs, the application process is confusing, arduous and downright frustrating - unless you have the wherewithal to identify and thoroughly complete an application for the program best suited to your enterprise. There are a number of different tax credits, grants and financing (direct loans and loan guarantees) available, in addition to the opportunity to ascertain matching funds from your state government.

Over the course of the past several months, I've helped a number of energy companies to navigate and secure ARRA incentives. Along the way, I've identified four key factors that contribute to a successful application.

Find Your Niche: As an ARRA applicant, you need to match your technology with the appropriate incentive. U.S. Secretary of Energy, Steve Chu, and the Department of Energy have been staunch supporters and proponents of clean, renewable energy as a whole. But ARRA-related funds are targeted to specific industry sectors, subsectors and stages of development. For instance, if your wind energy company is vying for grants, does your core competency relate to wind energy generation, wind component manufacturing, or intermittent energy distribution? Also, is your technology commercially available in the marketplace or do you have a new or significantly improved technology when compared to what is currently available? The incentives are slotted for specialized usage, and your application should be similarly tailored.

Be Stimulating: Bear in mind that the ARRA is, at its most broad interpretation, an economic stimulus program. As such, applicants should identify exactly how many jobs a particular project would retain and ideally create. Companies that can assist the government in following through with the stated intent of its programs are more likely to receive government assistance in return.

Model Behavior: In line with job creation and retention, ARRA applicants need to provide a thorough and realistic financial model. The government has no desire to back a horse that won't finish the race. Those who ultimately approve ARRA applications will examine a company's current capital structure and future financing plans, scour the financial statements for errors and inflated assumptions, stress test the models for swings in feedstock prices, interest rates, and a myriad of other, sometimes simultaneous, catastrophes. And this thorough examination is not just reserved for the developer but in some instances the developer's investors, suppliers and off-take purchasers.

Start Small(er): Since the ARRA will not fund 100% of the project costs, applicants should seek non-federal sources of funding, i.e., state and private contributions as "matching" sources. For the recent lithium-ion battery program, Duff & Phelps helped three suppliers obtain approximately $250 million in matching funds from the state of Michigan. Many other states have attractive financing programs too. New York State recently announced a $100 million Innovation Economy Matching Fund while Texas continues to maintain a strong Enterprise Fund with approximately $350 million.

Those who wish to make a strong case for receiving ARRA funds certainly have their work cut out for them. The rather lengthy process demands significant time and energy - as well as a degree of financial sophistication. But this is an exciting time for renewable energy entrepreneurs to gain serious momentum; a small investment in a thoughtful and well-supported application can reap enormous returns.

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