Avoiding the Haircut: Potential Ways to Enhance the Value of the USDA’s Section 9006 Program

Section 9006 of Title IX of The Farm Security and Rural Investment Act of 2002 (the "2002 Farm Bill") established the Renewable Energy Systems and Energy Efficiency Improvements Program (the "Section 9006 program"). Administered by the United States Department of Agriculture (USDA), the Section 9006 program provides grants, loan guarantees, and – perhaps in the future – direct loans to farmers, ranchers, and rural small businesses for assistance with purchasing renewable energy systems and making energy efficiency improvements. Focusing exclusively on large wind projects funded under the Section 9006 program, this report explores the anti-double-dipping issue and suggests some ways to possibly avoid a PTC haircut. Its purpose is two-fold: (1) to inform recipients of Section 9006 grants, as well as applicants and potential applicants to the program, of the implications of the PTC's anti-double-dipping provisions; and (2) to help the USDA and related stakeholders understand the financial impact of such provisions, and possibly re-design the program to avoid that impact. The report begins in Section 2 with a brief description of Section 9006 program results to date. Section 3 describes the two primary Federal tax incentives for wind power – accelerated depreciation and the production tax credit – and reviews the mechanics of the PTC's anti-double-dipping provision. Section 4 discusses specifically how the different elements of the Section 9006 program – i.e., grants, loan guarantees, and perhaps in the future, direct loans – interact with Federal tax benefits. Section 5 then quantitatively demonstrates the negative financial impact of this interaction. Section 6 discusses several policy options that the USDA and others might consider to avoid PTC haircuts on grants and loans. Section 7 concludes.