1. Status of Federal Spending and Tax Incentives for Cleantech R&D and Projects Connect Public Policy Forum May 20, 2010 PL-38668-v2 Fred Greguras Palo Alto Office fred.greguras@klgates.com 650.798.6708

2. 1 Federal Incentives for Cleantech R&D, Manufacturing and Project Deployment  R&D  ARPA-E (https//arpa-e-foa.energy.gov)  Other Funding Opportunity Announcements  More targeted and still primarily single deadline rather than rolling submission FOAs  How to Protect Intellectual Property in Department of Energy Funding Programs, K&L Gates White Paper, January, 2010, available for download at http://tinyurl.com/ybljw55  Federal section 1603 30% cash grant in lieu of investment tax credit or ITC (http://www.treas.gov/recovery/1603.shtml)  ITC in lieu of production tax credit (http://www.irs.gov/irb/2009-19_IRB/ar07.html )  50% bonus depreciation (expired 12/31/09) (not cash)-has not been extended  Manufacturing Tax Credit (http//www.energy.gov.recovery/48C.html)

3. 2 Federal Incentives for Cleantech R&D, Manufacturing and Project Deployment  Loan guarantee program (www.lgprogramenergy.gov)  Timing, application costs and complexity, conservative positions  FIPP program also moving slowly  Clean Renewable Energy Bonds (CREBs) (www.ustreas.gov/press/releases/tg333.htm)  $2.2B in bond issuances approved in October, 2009 by U.S. Treasury for qualified issuers such as local utilities, electric coops, etc.

4. 3 Federal Cash Grant in Lieu of Investment Tax Credit  30% cash as opposed to investment tax credit in the deployment of certain renewable energy projects  Simpler ITC may be acceptable to investors with tax liability since no application is needed but this market has not recovered  Cash grant payments by Treasury have been key to the financeability of wind and solar project projects  Project must be “under construction” by December 2010  Many projects will not make this deadline  Legislation proposed to extend and modify – Feinstein/Schumer

5. 4 Manufacturing Tax Credit  $2.3B in awards fully allocated by Treasury in a detailed application process  Not eligible for cash grant in lieu of ITC although proposed legislation would increase allocation, extend and authorize cash grant option  Administration has publicly stated it wants to increase by $5B  Not assignable – may be used only by the tax payer that entered into the award agreement with Treasury  Incentive has the potential for meaningful job creation

6. 5 Summary  Targeted R&D programs  No single federal and/or state incentive is sufficient for project finance; combination of incentives is needed that can be applied at the same time  The federal 30% cash grant is the single most important incentive for deployment of renewable energy projects but is not sufficient by itself  Bonus depreciation should be extended so it has time to be a financing tool  Manufacturing tax credit allocation should be increased and availability extended  American Power Act may be the legislative vehicle in which various pending legislation is consolidated  Best case this year for extensions may be late year action, particularly on cash grant