OMAHA (DTN) -- Farmers and small businesses considering adding solar energy to their operations should be looking at new incentives and funding under USDA's Renewable Energy for America Program, known as REAP.
The advocacy group Solar United Neighbors held a webinar last week touting some of the changes to REAP with applications due for the next funding cycle on March 31.
The Inflation Reduction Act (IRA) that passed last fall quadrupled REAP funding to $180.28 million per year for FY 2023-2027. The bill also increased the federal match for grants from 25% to 40% this year and as much as 50% beyond that.
REAP has both loan guarantees for up to 75% of eligible project costs as well as grants right now up to 40% of project costs. Loans and grants can also be combined to provide up to 75% of project costs.
Before the IRA, REAP was considered popular, "But the funding was nowhere near big enough to fund every good project that applied for a grant," said Emma Searson, a policy and advocacy campaigner for Solar United Neighbors. She added, "There is just a lot more REAP funding to go around this year and in future years."
Searson noted, "This is really a historic opportunity for farmers and small business owners."
Solar projects that receive funding from REAP could qualify for other federal solar tax credits or bonus depreciation as well.
REAP is set up specifically to help farmers or rural small businesses.
To be defined as a "farmer," producers must show that at least 50% of their gross income is from their agricultural operations.
For small rural businesses, they generally must be located in a community with fewer than 50,000 people. Businesses located in more urban areas can qualify if they can show their business is related to a rural area. Businesses must also meet the definition of "small" with net worth under $15 million and net income under $5 million annually for the previous two years.
A small business can also include a cooperative, a rural electric utility, or a tribal corporation.
SCALE OF PROJECT
Most REAP applications and grant awards are under $80,000. The application for fall grants and loans is exclusively for those smaller projects. The spring application process open now does provide awards for larger projects as well.
Applications are scored on a set of criteria, one of which provides 10 points for application requests under $250,000.
Other scoring for a project includes points based on the percentage of energy that would be replaced by the project. A project that would replace more than 50% of annual consumption would receive 15 points, while a project that replaces less than 25% of power would only score 5 points.
Other points are scored based on the payback of energy savings, as well as the commitment of funds for the project.
Veterans, socially disadvantaged applicants or projects in disaster areas or U.S. Census blocks with high poverty rates also receive 10 points.
Fritz Ebinger, a solar energy developer in Minnesota, worked for seven years at the University of Minnesota Extension on REAP projects. He cautioned that farmers and small businesses should submit their applications before they build their project. REAP does not provide grants or loans after the fact.
Once an application is submitted, then a project can be built without knowing if awarded. However, Ebinger warned against building a solar project assuming you will receive a REAP grant. He said people have been stuck with large loans in the past when their project was denied funding.
"Make sure you think through your project economics," he said.
PREPARING FOR AN APPLICATION
Some documents will include three years of tax returns and electric bills for the last 12 months.
A project quote will also be required from an installer.
Details will be required on the financial obligations already committed to the project, whether it is your funds or an outside loan.
When you start to apply for a project, you will need to receive a federal Unique Entity ID -- unique code to your project
Besides soliciting bids from contractors, Ebinger recommended contacting the Rural Electric Cooperative or utility on the front end to learn the technical aspects of plugging into a project.
Every state also has different laws and rules about how solar projects connect into the grid.
There are several federal forms involved, including the USDA RD-4280-3A, the main application form. Other forms include:
-- SF-424 -- Business information.
-- 424C -- Budget form, match REAP.
-- 324D -- Construction.
-- RD-1940-20 -- Environmental form, mostly boxes.
Go to a USDA Office of Rural Development representative or the website https://www.rd.usda.gov/….
While the list of forms can be daunting, Ebinger said, "I don't want people to feel intimidated; they are pretty straightforward."
As far as taking the time to apply for REAP grants, Ebinger added, "If you don't shoot, you don't score."
Ebinger also recommended farmers and small-business owners interested in REAP applications call their local or state USDA Rural Development offices. He suggested asking staff about the other REAP applications in the area or complications others might be having with their projects.
"It's always good to have a good conversation on the early end," Ebinger said.
USDA Rural Development will contact successful applications, typically in about six weeks.
ONE FLORIDA PROJECT
John Kocol, general manager of Renaissance Farms of the Keys in Islamorada, Florida, received a REAP grant for 96 solar panels in 2015.
Breaking down his project at the time, the total project cost was $94,600. At the time, he received a 25% REAP grant that reduced the costs $23,650. His project also qualified for the 30% Solar Investment Tax Credit that reduced costs another $21,285. He then took a Section 179 deduction on the project as well.
The grant and multiple tax credits added up to $65,563 and brought down final project costs to $29,137, or 30% of the initial project costs.
Kocol said the solar panels are saving his business an average of $6,403 per year on utility costs. He noted his panels also are warrantied for 25 years. They are also providing fixed costs at a time of high volatility in the natural gas market.
"So, you are looking at a system here that you can count on for reliability and performance for the long term," Kocol said. He added, "This is a way you can actually take that variable out of the equation, and in the process, you can help Mother Earth."
Kocol pointed to an online tool, the PVWatts calculator (https://pvwatts.nrel.gov/…), that can help a business figure out their power usage, how much a project could cost to build and how much power savings it could generate.
"This really starts with your consumption. You need to look at your business and how much power you are consuming." Kocol said.
The rules on tax credits have changed since 2015. Section 179 is not allowed for solar equipment, but bonus depreciation is allowed. Here is where you want to talk to an accountant about the specifics of what your farm or business could receive for solar or equipment tax credits based on your farm's business income and other deductions.
Sometime this year, USDA will provide details on how farmers or businesses can qualify for grants as much as 50% of the project costs, but the maximum grant this spring will be 40% of costs.
It's not clear how projects will qualify for that extra 10%. It's expected that a smaller group of applications will qualify, Searson said.
Solar United Neighbors has produced a guide farmers and businesses can download to walk them through all the steps for applying for a REAP project.
Go to www.solarunitedneighbors.org
USDA Rural Development REAP grants and loan guarantees: https://www.rd.usda.gov/…
Chris Clayton can be reached at Chris.Clayton@dtn.com
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