Internal Revenue Bulletin:  2006-11 

March 13, 2006 

APPENDIX B
APPLICATION FOR DOE CERTIFICATION
REQUEST FOR SUPPLEMENTAL APPLICATION INFORMATION FOR DOE
   
Pursuant to Notice 2006-24 establishing the Qualifying Advanced Coal Project Program, the Internal Revenue Service (“IRS”) will allocate a credit under § 48A of the Internal Revenue Code to a project only if, among other things, the IRS receives from the Department of Energy (“DOE”) a certification of feasibility and consistency with energy policy goals (“DOE certification”) for the project. This DOE certification shall assure that the applications selected meet the requirements of § 48A and the intent of §  48A to provide credits to projects that are both technically and economically feasible.
The IRS and DOE seek to certify applications that demonstrate a high likelihood of being successfully implemented by the applicants. To qualify, projects must be economically feasible and use the appropriate clean coal technology.
This request for submission of supplemental application information:
  1. Describes the information to be provided by the applicant seeking a DOE certification, and
  2. Lists the evaluation criteria, and Program Policy Factors to be used by DOE in the evaluation of applications.
In conducting this evaluation, the DOE may utilize assistance and advice from qualified personnel from other Federal agencies and/or non-conflicted contractors. DOE will obtain assurances in advance from all evaluators that application information shall be kept confidential and used only for evaluation purposes. DOE reserves the right to request clarifications and/or supplemental information from some or all applicants through written submissions and/or oral presentations.
Notice is given that DOE may determine whether or not to provide a DOE certification to the IRS at any time after the application has been received, without further exchanges or discussions. Therefore, all applicants are advised to submit their most complete and responsive application.
Applications will not be returned.
SUBMISSION INFORMATION FOR DOE CERTIFICATION APPLICATION
A. General
This request, together with the information in sections 5.02, 7.01, and 7.02 of Notice 2006-24 includes all the information needed to complete an application for DOE certification. All applications shall be prepared in accordance with this request in order to provide a standard basis for evaluation and to ensure that each application will be uniform as to format and sequence.
Each application should clearly demonstrate the applicant’s capability, knowledge, and experience in regard to the requirements described herein.
Applicants should fully address the requirements of Notice 2006-24 and this request and not rely on the presumed background knowledge of reviewers. DOE may reject an application that does not follow the instructions regarding the organization and content of the application when the nature of the deviation and/or omission precludes meaningful review of the application.
B. Unnecessarily Elaborate Applications
Unnecessarily elaborate brochures or other presentations beyond those sufficient to present a complete and effective application are not desired. Elaborate art work, graphics and pictures are neither required nor encouraged.
C. Application Submission for DOE Certification
The application submission to DOE must include the information and documentation required by sections 5.02, 7.01, and 7.02 of Notice 2006-24.
A project will not be considered in the allocation round conducted in a calendar year unless the application for DOE certification of the project is postmarked by June 30 of that calendar year. Two paper copies and one electronic version on a floppy disc or a CD of the Application must be submitted to:
Melissa Robe National Energy Technology Laboratory 3610 Collins Ferry Road Morgantown, WV 26507
Note that under section 5 of Notice 2006-24, one paper copy must be sent to the IRS as part of the application for IRS certification. The project will not be considered in the allocation round conducted in a calendar year unless the application is submitted to the IRS by the date specified for that calendar year in section 4.02(8) of Notice 2006-24.
THE INFORMATION REQUIRED BY THIS REQUEST MUST BE SUBMITTED USING THE FORMAT AND THE HEADINGS OF THE “PROJECT INFORMATION MEMORANDUM” AS DESCRIBED BELOW.
To aid in evaluation, applications shall be clearly and concisely written and logically assembled. All pages of each part shall be appropriately numbered and identified with the name of the applicant and the date.
The application, including the Project Information Memorandum, MUST be formatted in one of the following software applications:
Microsoft Wordtm 2002 or later edition
Microsoft Exceltm 2002 or later edition
Adobe Acrobattm PDF 6.0 or later edition
Financial models should be submitted using the Exceltm spreadsheet and must include calculation formulas and assumptions.
The applicant is responsible for the integrity and structure of the electronic files. The DOE will not be responsible for reformatting, restructuring or converting any files submitted under this announcement.
The Project Information Memorandum, excluding Appendices, shall not exceed seventy-five (75) pages. Pages in excess of the page limitation will not be considered for evaluation. All text shall be typed, single spaced, using 12 point font, 1 inch margins, and unreduced 8-1/2-inch by 11-inch pages. Illustrations and charts shall be legible with all text in legible font. Pages shall be sequentially numbered. Except as otherwise noted herein the page guidelines previously set forth constitute a limitation on the total amount of material that may be submitted for evaluation. No material may be incorporated in any application by reference as a means to circumvent the page limitation.
D. Form of Project Information Memorandum
PROJECT INFORMATION MEMORANDUM
I. SUMMARY AND INTRODUCTION
 
  • Description of the Project

  • Financing and Ownership Structure

  • Describe the main parties to the project, including background, ownership and related experience

  • Current Project Status and Schedule to Beginning of Construction

II. TECHNOLOGY AND TECHNICAL INFORMATION
  Provide a description of the proposed technology, including sufficient supporting information (such as process flow diagrams, equipment descriptions, information on each major process unit and the total plant, compositions of major streams, and the technical plan for achieving the goals proposed for the project) as would be needed to allow DOE to confirm that the technical requirements of § 48A could, in principle, be met. Specifically the applicant should:
 
  • Provide evidence sufficient to demonstrate that the proposed technology meets the definition of “Advanced Coal-Based Generation Technology,” either as integrated gasification combined cycle (IGCC) technology, or other advanced coal-based electric generation technology meeting the heat rate requirement of 8530 Btu/kWh

    • The applicant must provide actual heat rate and heat rate corrected to conditions specified in § 48A(f)(2)

    • For projects including existing units, the applicant must provide information sufficient to justify that the proposed technology meets heat rate requirements specified in § 48A(f)(3)

  • Provide evidence sufficient to ensure that the proposed project is designed to meet the following performance requirements:

    • SO2 percent removal........99 percent

    • NOx emissions..................0.07 lbs / MMBTU

    • PM emissions....................0.015 lbs / MMBTU

    • Hg percent removal..........90 percent

  • Provide evidence sufficient to demonstrate that the project meets the requirements for qualifying advanced coal projects as specified under § 48A(e)(1) including:

    • The project will power a new electric generation unit or retrofit/repower an existing electric generation unit. At least 50% of the useful output of the project is electrical power.

    • The fuel for the project is at least 75% coal (as defined in § 48A(c)(4)), on an energy input basis.

    • The project is located at one site and has a total nameplate electric power generating capacity of at least 400 MW.

  • Provide information and data, including examples of prior similar projects completed by applicant, EPC contractor, and suppliers of major subsystems or equipment which support the capabilities of the applicant to construct and operate the facility.

  • Include the project status and relevant information from ongoing engineering activities. Also include in an appendix any engineering report or reports used by the applicant to develop the project and to estimate costs and operating performance.

III. PRIORITY FOR INTEGRATED GASIFICATION COMBINED CYCLE PROJECTS
  For IGCC Projects, the applicant must submit information sufficient for categorization and prioritization of projects for certification, including:
 
  • Identification of the primary feedstock (as defined in section 5.02(5) of Notice 2006-24), and all other feedstocks.

  • If applicable, evidence demonstrating that the project will be capable of adding components that can capture, separate and permanently sequester greenhouse gases.

  • A plan showing how project by-products will be marketed and utilized.

  • Other benefits, if any.

IV. SITE CONTROL AND OWNERSHIP
 
  • Provide evidence that the applicant owns or controls a site in the United States of sufficient size to allow the proposed project to be constructed and operated on a long-term basis.

  • Describe the current infrastructure at the site available to meet the needs of the project.

  • Provide information supporting applicant’s conclusion that the proposed site can fully meet all environmental, coal supply, water supply, transmission interconnect, and public policy requirements.

V. UTILIZATION OF PROJECT OUTPUT
 
  • A projection of the anticipated costs of electricity and other marketable by-products produced by the plant.

  • Provide evidence that a majority of the output of the plant is reasonably expected to be acquired or utilized.

  • Describe any energy sales arrangements that exist or that may be contemplated, e.g., Power Purchase Agreement or Energy Sales Agreement, and summaries of their key terms and conditions.

  • Include as an appendix any independent Energy Price Market Study that has been done in connection with this project, or if no independent market study has been completed, provide a copy of the applicant-prepared market study.

  • Identify and describe any firm arrangements to sell non-power output, and provide any evidence of such arrangements. If the project produces a product in addition to power, include as an appendix any related market study of price and volume of sales expected for that product.

VI. PROJECT ECONOMICS
  Describe the project economics and provide satisfactory evidence of economic feasibility as demonstrated through the financial forecast and the underlying project assumptions.
  Discuss the market potential for the proposed technology beyond the project proposed by the applicant.
  Show calculation of the amount of tax credit applied for based on allowable cost.
VII. PROJECT DEVELOPMENT AND FINANCIAL PLAN
  Provide the total project budget and major plant costs, e.g., development, operating, capital, construction, and financing costs. Describe the overall approach to project development and financing sufficient to demonstrate project viability. Provide a complete explanation of the source and amount of project equity. Provide a complete explanation of the source and amount of project debt. Provide the audited financial statements for the applicant for the most recently ended three fiscal years, and the unaudited quarterly interim financial statements for the current fiscal year.
  For internally financed projects, provide evidence that the applicant has sufficient assets to fund the project with its own resources. Identify any internal approvals required to commit such assets. Include in an appendix copies of any board resolution or other approval authorizing the applicant to commit funds and proceed with the project.
  For projects financed through debt instruments either unsecured or secured by assets other than the project, provide evidence that the applicant has sufficient creditworthiness to obtain such financing along with a discussion of the status of such instruments. Identify any internal approvals required to commit the applicant to pursue such financing. Include in an appendix, copies of any board resolution or other approval authorizing the applicant to commit to such financing.
  For projects financed through investor equity contributions, discuss the source and status of each contribution. Discuss each investor’s financial capability to meet its commitments. Include in an appendix, copies of any executed investment agreements.
  If financing through a public offering or private placement of either debt or equity is planned for the project, provide the expected debt rating for the issue and an explanation of applicant’s justification for the rating. Describe the status of any discussions with prospective investment bankers or other financial advisors.
  For projects employing nonrecourse debt financing, provide a complete discussion of the approach to, and status of, such financing.
  In an appendix, provide (1) an Excel based financial model of the project, with formulas, so that review of the model calculations and assumptions may be facilitated; provide pro-forma project financial, economic, capital cost, and operating assumptions, including detail of all project capital costs, development costs, interest during construction, transmission interconnection costs, other operating expenses, and all other costs and expenses, and (2) a report of an independent financial analyst in accordance with the instructions in Section G of this Appendix B.
VIII. PROJECT CONTRACT STRUCTURE
  Describe the current status of each of the agreements set forth below. Include as an appendix copies of the contracts or summaries of the key provisions of each of the following agreements:
 
  • Power Purchase Agreement (if not fully explained in Section IV)

  • Coal Supply: describe the source and price of coal supply for the project. Include as an appendix any studies of coal supply price and amount that have been prepared. Include a summary of the coal supply contract and a copy of the contract.

  • Coal transportation: explain the arrangements for transporting coal, including costs.

  • Operations & Maintenance Agreement: include a summary of the terms and conditions of the contract and a copy of the contract.

  • Shareholders Agreement: summarize key terms and include the agreement as an appendix.

  • Engineering, Procurement and Construction Agreement: describe the key terms of the existing or expected EPC contract arrangement, including firm price, liquidated damages, hold-backs, performance guarantees, etc.

  • Water Supply Agreement: confirm the amount, source, and cost of water supply.

  • Transmission interconnection agreement: explain the requirements to connect to the system and the current status of negotiations in this respect.

IX. PERMITS INCLUDING EVIRONMENTAL AUTHORIZATIONS
 
  • Provide a complete list of all federal, state, and local permits, including environmental authorizations or reviews, necessary to commence construction of the project.

  • Explain what actions have been taken to date to satisfy the required authorizations and reviews, and the status of each.

  • Provide a description of the applicant’s plan to obtain and complete all necessary permits, and environmental authorizations and reviews.

X. STEAM TURBINE PURCHASE
 
  • If applicant plans to purchase a steam turbine or turbines for the project, indicate the prospective vendors for the turbine and explain the current status of purchase negotiations, and provide a timeline for negotiation and purchase with expected purchase date.

XI. PROJECT SCHEDULE
 
  • Provide an overall project schedule which includes technical, business, financial, permitting and other factors to substantiate that the project will meet the 2 year project certification and 5 year placed-in-service requirement.

APPENDICES
 
  • Independent Financial Report.

  • Copy of internal or external engineering reports.

  • Copy of site plan, together with evidence that applicant owns or controls a site. Examples of evidence would include a deed, or an executed contract to purchase or lease the site.

  • Information supporting applicant’s conclusion that the site is fully acceptable as the project site with respect to environment, coal supply, water supply, transmission interconnect, and public policy reasons.

  • Power Purchase or Energy Sales Agreement.

  • Energy Market Study.

  • Market Study for non-power output.

  • Financial Model of project.

  • Audited financial statements for the applicant for the most recently ended three fiscal years, and the unaudited quarterly interim financial statements for the current fiscal year.

  • For each project contract, if no contract currently exists, provide a summary of the expected terms and conditions.

  • List of all federal, state, and local permits, including environmental authorizations or reviews, necessary to commence construction.

  • If an appendix listed above is not provided, include in its place a complete explanation of the reasons for the omission.

E. Evaluation Criteria:
Advanced coal projects: will be evaluated on whether they meet all the requirements of § 48A.
Technical: will be evaluated on whether the applicant has demonstrated the capability to accomplish the technical objectives.
Site: will be evaluated on the basis that the site requirement for ownership or control has been met, and that the site is suitable for the proposed project.
Economic: will be evaluated on whether the project has demonstrated economic feasibility, taking into consideration the submitted financial and project development and structural information and financial plan.
Schedule: will be evaluated on the applicant’s ability to meet the 2 year project certification and the 5 year placed-in-service requirement.
F. Program Policy Factors to be used by DOE in the evaluation of applications and a description of how they will be applied.
These factors, while not indicators of the applicant’s merit, e.g., technical excellence, cost, applicant’s ability, etc., may be essential to the process of selecting the application(s) that, individually or collectively, will best achieve the objectives of the authorizing legislation. Such factors are often beyond the control of the applicant. Applicants should recognize that some very good applications may not receive selection for certification because they do not fit within a mix of projects and technologies that maximize the probability of achieving the overall objective of deployment of advanced coal-based generation technology. Therefore, the following Program Policy Factors may be used individually or collectively by DOE following application of evaluation criteria to determine which of the applications shall receive certification by DOE.
 
  • Diversity of technology approaches and methods

  • Geographic distribution of potential markets

  • Presentation of unique environmental, economic, or performance benefits

G. Instructions for independent financial reports
The applicant shall provide an independent report by a qualified Independent Financial Analyst (such as a bank, investment bank, or other independent financial advisory firm). In the report, the Independent Financial Analyst shall describe qualifications and experience that establish the Analyst’s competence to evaluate project financing for projects similar in scope and size to the Applicant’s project. The Independent Financial Analyst shall provide a thorough, independent review of the Applicant’s approach to project financing. The report shall include the opinion of the Independent Financial Analyst as to the Applicant’s likelihood to achieve financial closure in accordance with the Applicant’s financing plan.
Required Certification by Independent Financial Analyst:
The report shall be certified by the Independent Financial Analyst, who shall (a) acknowledge that the report has been prepared for submission to the Department of Energy as a part of an application by applicant for an investment credit, and (b) certify that the Independent Financial Analyst has no obligation to the applicant and has acted to the best of its ability as an independent expert.
At a minimum, the Independent Financial Analyst shall:
 
  • Review the financial model.

  • Review the project financial assumptions, including economic, capital costs, operating assumptions, and all project development costs.

  • Review the financial calculations, including rates of return and coverage ratios.

  • Confirm the calculation of the amount of the tax credit applied for.

  • Review the project development cost budget.

  • Review and comment on the source of funding and evidence of funding.

  • Review and comment on project debt and equity sources.

  • Confirm that the application includes the required financial reports and debt ratings.

  • Describe and comment on the capabilities of the applicant to provide the required financing for the project, and the likelihood of obtaining financing from a source other than the applicant, if such financing is required by the project.


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