Internal Revenue Bulletin:  2007-26 

June 25, 2007 

APPENDIX B
APPLICATION FOR DOE CERTIFICATION
REQUEST FOR SUPPLEMENTAL APPLICATION INFORMATION FOR DOE
 
The Internal Revenue Service (“IRS”) and the Department of Energy (“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 certification of feasibility, 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 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 2007-52 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 2007-52 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 2007-52.
An application to DOE will not be considered in the allocation round conducted in 2007-08 unless it is postmarked by October 31, 2007, and will not be considered in the allocation round conducted in 2008-09 unless it is postmarked by October 31, 2008. 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 5.03(1) of Notice 2007-52, one paper copy and one electronic version must be sent to the IRS as part of the application for IRS certification. The application for IRS certification will not be considered in the allocation round conducted in 2007-08 unless it is submitted to the IRS by March 3, 2008, and will not be considered in the allocation round conducted in 2008-09 unless it is submitted to the IRS by March 2, 2009.
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 vendor guarantees, 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 are 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. For advanced coal-based electric generation:

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

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

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

    • SO2 (subbituminous coal is 80 percent or more of fuel input)……..99 percent removal or emissions not more than 0.04 lbs/MMBTU

    • SO2 (subbituminous coal is not more than 80 percent of fuel input)……………………....99 percent removal

    • SO2 (for all projects other than subbituminous coal projects)…………………...99 percent removal

    • 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) and section 3.01 of Notice 2007-52), on an energy input basis.

    • The project is located at one site and has a total nameplate electric power generating capacity (as defined in section 3.02 of Notice 2007-52) of at least 400 MW

III. APPLICANT’S CAPABILITY TO ACCOMPLISH THE TECHNICAL OBJECTIVES
Provide a narrative supporting the Applicant’s capability to accomplish the technical objectives of the proposed project, including supporting documentation demonstrating that the applicant has assembled a team that is formally committed to participate in the proposed project.
  • Provide information to support that the applicant has assembled a team with the skills and resources needed to implement the project as proposed. Provide signed agreements or letters from team members demonstrating that the proposed team members are fully committed to the project.

  • Provide information, 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 and its team members to design, construct, permit, and operate the facility. The applicant should demonstrate that the team members have a corporate history of successful completion of similar projects.

  • Provide information to support that key personnel of the applicant and its team members have knowledge, experience, and adequate degree of involvement to successfully implement the project.

  • 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. Include copies of any signed agreements to support project status claims regarding preliminary design studies, FEED, and EPC-type agreements.

IV. 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 2007-52), 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.

V. SITE CONTROL AND OWNERSHIP
Provide evidence that demonstrates the overall feasibility of implementing the project at the proposed site.
  • 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. Documentation such as a deed demonstrating the applicant owns the project site, a signed option to purchase the site from the site owner, or a letter of intent by the site owner to sell the site to the applicant should be provided.

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

  • Provide documentation supporting applicant’s conclusion that the proposed site can fully meet all environmental, coal supply, water supply, transmission interconnect, and public policy requirements. Such documentation may include signed agreements, letters of intent, or term sheets, such as coal supply, water supply, and product transportation, etc., and regulatory approvals supporting the key claims.

  • Provide detailed plans, schedules and status updates, particularly, for sites with pre-existing conditions that could impact the proposed project. Pre-existing conditions may include, but are not limited to, sites with mandated environmental remediation efforts; brown-field sites that will require building demolition; or sites requiring substantial rerouting of existing roads, railroads, transmission lines or pipelines prior to the start of the project.

  • Applicants must select one “proposed site.” However, projects with key physical or logistical elements that require close integration with another system for the project to succeed should provide information on all integrated systems regardless of where they are located. Example 1: a power plant designed to operate exclusively on coal from a to-be-opened mine should provide supporting documentation for the new mine. Example 2: an oxygen-blown IGCC plant planning to purchase oxygen from a third party who will construct a plant exclusively for this project should provide documentation for the oxygen supplier.

VI. UTILIZATION OF PROJECT OUTPUT
Provide evidence that demonstrates that a majority of the project output is reasonably expected to be acquired or utilized.
  • Provide a projection of the anticipated costs of electricity and other marketable by-products produced by the plant.

  • Provide documentation establishing that a majority of the output of the plant is reasonably expected to be acquired or utilized. Such documentation should be signed by authorizing officials of both the buyer and seller, and may include: Sales Agreements, Letters of Intent, Memoranda of Understanding, Option Agreements, and Power Purchase Agreements.

  • Describe any energy sales arrangements that exist or that may be contemplated (e.g., a Power Purchase Agreement or Energy Sales Agreement) and summarize 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.

VII. PROJECT ECONOMICS
Describe the project economics and provide satisfactory evidence of economic feasibility as demonstrated through the financial forecast and the underlying project assumptions. The project economic and financial assumptions should be clearly stated and explained.
Show calculation of the amount of tax credit applied for based on allowable cost.
VIII. PROJECT DEVELOPMENT AND FINANCIAL PLAN
Provide the total project budget and major plant costs (e.g., development, operating, capital, construction, and financing costs). Provide the estimated annual budget for and source of project development costs from the time of the application until the beginning of construction, including legal, engineering, financial, environmental, overhead, and other development 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 most recently ended three fiscal years and quarterly interim financial statements for the current fiscal year for (a) the applicant, (b) for any of the project parties providing funding, and (c) for any third party funding source. If the applicant or another party does not have audited financial statements, the applicant or the party should provide equivalent financial statements prepared by the applicant or the party, in accordance with Generally Accepted Accounting Principles, and certified as to accuracy and completeness by the Chief Financial Officer of the party providing the statements.
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, describe 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.
Include as an appendix copies of any existing funding commitments or expressions of interest from funding sources for the project.
For projects employing non-recourse or limited recourse debt financing, provide a complete discussion of the approach to, and status of, such financing. In an appendix, provide 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.
IX. 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 signed 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.

X. PERMITS INCLUDING ENVIRONMENTAL 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.

XI. 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.

XII. 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.

  • The project schedule should be comprehensive and provide sufficient detail to demonstrate how applicant will meet the certification and placed-in-service requirements. The schedule should demonstrate that the applicant understands the required tasks, and has allowed realistic times for accomplishing the technical and financial tasks. The schedule should include the milestone accomplishments needed to obtain the financing for the project.

  • Applicants should document their progress toward meeting the 2 year completion of permitting deadline. Existing permits and permit applications must be specific to the project proposed. If existing permits are not specific for the proposed coal-based project (e.g., the permits are for oil-fired or natural gas-based units), specific plans, procedures and schedules for reapplying, modifying and/or renegotiating permits should be provided. Any local, state or federal permitting schedules which may impact the overall project schedule should be included.

  • Applicant should document their progress toward obtaining engineering design information (FEED) to initiate permitting activities and to finalize the turbine generator purchase specification within the 2 year window. Most often, this requires final site, technology, process selection. Signed FEED and/or EPC-type agreements, if available, should be provided.

APPENDICES
  • 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.

  • Financial statements for the applicant and other project funding sources for the most recently ended three fiscal years, and the unaudited quarterly interim financial statements for the current fiscal year.

  • Expressions of interest or commitment letters from funding sources.

  • 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.

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
Section 48A identifies minimum requirements for consideration for the qualifying advanced coal project credit, including the project’s technical feasibility, cost, and applicant’s ability. In the event that there are more qualified (certifiable) applications than there are available tax credits, the DOE will apply additional factors to rank eligible IGCC and non-IGCC projects based on their ability to advance coal technology beyond its current state.
If there are more certified applications than available credits for a pool described in section 4.02(2) of Notice 2007-52, DOE will rank the certified projects in descending order (that is, first, second, third, etc.), based on evaluation of the following Program Policy Factors. Factors 1, 2, and 3 are Primary Ranking Factors. A certified project that satisfies one of these factors will be ranked ahead of each project that satisfies only factors listed below that factor. Specifically, all certified projects satisfying Factor 1 will be selected before any project that does not satisfy Factor 1; all projects satisfying Factor 2 will be ranked ahead of any project that satisfies only Factor 3 and/or one or more Secondary Ranking Factors; and all projects satisfying Factor 3 will be ranked ahead of any project that does not satisfy any Primary Ranking Factors.
Primary Ranking Factors:
  1. Capture and sequestration of 50 percent or more carbon dioxide emissions. Only projects capturing and sequestering 50 percent or more of the plant’s carbon dioxide emissions will satisfy this factor. Within this factor, higher rankings will be given to those projects capturing and sequestering higher percentages of plant carbon dioxide emissions.
  2. Use of advanced technologies that optimize the plant for future carbon dioxide capture (for example, gasifier sizing and pressure, air separation unit sizing, and quench system) as well as systems that are designed to capture and sequester less than 50 percent of the carbon dioxide. Within this factor, higher rankings will be given to those projects capturing and sequestering higher percentages of plant carbon dioxide emissions and/or requiring less retrofitting to implement greater than 50 percent carbon capture and sequestration.
  3. Location of the facility within 25 miles of potential carbon sequestration locations and carbon dioxide (CO2) pipelines or pipeline easements. Within this factor, higher rankings will be given to those projects with the facility located closer to potential carbon sequestration locations and carbon dioxide (CO2) pipelines or pipeline easements.
Secondary Ranking Factors:
  • Location of the facility relative to potential carbon sequestration locations and carbon dioxide (CO2) pipelines or pipeline easements (for facilities not meeting Factor 3).

  • Presentation of other environmental, economic, or performance benefits (including, in the case of an IGCC project, priority factors that are listed in section 5.02(10) of Notice 2007-52 and are not included in the Primary Ranking Factors).

  • Higher plant efficiency.

  • Geographic distribution of potential markets.

  • The ratio of total nameplate generating capacity (as defined in section 3.02 of Notice 2007-52) to requested tax credit.

  • Diversity of technology approaches and methods.

G. Supplemental Technical and Financial Guidance for Section D “Project Information Memorandum”
Technology and Technical Information
  • It is important that the applicant select a specific gasification system for their project. Without that decision, it is difficult to provide the necessary specific design information needed for DOE to evaluate the project feasibility with respect to performance, emissions, outputs of major streams as well as capital and operating costs.

  • The Applicant’s capability to meet the legislated heat rate and/or environmental targets should be supported with design information, and or vendor guarantees which are project, site and coal specific.

Project Economics
  • Applicants should demonstrate the project’s economic feasibility and financial viability by providing a clear statement and explanation of the economic and financial assumptions made by the applicant, and a financial forecast for the project. The financial forecast should flow logically from the applicant’s assumptions and be consistent with them. Applicants should include assumptions regarding financial and economic issues that may not be included in the project costs but have a direct impact on the project. The examples given in the “Site Control and Ownership” section are relevant here and their impact on the project economics should be discussed here.

Project Development and Financial Plan
  • The information provided by the applicant in this section should demonstrate that the applicant’s financial plan for developing the project is feasible and that the applicant will have access to necessary financing. The applicant should explain the source and timing for obtaining all financing, including the project development costs. It is important that the applicant explain and provide evidence that it has the capacity to fund the pre-construction project development costs, together with a budget for and description of those costs. Note that financial information is required for the applicant and for any other funding source.

Project Contract Structure
  • This section requires that the applicant demonstrate an understanding of the commercial contracting process and show progress in establishing the framework of contracts and agreements that a project typically requires. Applicants should show that their intended contract structure is reasonable and that their assumptions relative to price, terms, and conditions are consistent with current market conditions. Evidence of final agreements, agreements in principle, or summaries of terms and conditions between the applicant and contract counterparties should be provided if available.


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