Thin-Film Solar and Rubber Rooftops: the Benefits of Bondage

Question:

I have a solar power project using Uni-Solar thin-film peel and stick solar panels applied directly to a new TPO roof structure. I want to confirm the eligibility of the new TPO roof as a solar support structure, being the Uni-Solar product is directly applied to this roofing material. I have additional counsel who have said that the cost of the roof is eligible for the federal 30% ITC or the SB1603 U.S. Treasury Grant in Lieu of the ITC, since it is used as the structure that holds the solar panel to the roof.  Is there any language I can share with our client to verify and confirm this premise? Appreciate any references you can provide. Thanks, Tim Owens

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Answer:
Dear Tim,
Thanks for the fascinating question. It’s a perfect example of how the law and policy must continually evolve as new technologies and products continue to enter the market.  Let’s start with a brief overview of Section 1603 and the application process for our readers who are a little less-familiar with this program:

In February 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (Public Law 111-5) to “preserve and create jobs and promote economic recovery.” Section 1603 of the Act’s tax title, the American Recovery and Reinvestment Tax Act, appropriated funds for payments of up to 30% of the total cost of some specified renewable energy projects that are activated (or at least started construction) during 2009 or 2010.  Payments under the program are typically made within 60 days from the date that the system is activated and a complete application is filed with the Department of Treasury.

Applicants who receive payments under Section 1603 are not eligible for the production or investment tax credit (ITC) under Sections 45 and 48 of the Internal Revenue Code (IRC).  Only the portion of a renewable energy system that is described in Section 48 of the IRC is taken into account in computing the Section 1603 payment.  This typically means that just the equipment, mounting system, and other expenses required to install the renewable energy system are eligible for the program.

For example, in the case of a building with solar panels on the roof, only the cost of the solar panels (and the cost of mounting the panels on the rooftop) qualifies for a Section 1603 grant; the cost of the building does not qualify.  In the case of a truck on which solar energy property is mounted, the cost of the solar panels and the cost of mounting the panels to the truck may be eligible for a Section 1603 payment.  However, the truck on which the panels are mounted is not considered a “specified energy property” and therefore not eligible for payment. Likewise, in the case of a forklift powered by a fuel cell power plant, the fuel cell power plant may be eligible for a Section 1603 payment, however, the forklift in which it is used is not eligible for the grant.While we unfortunately can not give you an official legal opinion online, we can point you in the right direction and hopefully help you make an educated decision as to whether the TPO roofing system will be covered under Section 1603.

When reviewing your 1603 application, the Department of the Treasury would probably first try to determine what parts of your project are considered a “specified energy property” as defined by the Act, and therefore eligible for the grant.  They would look line-by-line at each of the costs that you list in the application and ask themselves, “is this a ’specified energy property’?” If yes, they move on and send you a check for 30% of the cost of your project.  If the reviewer finds that the cost is not eligible, they will sometimes just subtract the ineligible cost and reconsider the application.  However, other times, if an ineligible cost is improperly included in an application, the reviewer will reject the application and send it back to the applicant for clarification or revision. This could significantly delay the amount of time that it takes for the applicant to ultimately receive their cash grant.Since thin-film solar panels and costs directly related to their installation (i.e., adhesives, wiring, etc.) would probably be covered under the Act and eligible for payment under Section 1603, the reviewer would likely approve those costs.  But, when the reviewers come to the line on your application for the cost of the TPO roofing system, they would probably have to stop for a moment, scratch their heads, and have a discussion as to whether those costs are eligible.

I bet their first reaction would be to exclude the roofing system outright because, as a general rule, roofs are not covered by the 1603 program.  However, as you pointed out, the thin-film product you are using is unique in the sense that it must be adhered directly to the roofing surface.  As such, it makes logical sense that the TPO roofing material should therefore be considered as an essential part of the solar system and therefore covered under Section 1603.

But you can’t assume that the reviewer of you application will just read your mind an grant your request.  It’s up to you to convince them that the costs you include are eligible for the grant.

So, in order to increase your chances of success, and speed up the time it takes for you to get your grant money, our source at the Department of the Treasury suggested that when faced with a new cleantech product or unique situation, like the one you described in your question, simply include the cost in the application, and explain to the review why those costs are in fact eligible.

I would take it one step further and suggest that you include a “preemptory defense letter” as an appendix to your application that explains clearly why the cost of the TPO roofing system is an essential expense and therefore should be considered as a “specified energy property” under the Act.

You may also want to check-out a couple of our other responses that we previously posted related to 1603 questions here and here, and the Program Guidance that was written by the Department of Treasury specifically to explain the 1603 application process.

If you need assistance completing your application, or help drafting the preemptory defense letter, please feel free to contact us anytime: jjacobs@cleantechlawpartners.com.  Good luck!

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