What is the Rural Energy for America Program?

Investing News

The Rural Energy for America Program (REAP) encourages the transition to renewable energy sources in rural and agricultural areas. Created by the Agricultural Improvement Act of 2018, REAP offers grants and guaranteed loans for developing clean energy systems and installing energy-efficient infrastructures such as lighting, insulation, cooling, and more.

Key Takeways

  • The Rural Energy for America Program (REAP) offers grants and guaranteed loans to agricultural producers and small businesses in rural areas.
  • Rural Energy for America Program (REAP) funds can be used for renewable energy systems or energy-efficient infrastructure upgrades.
  • Grants are available for up to 25% of the total project costs.
  • Loans are available for up to 75% of the total project costs.

How REAP Works

REAP is a combination of grants and loans available to agricultural producers that earn at least 50% of their income from agricultural operations or small businesses in rural areas that have 50,000 residents or fewer. All applicants must be American citizens or have a permanent residence in the U.S, Private entity borrowers must show that the funds will be spent inside the United States as well.

The program offers two options: guaranteed loans are available for up to 75% of the project costs, while grants are available for up to 25% of the total eligible project costs. Applicants may apply for both loans and grants, but the total amount awarded may not exceed 75% of the total project costs. Interest rates on loans are negotiated between the lender and borrower, so there is no guarantee of a low-interest rate, only a guarantee of the loan.

Applications are accepted during two open periods each fiscal year—for the fiscal year 2023, the deadlines are Oct. 31, 2022, and March 31, 2023. Interested parties can apply through their local Rural Development office. Applicants must undergo a credit evaluation, and the proposed project will be analyzed to determine whether it is eligible for a REAP loan or grant.

Important

Applicants to Rural Energy for America Program (REAP) grants or loans may have to undergo an energy audit to determine whether their proposed project is eligible for a loan or grant.

How Can You Use REAP Funds?

REAP funding is intended to help agricultural producers and rural small businesses take advantage of renewable energy generation technology, such as:

  • Solar or wind
  • Geothermal
  • Hydroelectric below 30 MGw
  • Biomass such as biodiesel, solid fuels, or ethanol
  • Hydrogen power
  • Ocean power

Businesses may also use funds to upgrade their current infrastructure to energy-efficient technology such as:

  • High-efficiency doors, windows, and HVAC systems
  • Lighting
  • Insulation
  • Replacing current energy-efficient equipment
  • Switching from diesel energy to electric for equipment

For example, if a farmer growing soybeans wanted to purchase a $75,000 electric tractor to replace their diesel tractor, they could apply for a loan of $56,250, or 75% of the purchase price. Conversely, they could pay the $56,250 themselves and qualify for a grant for the remaining $18,750.

How Much Are Grants For a REAP Project?

Grants for renewable energy systems start at $2,500 and have a maximum cap of $500,000. Grants for energy efficient improvements start as low as $1,500 and go up to $250,000.

How Long Do I Have to Pay Back my REAP Loan?

The lender and borrower will decide the loan term for loans from the Rural Energy for America Program (REAP). Loan terms cannot exceed 40 years.

I Have a Hobby Farm; Can I Apply For A REAP Loan or Grant?

If you have a hobby farm, you can potentially apply for a Rural Energy for America Program (REAP) loan or grant. Agricultural producers must be able to prove that 50% of their income is derived from agriculture. If your hobby farm is in an approved rural area, you may still qualify even if you earn more than half of your income from somewhere else.

The Bottom Line

The Rural Energy For America Program (REAP) makes energy-efficient upgrades and renewable energy systems more attainable for small rural businesses and agricultural producers. The procedure for application is straightforward and is administered through local rural development offices, making it easy for applicants to find help in their area. With either grants or loans, the program offers flexibility for rural businesses and agricultural producers ready to switch to renewable energy.

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