Farmers and rural small businesses will have to fully build renewable energy or efficiency projects and run them for a full year before USDA will consider a Rural Energy for America Program grant, under a final rule scheduled for publication in the Federal Register on Oct. 1 and set to take effect Oct. 16.

The rule from USDA's Rural Development office requires REAP applicants to have projects installed and 12 months of actual energy production and savings data in hand before receiving funding commitments. That reverses the program's traditional structure, in which grants helped finance construction up front.

USDA cited three reasons for the change: confusion over which costs grants could cover, past applicants building "significantly oversized" projects relative to their business needs because of the incentive of receiving a grant, and the agency's desire to select projects based on actual rather than projected performance data.

"We recognize that there is some uncertainty about whether an applicant will receive an award, but we expect that uncertainty to be a factor in the applicant's decision-making process about" buying a renewable energy system or investing in an energy efficiency improvement, Rural Business-Cooperative Service Administrator Gimmie Jansonius writes in the final rule.

The shift puts new capital risk on farmers. A producer weighing a solar array, biomass system or grain dryer must now front the full installation cost and absorb a year of operation with no guarantee USDA will reimburse anything. Jansonius wrote that structuring REAP so projects must be completed before funding allows applicants with pending applications to resubmit, "provided they meet the requirements of the program."

USDA skipped the proposed-rule stage and issued the change as a final rule, while allowing a 30-day comment period.

A drafting discrepancy surfaced in the document itself. The table of contents lists a section titled "Stakeholder Engagement," but that section does not appear in the rule's body. The rule does state that "based on feedback received from applicants and stakeholders during the normal course of business, the current regulation is perceived as complicated and burdensome for the average person or business to understand and often causes applicants to hire grant writers and contractors to apply and administer funding, further reducing their opportunities for economic prosperity."

REAP, created by the 2008 farm bill, provides grants and guaranteed loans for on-farm renewable energy — solar, biomass, wind and geothermal — and for efficiency technologies such as grain dryers.

The rule lands amid an already turbulent period for the program. In an August memo, Rural Business-Cooperative Service Administrator JR Claeys announced that REAP projects using ground-mounted solar photovoltaic systems larger than 50 kilowatts "that cannot document historical energy usage," or that would be installed on certified cropland, would be ineligible for REAP guaranteed loans and disincentivized in grant scoring. The same prohibition applies to solar systems with components made by foreign adversaries.

USDA also paused new REAP grant awards earlier this year to implement regulations under an executive order from last July that called for reducing federal subsidies for wind, solar and other "green" energy sources. The pause covers all applications submitted under the fiscal 2025-2027 notice of funding opportunity that lack a "fully executed" financial assistance agreement, according to an FAQ document accompanying the announcement.

Grant writers told Agri-Pulse earlier this year that farmers in some states who began work on projects before signing grant agreements expected to lose funding under the pause.

Litigation is now in play. Earlier this week, a coalition of farmers, a solar company, grant consultants and agricultural and energy groups sued USDA, alleging the department illegally limited solar projects' eligibility for REAP grants and loan guarantees through the program changes and then refused to pay grants to farmers who had started building solar arrays with USDA's encouragement.

For producers with pending REAP applications, the immediate path runs through resubmission under the new requirements — full construction completed, 12 months of verified performance data, and cropland and component-sourcing restrictions cleared — before any federal dollars arrive.