CREBs provide funding for utility renewable energy projects

Great River Energy received CREB financing for a wind turbine and solar panels installed at its headquarters building in Maple Grove, Minn. (Photo by Great River Energy)

Electric cooperatives and municipal utilities have until Aug. 4, 2009, to apply for the latest round of Clean Renewable Energy Bonds (CREBs), an allocation of $1.6 billion to fund new renewable energy projects.

The American Recovery and Reinvestment Act of 2009 added that amount to the previous allocation of $800 million set in the Energy Improvement and Extension Act of 2008 (Div. A, Sec. 107). The Database of State Incentives for Renewable Energy (DSIRE) offers a helpful summary of the program, along with explanations of the differences between"new" and "old" CREBs.

A little background

CREBs are to public power providers what the production tax credit (PTC) is to investor-owned utilities—the "leg up" that makes a project economically viable, and that encourages development in a marketplace dominated by conventional fuel resources.

Essentially, the bonds act as interest-free loans for institutions developing the projects. CREB borrowers pay no interest, and the bondholder—CREBs lender or purchaser—receives a tax-credit from the Federal government theoretically equal to the amount of interest the borrower would have paid. The U.S. Treasury Special Investments Branch posts the daily rates for CREBs and other tax credit bonds.

Prior to the CREB program, created by the Energy Policy Act of 2005, not-for profit cooperatives’ inability to take advantage of the PTC had hampered their efforts to develop renewable energy. Since the start of the program, the new bonds have contributed to significant growth in renewable energy capacity owned by cooperatives. Figures from the National Rural Electric Cooperative Association indicate that cooperatives received $313,712,810 in CREB allocations in 2006, and $138,973,580 in 2007.

Eligibility requirements

Anyone who can borrow with tax-exempt debt can borrow with CREBs, as long as their projects qualify. The project owner must be a public power provider, a state or local government or a cooperative electric company. If you are not clear about your company's status, check Section 217 of the Federal Power Act for a definition of terms.

CREBs must be spent on projects that generate electricity by a "clean process." Types of projects that can be financed with New CREBs include:

• Wind energy facilities

• Closed-loop biomass facilities

• Open-loop biomass facilities

• Geothermal energy facilities

• Solar energy facilities

• Small irrigation power facilities

• Landfill gas facilities

• Trash combustion facilities

• Marine and hydrokinetic energy facilities

• Qualified hydropower facilities

Under ARRA, "functionally-related and subordinate" facilities, such as transmission lines and interconnection upgrades, are also eligible for CREB financing. Other changes for the "new" CREBs:

• The federal tax credit is reduced to 70 percent of the interest payment.

• The bond holder can transfer the tax credit to another party.

• Taxpayers can carry forward unused credits into future years.

• Bond proceeds must be used within three years or a request for an extension must be made.

Tips for applying

The Internal Revenue Service (IRS) sets CREB application deadlines throughout the year, the current being Aug. 4. The application form is in Appendix A of IRS Notice 2009-33, which contains all the eligibility requirements participants must meet to be considered for an allocation.

The application must identify the project owner; describe the project, including location, regulatory approvals and financing plan; and specific dollar amount. Carefully follow the instructions in the notice to ensure that all the required information is in the application.

The Web site CREBs.org recommends keeping projects small as small projects get first priority in funding. It is also important to note that the IRS will treat related projects as a single project. Public power providers, governmental entities and electric cooperatives are each reserved an equal share of the allocation.

To submit the application, mail a hard copy in duplicate, accompanied by a copy of the application in electronic format on CD to:

Internal Revenue Service
TEB CREBs Allocations
1122 Town & Country Commons
St. Louis, MO 63017

Other resources

Each year, the IRS releases guidance on its Web site on how the program will operate, and to solicit applications. Guidance specific to bond provisions in the ARRA are currently online. Or contact Zoran Stojanovic or Timothy Jones of the IRS Office of Associate Chief Counsel at 202-622-3980 for more information on CREBs. Questions on recent IRS Notice 2009-33 can be directed to Janae Lemley at 636-255-1202.  

NRECA and American Public Power Association can provide guidance to their members. Western teamed up with those and other energy industry associations to sponsor the webinar, CREBS and PTC Update, on June 24. The Public Renewables Partnership has posted the presentations from the event on its Web site.

Resources

American Recovery and Reinvestment Act of 2009

Energy Improvement and Extension Act of 2008 (Div. A, Sec. 107)

Database of State Incentives for Renewable Energy

Daily rates for CREBs

National Rural Electric Cooperative Association

IRS Notice 2009-33

Resources (cont.)

CREBs.org

Bond provisions in the ARRA

American Public Power Association

Public Renewables Partnership

CREBs and PTC Update webinar presentations

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