TAP Blog | Questions from June 24 TAP Webinar: Low-Cost Financing with Clean Renewable Energy Bonds (CREBs)

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Questions from June 24 TAP Webinar: Low-Cost Financing with Clean Renewable Energy Bonds (CREBs)

June 24, 2009 13:31 | comment

Comments (5)

For one week following each TAP Webinar, which is hosted by the U.S. Department of Energy Technical Assistance Project (TAP) for state and local officials, you are invited to ask questions of the presenters, enter comments about the topic of the presentation, and share your thoughts with others. You can find copies of presentations from the June 24 Webinar in PDF format and audio files in MP3 format and background materials and reports in the TAP Webinar archive.

The analysts participating in this blog, including Claire Kreycik of the DOE National Renewable Energy Laboratory, are not tax attorneys. They can provide general guidance about how the CREBs program works. If you have detailed questions about selling and issuing bonds, please consult with your tax attorney.

Is it possible for utilities to use the CREBs while still taking grants from the Treasury Department? Does the asset still receive preferential depreciation treatment?

Answer from Claire Krecik:
It is impossible for one entity to be eligible both for CREBs and from grants from the U.S. Department of the Treasury. Only governmental agencies, municipal utilities and electric cooperatives are eligible for CREBs; private entities are not eligible. On the other hand, government entities and municipal utilities are ineligible for Treasury grants. So it's one or the other, not both.

Depreciation is a benefit for the private sector, not for governmental agencies that do not pay federal taxes. Therefore, the public-sector agencies and municipal utilities that receive CREBs cannot take advantage of the accelerated depreciation.
The advice to bundle allocations seems to conflict with the smallest to largest selection criteria from the IRS. How can this be reconciled?
- Aaron Klemm

Answer from Claire Krecik:
You can apply for individual projects separately, and the IRS will award allocations from smallest to largest. However, once you have your allocations, you can issue one bond under a pro-rata arrangement.

In Massachusetts, for example, the state finance authority—MassDevelopment—bundled twelve CREBs allocations for twelve independent PV projects totaling 1 megawatt (MW) of capacity. In Minnesota, that the Minnesota Municipal Power Authority applied for eleven CREB allocations for wind turbines in each member city and will be issuing a single bond. For more information, read about the Minnesota Municipal Power Authority’s Hometown WindPower program.

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Comments

Is a Geothermal power plant a qualified project? The title of the webcast is Financing Renewable Energy Projects on State and Local Government Property with Clean Renewable Energy Bonds, does this mean the projects have to be on property owned by the State and Local government or is the facility itself the property you are referring to?

Claire Kreycik responds:

Geothermal power plants qualify for CREBs under IRS Code § 45(d)(4).

To receive funding under the CREB program, a qualified renewable energy facility must be owned by a public power provider, a governmental body, or a cooperative electric company. There is no requirement that the project be hosted at an existing state or local government site.
Sybil | October 26. 2009 17:15

Is a public-private partnership eligible for CREBs? What if CREBs are used only to finance the portion of the project owned by the municipality? What sort of partnership structures between local governments and private developers might be able to obtain CREB financing?
Ryan | October 26. 2009 17:16

There was mention in the webinar regarding a "pro-rata" allocation for municipalities, can you please explain that process?

Claire Kreycik responds:

According to IRS guidelines, public power providers such as municipal utilities will receive a pro-rata share of the overall allocation of the $800 million, which is referred to as the “volume cap” for this category of issuer. Under the pro-rata share, the IRS will allocate a portion of the total volume cap to each qualified project based on its fraction of the total funding requested for its category, i.e. public power projects managed by municipalities.
David | October 26. 2009 17:16

How long is the approval process by the IRS?

Also, is there a per state allotment for CREBS?

Lastly, what is the anticipated market outlook if Bank of America is the only participant and there is currently a credit crisis?

Claire Kreycik responds:

How Long?
In the prior two rounds, the IRS announced allocations seven months after applications were due. Specifically, first round applications were due April 26, 2006, and 610 projects were approved on November 20, 2006. In the second round, applications were due on July 13, 2007, and the 312 winning projects were announced on February 8, 2008.

Allotment:
Although there is a one-third allotment each for state and local governments, electric cooperatives, and pubic power providers, there is no per-state allotment for CREBs.

The IRS awards CREBs based on the merit of the application, and for governments and electric cooperatives, the allocations are awarded from the smallest project to the largest. (All qualifying public power providers will receive a pro-rata share of the $800 million volume cap; see the answer to the question from David above).

This summer, the U.S. Department of the Treasury and U.S. Department of Energy (DOE) will announce two programs for financing renewable energy projects. On July 1, the U.S. Treasury will announce guidance for its Treasury Grants. Later this summer, DOE will announce guidance for its Loan Guarantees. Even though CREBs recipients are not eligible for these programs, they should stimulate the market for renewable energy technologies.
David | October 26. 2009 17:17

Is voter approval required for issuing the CREBs bonds? Also, how long does it typically take the IRS to make the allocations? Would the applicant hear back in days, weeks, or months after the August 4th deadline?

Claire Kreycik responds:

Voter approval is required only if the CREBs are to be issued as general obligation bonds. If instead, they are issued as revenue bonds, voter approval is not required. In the past two rounds of CREBs, the IRS has responded to applicants about seven months after the application deadlines (see answer to the question from Christin above).
David | October 26. 2009 17:18

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