Their efforts paid off. US lawmakers added a provision for CREBs in the tax section of the broad Energy Policy Act of 2005, a cavernous bill that included a PTC extension and host of incentives for nearly every energy industry. There is a federal incentive for non-private groups hoping to develop renewable energy projects called the Renewable Energy Production Incentive (REPI). But it has not worked in practice since it is subject to yearly and fickle funds appropriations, says Jaime Steve of the American Wind Energy Association (AWEA).
"This whole CREBs thing was designed to fix that," says Steve. "That was the intention. There had to be something for folks out there to access a similar tax credit and it appears to be better than REPI. And it's helpful, there are some projects moving forward because of that funding."
How it works
Last month, the Internal Revenue Service (IRS), which administers the program, announced a list of successful applicants who are now eligible to raise money for renewable energy projects through the sale of CREBs. The announcement came six months after the late May deadline for CREBs applications. Successful applications represent a total investment in renewables projects of $800 million, with $500 million of that being undertaken by state and local governments and $300 million by rural electric co-operatives. The CREBs idea was originally designed as a one time bond funding program limited to supporting $800 million worth of projects.
In CREB financing, an outside investor, or lender, with a tax liability who lends money to projects by buying bonds will receive a federal tax credit from the IRS in place of any interest that would normally be paid by the project owner receiving the loan. The tax credit may be applied against the investor's regular and alternative minimum tax liability. The American Public Power Association explains: assume that a bondholder (investor/lender) is in a 30% tax bracket. If the investor receives a $100 tax credit, $30 (30% of $100) is treated as taxable interest income leaving a net tax credit, or return, of $70.
From the investor/lender's perspective, the potential to earn interest on lent money is replaced by the ability to earn a tax credit. CREBs, in effect, provide a developer with the ability to borrow at a 0% interest rate. Since a wind project has no fuel to purchase, most of the cost of wind produced electricity is wrapped up in financing the capital outlay. Reducing interest rates rapidly brings down the price of wind power, making it highly competitive on the market.
A total of 709 applications from 40 states requested about $2.6 billion in CREBs to finance 786 projects -- three times the available funds. Of the requests, $2 billion came from government entities and $500 million from rural electric co-operatives; 610 projects were approved. Of those, 532 were government projects, 99 for wind generation and the others for technologies such as solar photovoltaics. Just 13 wind projects figured among the 78 successful applications from rural electric co-operatives. The governmental projects ranged in size from $23,000 to $3.2 million while the co-operative projects ranging from $120,000 to $31 million.
Details of who received the bonding eligibility, at what level, and for what project are not being released. The IRS says it is not authorised to disclose information about the recipients for tax reasons. Only the eligible recipients, who are being notified privately, will know if they are approved. Representatives of the IRS say they are following the wording of the law as written by Congress and any further disclosure about specific recipients can only be allowed through further Congressional action.
All a mystery
Charlie Kubert, of the Chicago-based Environmental Law and Policy Center, finds it unfortunate the federal government could approve funds of such magnitude with no disclosure of the recipients. With 99 wind projects selected for bond approvals against 410 solar PV projects, on the surface it could look as if wind loses out. But Kubert suspects wind will pull in the highest percentage by dollar value as wind projects tend to be larger and more expensive than solar PV. But given the lack of transparency, Kubert says he intends to file a Freedom of Information Act request to shed some light on the plan. "Until then it's purely anecdotal."
One example is Montana's Green Electricity Buying Co-operative. It was awarded CREBs approval on its $31.7 million, two wind farm plan that would produce a combined total of about 20 MW of power. The two wind farms will be placed on properties in McCone and Yellowstone counties, in Montana. This, however, brings up an interesting aspect, says Kubert. The Montana project, along with every other potential recipient, does not necessarily now have cash in hand. The CREBs authorisation simply says which applicants for which projects are qualified to float a bond under this program to raise money for their projects.
Small is beautiful
"The application burden was light," says Kubert, suggesting some projects that looked good on a simple paper application may not prove to be financially feasible. "Who knows how many of these projects will fall apart when they go to market."
This is another reason wind projects may ultimately command a larger dollar percentage of all funding. The relatively better financial returns for community wind projects versus PV or biomass projects may be recognised and rewarded by market forces. Either way, in a US wind market that is growing increasingly large and corporate, Kubert thinks the smaller, community wind type projects that may succeed can help "grease the skids" for large wind developments.
"I think there's an advantage with these scattered smaller projects. It does two things: it builds local support for the wider wind industry so that when a large developer comes knocking, more people will tend to be supportive of that," says Kubert. "Also, in areas of limited transmission access, you can put a small project in place and use it to power locally and serve the community, such as for local waste water treatment plants."