IRS Seeks Applications for $800 Million in Clean Energy Bonds

December 21, 2005

The U.S. Internal Revenue Service (IRS) requested applications on December 12th for renewable energy projects to be financed with up to $800 million in "tax-credit" bonds. Unlike normal bonds that pay interest, tax-credit bonds pay the bondholders by providing a credit against their federal income tax. In effect, the new tax-credit bonds will provide interest-free financing for certain renewable energy projects. According to the American Public Power Association (APPA), this provides an effective new financing tool for public power companies, which are non-profit and cannot directly benefit from other tax credits.

Under the new Clean Renewable Energy Bond (CREB) program, established by the Energy Policy Act of 2005, up to $800 million in tax-credit bonds may be issued by qualified bond lenders, cooperative electric companies, and government bodies (including public power systems). The borrower must be a cooperative electric company or a government body, and must use the financing for wind, biomass, geothermal, or solar energy projects, or for hydropower expansions, trash combustion facilities, or refined coal production facilities. The act allows government bodies to borrow up to $500 million for such projects, setting aside at least $300 million for cooperative electric companies. Since the federal government essentially pays the interest via tax credits, the IRS must allocate such credits in advance, which is why it is seeking applications now; they're due by April 26th, 2006. See the APPA press release (PDF 34 KB), the IRS solicitation (PDF 36 KB), and a report on tax-credit bonds from the Congressional Budget Office. Download Adobe Reader.