IRS Allocates $800 Million in Clean Renewable Energy Bonds

November 29, 2006

The U.S. Internal Revenue Service (IRS) announced on November 20th that it has allocated $800 million in "tax-credit" bonds for a total of 610 renewable energy projects to be located throughout the United States. 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, called "Clean Renewable Energy Bonds," will provide interest-free financing for certain renewable energy projects. Since the federal government essentially pays the interest via tax credits, the IRS needed to allocate such credits in advance to the lending authorities, which can be state or local governments or electrical cooperatives. The IRS allocated the Clean Renewable Energy Bonds under a new program established by the Energy Policy Act of 2005. See Internal Revenue Bulletin 2006-10, which was issued on March 6th.

The new bond allocations range from $23,000 to $31 million and are set aside for 434 solar energy facilities, 112 wind power installations, 36 landfill gas facilities, 14 hydropower plants, 13 biomass power plants, and one refined coal production facility. Of course, each of these projects may require other forms of financing and will probably need approval from permitting authorities, so it is unlikely that all 610 projects will actually be built. The IRS had to select the projects from among 709 applications for 786 projects, for which the lending authorities requested a total of $2.6 billion in bond allocations. See the IRS press release.