Funding Landfill Gas Energy Projects: State, Federal, and Foundation Resources

Federal Resources

• Department of the Treasury
  • Renewable Electricity Production Tax Credit
  • Business Energy Investment Tax Credit
  • Renewable Energy Grants
  • Clean Renewable Energy Bonds
  • Qualified Energy Conservation Bonds
  • Advanced Energy Manufacturing Tax Credit
• Department of Energy
  • Renewable Energy Production Incentive
  • Energy Efficiency and Conservation Block Grant Program
  • State Energy Program
  • Regional Biomass Energy Program
  • Loan Guarantees
• U.S. Department of Agriculture
  • Rural Utility Service Loans and Grants
  • Rural Business Opportunity Grants
• U.S. Department of Commerce
  • Economic Development Administration Public Works Program

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Department of the Treasury

Renewable Electricity Production Tax Credit

The renewable electricity production tax credit (PTC) is a per kilowatt-hour (kWh) federal tax credit included under Section 45 of the U.S. tax code for electricity generated by qualified energy resources. The PTC provides a corporate tax credit of 1.0 cents/kWh for landfill gas, open-loop biomass, municipal solid waste resources, qualified hydropower, and marine and hydrokinetic (150 kW or larger). Electricity from wind, closed-loop biomass, and geothermal resources receive 2.1 cents/kWh. Projects that receive other government grants or subsidies receive a discounted tax credit.

Initially enacted as part of the Energy Policy Act of 1992, the credit has expired and been renewed on a number of occasions, most recently with the passage of the American Recovery and Reinvestment Act of 2009. The legislation extended the in-service deadlines for qualifying renewable technologies. For landfill gas energy projects, the placed-in-service date is December 31, 2013. This requirement has generally been interpreted to mean that, by this date, the facility must have generators installed and working or be in a condition that is ready to generate electricity. The credit can be claimed, however, only when electricity is produced and sold to an unrelated third party. Landfill gas energy project owners can claim the PTC for the first 10 years of operation.

Business Energy Investment Tax Credit

The American Recovery and Reinvestment Act of 2009 modified Section 48 of the U.S. tax code to allow owners of PTC-eligible renewable projects, such as landfill gas energy projects, to make an irrevocable election to earn a one-time corporate investment tax credit (ITC) in lieu of claiming the PTC. The ITC is equal to 30 percent of the costs attributable to the facility, which typically excludes other project costs, such as transmission equipment or ancillary site improvements. The ITC does not impose the third party power sale requirement that the PTC does.

To apply for the tax credit, a business must complete Form 3468, “Investment Credit,” which is available on line at www.irs.gov/pub/irs-pdf/f3468.pdf (PDF, 3 pp., 245 KB).

Renewable Energy Grants

The American Recovery and Reinvestment Act of 2009 creates a new grant program, to be administered by the U.S. Department of the Treasury, for taxpayers eligible for the Business Energy ITC. A facility owner can choose to receive a one-time grant equal to 30 percent of the construction and installation costs for the facility, as long as the facility is depreciable or amortizable. To be eligible, the facility must be placed in service in 2009 or 2010, or construction must begin in either of those years and be completed prior to the end of 2013. The American Recovery and Reinvestment Act of 2009 established an October 1, 2011 application deadline for the grant. The Department of the Treasury is expected to release a draft regulation on the grant application process within several months of the American Recovery and Reinvestment Act of 2009’s enactment.

Clean Renewable Energy Bonds

The 2005 Energy Policy Act created Clean Renewable Energy Bonds (CREBs) within Section 54 of the U.S. tax code. Unlike traditional bonds that pay interest, tax credit bonds pay the bondholders by providing a credit against their federal income tax. In effect, CREBs provide interest-free financing for clean energy projects.

In 2008, the Energy Improvement and Extension Act provided authority for the issuance of an additional $800 million in “new” CREBs, and in 2009, the American Recovery and Reinvestment Act of 2009 allocated an additional $1.6 billion for CREBs. The 2008 legislation also extended the deadline by which bonds must be issued for previous allocations to December 31, 2009.

The types of projects for which bonds can be issued include renewable energy projects utilizing landfill gas, wind, biomass, geothermal, solar, municipal solid waste, small hydroelectric, marine, and hydrokinetic. The Internal Revenue Service (IRS) has determined that facilities “functionally related and subordinate” to the generation facility itself are also eligible for CREB financing. Examples of these auxiliary components include transmission lines and interconnection upgrades.

The Energy Improvement and Extension Act of 2008 directs the IRS to allocate the bonding authority equally among electric cooperatives, government entities, and public power producers. Other changes for “new” CREBs are as follows:

• 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

Each year, the IRS solicits applications and releases guidance on how the program will operate (e.g., criteria for determining allocations).

Qualified Energy Conservation Bonds

The Energy Improvement and Extension Act of 2008 created a new funding mechanism similar to the CREB model in which a bondholder receives tax credits in lieu of interest. The act authorizes state, local, and tribal governments to issue energy conservation bonds to finance qualified projects. The 2008 legislation allows the IRS to distribute up to $800 million in bond authorizations. In 2009, the American Recovery and Reinvestment Act of 2009 provided an additional $2.4 billion in bonding authority. The bond proceeds can be used to finance capital expenditures that achieve one of the following goals:

• Reduction of energy consumption by at least 20 percent
• Implementation of a green community program
• Electricity generation from renewable resources in rural areas

The IRS is expected to issue guidance on how the program will work.

Advanced Energy Manufacturing Tax Credit

The American Recovery and Reinvestment Act of 2009 established the advanced energy manufacturing tax credit to encourage the development of a U.S.-based renewable energy manufacturing sector. The American Recovery and Reinvestment Act of 2009 authorizes the Department of the Treasury to issue $2.3 billion of credits under the program. In any taxable year, the investment tax credit is equal to 30 percent of the qualified investment required for an advanced energy project that establishes, re-equips, or expands a manufacturing facility that produces any of the following:

• Equipment and/or technologies used to produce energy from solar, wind, geothermal, or other renewable resources
• Fuel cells, microturbines, or energy-storage systems for use with electric or hybrid-electric motor vehicles
• Equipment used to refine or blend renewable fuels
• Equipment and/or technologies to produce energy-conservation technologies (including energy-conserving lighting technologies and smart grid technologies)

Manufacturing facilities that develop equipment for landfill gas energy projects can presumably qualify under the first bullet above. Qualified investments generally include personal tangible property that is depreciable and required for the production process. Other tangible property may be considered a qualified investment only if it is an essential part of the facility, excluding buildings and structural components.

To be eligible for the tax credit, a project must be certified by the Department of the Treasury. In determining which projects to certify, the American Recovery and Reinvestment Act of 2009 directs the Department of the Treasury to consider those projects that most likely will:

• Be commercially viable
• Provide the greatest domestic job creation
• Provide the greatest net reduction of air pollution and/or greenhouse gases
• Have the greatest potential for technological innovation and commercial deployment
• Have the lowest levelized cost of generated (or stored) energy or the lowest levelized cost of reduction in energy consumption or greenhouse gas emissions
• Have the shortest project time from certification to completion

After certification is granted, the taxpayer has up to one year to provide additional evidence that the requirements of the certification have been met and three years to put the project in service.

The Department of the Treasury, in consultation with the Department of Energy (DOE), is developing specific program guidelines, including details about the application process. These will be made available no later than August 16, 2009.

Department of Energy

Renewable Energy Production Incentive

The Renewable Energy Production Incentive (REPI) Program was created by the Energy Policy Act of 1992 and reauthorized by the Energy Policy Act of 2005 to extend through 2026. REPI provides financial incentives for renewable energy electricity produced and sold by qualified renewable energy generation facilities, which include not-for-profit electrical cooperatives, public utilities, state governments, U.S. territories, the District of Columbia, and Indian tribal governments. The facilities are eligible for annual incentive payments of approximately 2.0 cents/kWh for the first 10-year period of their operation, subject to the availability of annual appropriations in each federal fiscal year of operation. Qualifying renewable energy sources include:

• Landfill gas
• Solar
• Wind
• GeothermalBiomass
• Livestock methane
• Ocean
• Fuel cells using hydrogen derived from eligible biomass facilities 

To be eligible, qualified renewable energy facilities must be operational before October 1, 2016. Funding is subject to annual appropriation, and the program has historically been under-funded. During years in which there is a funding shortfall, legislation requires DOE to allocate 60 percent of REPI funds to solar, wind, ocean, geothermal, or closed-loop biomass technologies and the remainder to landfill gas, livestock methane, and open-loop biomass projects. If funds are not sufficient to make full payments to all qualifying facilities, payments are made to those facilities on a pro rata basis.

To assist DOE in its budget planning, DOE requests that the owner or operator of a qualified renewable energy facility provide notification at least six months in advance of electricity generation. To receive payment, qualified facility owners and operators submit information, such as monthly electricity generation, to DOE during the first quarter (i.e., October 1 through December 31) of the next fiscal year. More details about the application procedure are provided on the DOE Web site.

Energy Efficiency and Conservation Block Grant Program

The Weatherization and Intergovernmental Program in DOE’s Office of Energy Efficiency and Renewable Energy administers the Energy Efficiency and Conservation Block Grant (EECBG) program, which provides grants to local governments, tribal governments, states, and U.S. territories to reduce energy use and fossil fuel emissions, and to implement energy efficiency improvements. Recently, the American Recovery and Reinvestment Act of 2009 appropriated $3.2 billion for the EECBG Program for fiscal year 2009. Activities eligible for funding include:

• Purchase and implementation of technologies to reduce, capture, and use methane and other greenhouse gases generated by landfills or similar sources
• Material conservation programs, including source reduction, recycling, and recycled content procurement programs that lead to increases in energy efficiency
• Renewable energy technologies for government buildings
• Any other appropriate activity that meets the purposes of the program and is approved by DOE

Of the $3.2 billion appropriated in total program funds, $2.8 billion is available under the formula authorized under the Energy Independence and Security Act of 2007. Funds are allocated accordingly:

• 28 percent to states (60 percent of which is redistributed to local governments)
• 68 percent to local governments
• 2 percent to Indian tribes
• 2 percent in competitive grants

All states are eligible to apply for direct formula grants and competitive grants from DOE. Depending on population, cities and counties are eligible for EECBG Program funds either directly from DOE or from the state in which they are located. For 2009, an additional $400 million is available as competitive grants for any eligible entity.

State Energy Program

The Weatherization and Intergovernmental Program in the DOE Office of Energy Efficiency and Renewable Energy manages State Energy Program (SEP), which provides grants to states to address their energy priorities in the areas of energy efficiency and development of renewable energy technologies. The American Recovery and Reinvestment Act of 2009 appropriated $3.1 billion for the program for fiscal year 2009. In order for a state to be eligible for these funds, it must commit to all three of the following:

• Instituting policies at state-regulated utilities that support energy efficiency
• Adopting energy efficient building codes
• Prioritizing grants toward funding energy efficiency and renewable energy programs

States will have discretion over how the money is distributed. Local governments and others interested in developing landfill gas energy projects should contact their State Energy Office to learn more about their state’s process for distributing grants. DOE has posted the list of State Energy Offices at http://apps1.eere.energy.gov/state_energy_program/seo_contacts.cfm.

Regional Biomass Energy Program

Established by Congress in 1983, the DOE's Regional Biomass Energy Program (RBEP) seeks ways to facilitate expanded use of biomass resources for the production of renewable transportation fuels and electric power. RBEP also supports bioenergy applications in the industrial and buildings sectors. RBEP has established a network of five regional offices (Southeast, Pacific Northwest, Northeast, Great Lakes, and Western) serving 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands.

RBEP aims to increase the production and use of biomass for energy by providing information, technical support, and other assistance, and by mitigating barriers to commercialization of biomass energy technologies. The program's long-term objectives are to:

• Improve the capabilities and effectiveness of state and local governments and industry in producing and using bioenergy
• Support resource availability and planning efforts
• Encourage economic development by investing in bioenergy technology
• Accelerate market acceptance of bioenergy technologies by reducing or eliminating market barriers and understanding economic and environmental costs and risks

Private, non-profit, and public entities are eligible for funding. Funding amounts vary from region to region.

You can submit unsolicited proposals to the appropriate regional office in accordance with DOE Guide for Submission of Unsolicited Proposals. This guide is available online at www.netl.doe.gov/business/usp/unsol.html. Evaluation and award analysis will be performed by personnel at each regional office.

Loan Guarantees

Innovative Technology
The Energy Policy Act of 2005 authorized DOE to issue loan guarantees to eligible projects that avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases. The projects need to employ new or significantly improved technologies when compared to technologies in service in the United States at the time the guarantee is issued.

Under the solicitation that closed in February 2009, the minimum application fee was $75,000, which indicates that the program has historically been designed to support larger scale renewable energy and biofuel projects. DOE periodically publishes requests for applications for loan guarantees, which can target specific technologies or be general.

Rapid Deployment
The American Recovery and Reinvestment Act of 2009 expanded the Innovative Technology loan guarantee program with $6 billion for renewable energy systems, biofuel, and electric power transmission projects. “Renewable energy systems” include those that generate electricity or thermal energy (or manufacture component parts of such systems). Biofuel projects are limited to those that are likely to become commercial technologies and will produce transportation fuels that substantially reduce life-cycle greenhouse gas emissions compared to other transportation fuels. The 2009 funds are limited to projects that commence construction by September 30, 2011.

Loan guarantees under this program are expected to be offered by the Summer of 2009. DOE has indicated that it plans to offer applicants the opportunity to pay fees as part of the loan at the closing, and improve DOE assistance in navigating the application process.

U.S. Department of Agriculture

Rural Utility Service Loans and Grants

The U.S. Department of Agriculture (USDA) Rural Utilities Service (RUS) offers low-interest loans and grants to fund renewable energy development in rural areas of the country. Essentially, any type of renewable energy source is eligible, as well as the associated electrical distribution and/or transmission facilities required to interconnect the project. The project must serve either the consumers of an existing RUS system or other rural areas with populations less than 2,500 (if the project is served by an electric utility other than a RUS borrower). Although most applications submitted to date have come from rural electric cooperatives, the program is not restricted to this segment. A wide range of potential applicants are eligible.

High Energy Cost Grant

One of the grants offered by RUS is the High Energy Cost Grant Program, which provides financial assistance for the improvement of energy generation and transmission and distribution facilities serving eligible rural communities with home energy costs that are 275 percent higher than the national average. On-grid and off-grid renewable energy projects, such as landfill gas energy projects, are eligible. The number of grants awarded depends on the number of applications submitted, the amount of grant funds requested, the quality and competitiveness of applications submitted, and the availability of appropriated funds. The minimum and maximum amounts of a grant request that will be considered for funding are $75,000 and $5 million, respectively. USDA publishes a Notice of Funding Availability in the Federal Register to announce when applications are accepted.

Rural Business Opportunity Grants

USDA also offers grants that promote sustainable economic development in rural communities with exceptional needs. Typically, the grants go toward paying the costs of providing economic planning for rural communities, technical assistance for rural businesses, or training for rural entrepreneurs or economic development officials. This grant program could be applicable to a landfill gas energy project located in a rural area determined by USDA to have exceptional needs.

To be eligible for a Rural Business Opportunity Grant, applicants may be public bodies, nonprofit corporations, Indian tribes on Federal or State reservations and other Federally recognized tribal groups, and cooperatives with members that are primarily rural residents. Applicants must have significant expertise in the activities they propose to carry out with the grant funds and financial strength to ensure they can accomplish the objectives of the proposed grant. Applicants must be able to show that the funding will result in economic development of a rural area (defined as any area other than a city or town that has a population greater than 50,000 inhabitants and adjacent areas).

Projects eligible for Rural Business Opportunity Grant funding compete based on certain grant selection criteria. Priority points are awarded to those projects that best meet these criteria and are ranked from the highest to the lowest scoring. The criteria include:

• The sustainability and quality of the economic activity expected as a result of the project
• The extent to which the project makes use of other funding sources
• The current economic conditions in the service area
• The project’s usefulness as a new “best practice”

Grant funds may not be used for:

• Duplicating current services or replacing or substituting previously provided services
• Covering the costs of preparing the application
• Covering costs incurred prior to the effective date of the grant
• Funding political activities
• Acquiring real estate
• Constructing or developing buildings

The maximum grant for a project serving a single state is $50,000, and the maximum grant for a project serving two or more states is $150,000.

U.S. Department of Commerce

Economic Development Administration Public Works Program

The Economic Development Administration's (EDA's) Public Works Program helps communities in economic decline revitalize, expand, and upgrade their facilities. These changes help attract new industry, encourage business expansion, diversify local economies, and generate long-term private sector jobs and investments. The program seeks to redevelop existing facilities, whenever possible. EDA supports these types of projects because they promote sustainable economic development by taking advantage of available infrastructure and markets.

The Public Works Program supports locally developed projects that encourage long-term economic self-sufficiency and global competitiveness. Projects that have been funded in the past include: water and sewer facilities upgrades; technology-related infrastructure development; diversification of natural resource dependent economies efforts; commercialization and deployment of innovative technologies; business/industrial development; and the demolition, renovation, and construction of publicly owned facilities. Although the EDA's Public Works Program has not yet funded a landfill gas energy project, such projects are eligible if they meet EDA's investment criteria.

The following types of applicants are eligible for funding: economic development districts; states, cities, or other political subdivisions of a state or consortium of political subdivisions; Indian tribes; colleges and universities; public or private nonprofit organizations; and associations acting in cooperation with officials of a political subdivision of a state. Projects must be located in an area that exhibits economic distress at the time that the application is submitted. Economic distress is determined based on the level of unemployment, per capita income, or special need. Projects outside these areas will be considered if they directly benefit the distressed area.

Generally, EDA investment assistance may not exceed 50 percent of the project cost. Projects may receive an additional amount that shall not exceed 30 percent, based on the relative needs of the region in which the project will be located, as determined by EDA.

EDA conducts a preliminary review of all projects before requesting that a full application be completed. All projects must meet the criteria as explained in EDA's Regulations at 13 CFR Chapter 3 and in the Agency's annual Notice of Funds Availability published in the Federal Register. Pre-application forms and requirements can be found at: www.eda.gov/InvestmentsGrants/Preapp.xml.