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

Federal Resources

• Renewable Electricity Production Tax Credit
• Clean Renewable Energy Bonds
• Renewable Energy Production Incentive
• Qualified Energy Conservation Bonds
• U.S. Federal Government Green Power Purchasing
• U.S. Department of Agriculture Rural Development's Electric Programs
• U.S. Department of Agriculture Rural Business Opportunity Grants
• U.S. Department of Commerce Economic Development Administration Public Works Program
• U.S. Department of Energy Regional Biomass Energy Program

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Renewable Electricity Production Tax Credit

The Section 45 Renewable Electricity Production Tax Credit (PTC) is a per kilowatt-hour (kWh) federal tax credit for electricity generated by qualified energy resources. Enacted as part of the Energy Policy Act of 1992, the credit has expired and been renewed on a number of occasions, with the most recent changes resulting from the passage of the Energy Improvement and Extension Act of 2008 (House Resolution 1424). The PTC provides a tax credit of 2.0 cents/kWh for wind, solar, closed-loop biomass, and geothermal resources. Electricity from open-loop biomass, small irrigation hydroelectric, landfill gas, municipal solid waste resources, and hydropower receive half that rate, which is currently 1.0 cents/kWh. Projects that receive other government grants or subsidies receive a discounted tax credit.

The 2008 legislation extended the inservice deadlines for all qualifying renewable technologies. For landfill gas energy projects, the placed-in-service date is December 31, 2010. Generally, this requirement has been interpreted to mean that the facility has generators installed and working or in a condition that is ready to generate electricity. The credit, however, can be claimed only when electricity is produced and sold to an unrelated third party. Landfill gas energy project owners can claim the tax credit for the first 10 years of operation. The PTC can be applied to federal tax liabilities dating from the previous year and carried forward up to 20 years.

There is no maximum limit for credits claimed through the PTC. To apply for the tax credit, a business must complete Form 8835, “Renewable Electricity Production Credit,” and Form 3800, “General Business Credit.” Form 8835 is available on line at www.irs.gov/pub/irs-pdf/f8835.pdf (PDF, 4 pp., 122 KB); form 3800 is available on line at www.irs.gov/pub/irs-pdf/f3800.pdf (PDF, 5 pp., 105 KB).

Clean Renewable Energy Bonds

The 2005 Energy Policy Act created Clean Renewable Energy Bonds (CREBs) in Section 54 of the U.S. tax code (26 USC). With a conventional bond, the issuer pays interest to the bondholder. With a CREB, instead of being paid interest, the federal government provides a tax credit to the bondholder. Essentially, the issuer receives a zero-interest loan under the 2005 CREB program. In 2008, the Energy Improvement and Extension Act of 2008 (part of House Resolution 1424) provided authority for the issuance of an additional $800 million in “new” CREBs.

CREBs may be issued by electric cooperatives, government entities, and public power producers. The types of projects for which bonds can be issued include renewable energy projects utilizing landfill gas, wind, biomass, geothermal, solar, small irrigation power, municipal solid waste, small hydroelectric, and marine. The Internal Revenue Service (IRS) has determined that any 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 2008 legislation also extended the deadline by which bonds must be issued for previous allocations to December 31, 2009. Under the new legislation the IRS is directed to allocate the bonding authority equally among the three eligible types of entities (i.e., electric cooperatives, government entities, public power producers). Other changes for “new” CREBs are:

• 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 releases guidance on how the program will operate (e.g., criteria for determining allocations) and solicits applications. Historically, more applicants apply for bond authority than has been made available.

Renewable Energy Production Incentive

The Renewable Energy Production Incentive (REPI) program was created by the Energy Policy Act of 1992 and amended in 2005 to provide financial incentives for renewable energy electricity produced and sold by qualified renewable energy generation facilities. Eligible electric production facilities include not-for-profit electrical cooperatives, public utilities, state governments, U.S. territories, the District of Columbia, and Indian tribal governments.

The U.S. Department of Energy (DOE) administers REPI. Qualifying facilities are eligible for annual incentive payments of approximately 2.0 cents per kilowatt-hour 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
• Geothermal
• Biomass
• Livestock methane
• Ocean
• Fuel cells using hydrogen derived from eligible biomass facilities

The Energy Policy Act of 2005 reauthorized REPI through 2026. To be eligible, qualified renewable energy facilities must be operational before October 1, 2016. Funding is subject to annual appropriation and historically has been under-funded. In years where there is a 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, the owner or operator of a qualified renewable energy facility is requested to 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 (October 1 through December 31) of the next fiscal year. More details about the application procedure are provided on the DOE Web site.

Qualified Energy Conservation Bonds

The Energy Improvement and Extension Act of 2008 (House Resolution 1424) created a new funding mechanism similar to the Clean Renewable Energy Bond (CREB) model in which a bondholder receives tax credits in lieu of interest. The act authorizes state and local governments to issue qualified energy conservation bonds to finance qualified projects. The bond proceeds can be used to finance capital expenditures that achieve one of the following:

• Reduce energy consumption by at least 20 percent
• Implement a green community program
• Generate electricity from renewable resources in rural areas

The legislation allows the IRS to distribute up to $800 million in bond authorizations, with the allocation of the authority determined by population size. The IRS is expected to issue guidance on how the program will work.

U.S. Federal Government Green Power Purchasing

The federal Energy Policy Act of 2005 extended and expanded several previous goals and standards to reduce energy use in existing and new federal buildings. To the extent economically feasible and technically practicable, the total quantity of electric energy the federal government consumes during any fiscal year must be renewable energy, according to the schedule below:

• At least 3 percent in 2007-2009
• At least 5 percent in 2010-2012
• At least 7.5 percent in 2013 and after

Under this requirement, renewable energy includes electricity generated from landfill gas. Executive Order 13423, issued in January 2007, requires at least half of the mandated renewable energy consumed by an agency in a fiscal year to be generated by systems placed into service after January 1, 1999.

The DOE’s Federal Energy Management Program (FEMP) provides federal agencies with information, guidance, and assistance in using renewable energy. FEMP’s Biomass and Alternative Methane Fuels Super Energy Savings Performance Contracts (BAMF Super ESPCs) enable federal agencies to participate in landfill energy projects even when the landfill is not on federal property.

General Services Administration, the Defense Energy Support Center, and Western Area Power Administration also assist federal agencies with purchasing renewable power or renewable energy credits.

U.S. Department of Agriculture Rural Development's Electric Programs

The U.S. Department of Agriculture (USDA) Rural Utilities Service (RUS) offers low-interest loans to fund renewable energy development in rural areas of the country. Although most loan 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. Several rural electric cooperatives (e.g., East Kentucky Power Cooperative) have financed landfill gas projects with funding from this program.

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).

The term of a loan under this program is based upon the project's useful life. A majority of the recently approved renewable energy loans are based upon being repaid over a 20-year term. Interest rate history for the Treasury loan program (www.usda.gov/rus/electric/rates.shtml) is based upon the federal fund rate. The interest rates that would apply to the project are determined when the loan funds are actually advanced by RUS, not at the time when the application is filed. An applicant can either use short-term federal interest rates (as short as one-year) or various longer re-pricing periods, which can be extended through the use of fixed long-term rates for the entire term of the loan.

Applicants must provide loan security via a first mortgage on these facilities, which can be on a shared first mortgage basis, if necessary. Equity requirements are typically 25 percent of the price of a project, but may be slightly less than this if there is a plan to attain this level in the initial years following commercial operation. Applicants must also provide a business plan along with a 10-year financial forecast demonstrating that mortgage covenants will be attained. Additional supporting loan documents will be required depending upon the type of renewable energy project involved. The application must be submitted to RUS no later than early July or else it will be considered for approval in a subsequent fiscal year.

U.S. Department of Agriculture Rural Business Opportunity Grants

The U.S. Department of Agriculture (USDA) 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). Your project must include a basis for determining the success or failure of the project and assessing its impact.

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. For 2008 approximately $2.6 million is available.

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 and industrial/commercial locations, 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.

U.S. Department of Energy Regional Biomass Energy Program

Established by Congress in 1983, the U.S. Department of Energy'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.