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States can assist developers in financing landfill gas utilization projects by providing tax-exempt financing or loans with longer maturities, guarantees, and discounted interest rates.

Iowa

• Alternate Energy Revolving Loan Program
• Iowa Energy Center Grants
• Tax Incentives

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Alternate Energy Revolving Loan Program

Low-interest loans are becoming an increasingly popular option among states for encouraging landfill gas utilization projects. Typically, up-front capital expenditures, such as landfill gas collection system installation, dominate the cost structure for landfill gas utilization projects, relative to the costs of operation and maintenance. As a result, these projects are very sensitive to their capital costs. States are beginning to assist developers in financing landfill gas utilization projects by providing tax-exempt financing or loans with longer maturities, guarantees, and discounted interest rates.

The Alternate Energy Revolving Loan Program (AERLP) was created in 1996 to encourage the development of alternate energy production facilities and small hydroelectric facilities in Iowa. This program is open to all individuals and groups who want to build renewable energy production facilities in Iowa. Only utilities with regulated rates are eligible.

The AERLP offers low-interest loans from a combination of Energy Center and lender funds. The Energy Center provides loan funds equal to 50 percent of a project's financed cost (up to $1 million) at zero percent interest. Matching financing must be obtained from a lender of the applicant's choice. The lender manages the entire loan and arranges repayment to the Energy Center. Loan terms are offered up to 20 years, with an average lifetime of 10 years. The amount of funding available at any given time depends on the number of applications, amount of funds requested, outstanding loan balances, and overall repayment rate.

Iowa Energy Center Grants

The Iowa Energy Center is a research, demonstration, and education organization dedicated to increasing Iowa’s energy efficiency and use of renewable fuels, such as landfill gas. The Iowa Energy Center meets its goals through in-house energy research and education programs and by sponsoring energy projects developed by eligible grantees.

The Iowa Energy Center offers grants to Iowa-based groups to conduct energy-related research, demonstration, and education projects. These projects, which vary in size and complexity, are conducted throughout the state with Iowa’s universities, colleges, community colleges, private nonprofit organizations, and their partners. Grants are awarded on a competitive basis through periodic Requests for Proposals. Grants are intended for the support of research and demonstration projects pertaining to one or more of the following areas: energy efficiency, renewable energy, and the dissemination of related knowledge.

Tax Incentives

Iowa offers a number of tax incentives to encourage renewable energy development, including a production tax credit, an energy replacement generation tax incentive, and a methane gas conversion property tax exemption. Each is described below.

Renewable Energy Tax Credit
In June 2005, Iowa enacted a production tax credit of 1.5 cents per kWh for electricity generated by and purchased from eligible renewable energy facilities, which include landfill gas, biomass, wind, and solar facilities. Under the same law, Iowa offers $4.50 per million Btu of biogas used to generate either electricity or heat for commercial purposes, or $1.44 per thousand cubic feet of hydrogen fuel generated by and purchased from an eligible renewable energy facility. This credit may be applied toward the state's personal income tax, business tax, financial institutions tax, or sales and use tax.

To be eligible for the credit, a facility must be at least 51 percent owned by specifically defined qualifying owners and must be approved by the Iowa Utilities Board (IUB). Furthermore, facilities must be placed into service on or after July 1, 2005, and before January 1, 2012. The maximum total amount of wind generating capacity eligible for this credit is 180 MW. The maximum total amount of generating capacity from other eligible renewables is 20 MW. A facility’s combined capacity may not exceed 2.5 MW per qualifying owner, and facility owners may not own more than two eligible facilities. Facilities must be operational within 30 months of IUB approval to maintain eligibility status.

The designated facility producer or energy purchaser may apply for renewable energy tax-credit certificates for 10 years, beginning with the initial production of electricity, biogas or hydrogen. The IUB will verify the number of kilowatt-hours or BTUs generated by each eligible facility, and the Iowa Department of Revenue will issue and track tax-credit certificates. Certificates may be transferred or sold one time to a third party.

Energy Replacement Generation Tax Exemption
Iowa imposes a replacement generation tax of 0.06 cents ($0.0006) per kWh on various forms of electricity generated within the state. This tax is imposed in lieu of a property tax on generation facilities. Under the Energy Replacement Generation Tax Exemption, all energy generated by methane gas conversion property (including landfill and digester gas facilities) and wind energy conversion property is exempt from the replacement generation tax. In addition, large hydroelectric generators (100 MW or more) pay a reduced generation tax equivalent to $0.000001847 per kWh.

Methane Gas Conversion Property Tax Exemption
Under Iowa’s Methane Gas Conversion Property Tax Exemption, real and personal property used for methane gas collection and conversion into energy and connected with, or in conjunction with, a publicly-owned sanitary landfill is exempt from property tax. If other fuels are burned as well, the exemption is equal to the percentage of methane in the overall fuel mix.