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

Federal Resources

• Incentives Through the Energy Policy Act of 2005
• Renewable Electricity Production Credit
• Clean Renewable Energy Bonds
• Revision: Credit for Producing Fuel from a Nonconventional Source
• Renewable Energy Production Incentive
• Federal Purchase Requirement
• Rural and Remote Communities Electrification Grants
• Loan Guarantees
• 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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Incentives Through the Energy Policy Act of 2005

On August 8, 2005, the Energy Policy Act of 2005 was signed into law. This legislation:

• Includes provisions for renewed and expanded tax credits for landfill gas
• Provides bond financing, tax incentives, grants, and loan guarantees
• Extends renewable energy production incentives to landfill gas

To view the full text of the Act, visit The Committee on Energy and Commerce Web site. Citations are provided for locating the sections of the Act and corresponding sections of the U.S. Code described below.

The following six sections provide a summary of the provisions of this Act that pertain to landfill gas. This information can also be found in LMOP's Summary - Energy Policy Act of 2005 (PDF, 3 pp., 107 KB, About PDF) fact sheet.

Renewable Electricity Production Credit

The Section 45 Renewable Electricity Production Credit (REPC), commonly referred to as the Production Tax Credit (PTC), is a per kilowatt-hour (kWh) federal tax credit for electricity generated by qualified energy resources, including landfill gas. Enacted as part of the Energy Policy Act of 1992, the credit has expired and been renewed on a number of occasions. The Tax Relief And Health Care Act of 2006 extended the credit through December 31, 2008. The REPC originally funded only wind, closed-loop biomass, and poultry waste. It was not until the American Jobs Creation Act of 2004 that the credit was expanded to include landfill gas. The current list of resources also includes geothermal energy, open-loop biomass, solar energy, small irrigation power, municipal solid waste combustion, refined coal, certain hydropower facilities, and Indian coal.

The REPC provides a tax credit of 1.5 cents/kWh, adjusted annually for inflation, 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.

Under the Energy Policy Act of 2005, facilities producing electricity from landfill gas had to be placed in service by the end of 2007 to qualify for the tax credit. Additionally, the credit period was extended to 10 years for facilities placed in service after August 8, 2005 [26 USC §45(b)(4)(B)(iii)] (see section 1301(b) of the Act). The Tax Relief And Health Care Act of 2006 extends for one year (through December 31, 2008) the placed-in-service window [26 USC §45(a)] (see section 1301(a) of the Act). The length of time the credit can be claimed depends on when the facility is placed in service. For landfill gas facilities placed into service:

• After October 22, 2004 (the date of enactment of the American Jobs Creation Act) and before August 8, 2005 (the date of enactment of the Energy Policy Act), the credit period is five years.
• After August 8, 2005 and before January 1, 2009, the credit period is 10 years.

Generally, the “placed-in-service” 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, and only for the specified credit period after the facility is placed in service.

This credit is eliminated if the facility produces electricity from landfill gas and has already received a credit under section 29 for the taxable year or for any prior taxable year [26 USC §45(e)(9)] (see section 1301(f) of the Act).

To apply for the 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 Act created Clean Renewable Energy Bonds (see section 1303 of the Act) by adding section 54 to the tax code (26 USC). Essentially, the owners of the bond receive federal tax credits instead of tax-free interest payments from the bond issuer. The Tax Relief And Health Care Act of 2006 increased the available national allocation for these bonds from $800 million to $1.2 billion. The Energy Policy Act of 2005 had established a bond issuance period of December 31, 2005 to December 31, 2007, but the newer legislation re-opened the program beginning January 1, 2007 and extended the period during which bonds must be issued until December 31, 2008. At least 95 percent of the bond proceeds must be spent on one or more eligible projects within five years of the date of issue.

Revision: Credit for Producing Fuel from a Nonconventional Source

The Energy Policy Act of 2005 redesignates section 29 as new section 45K (see section 1322(a)(1) of the Act).

The 2005 Act makes this credit part of the general business credit under section 38 of the Internal Revenue Code [26 USC §38(a)(22)] (see section 1322(a)(2) of the Act). By making the old section 29 credit part of the general business credit, taxpayers will now combine the nonconventional source fuel credit with other general business credits. Credit amounts that exceed the taxpayer’s tax liability can now be carried back one tax year or forward 20 tax years [26 USC §39(a)] on the federal tax return.

Renewable Energy Production Incentive

The 2005 Act includes use of landfill gas for electricity production [42 USC §13317(b)] (see section 202(b)(2) of the Act). The Act extends the eligibility period to October 1, 2016 [42 USC §13317(c)] (see section 202(c) of the Act), which means a facility generating electricity from landfill gas:

• Must be operational by October 1, 2016.
• Can receive payments for the first 10 years of operation, until 2026, if federal funds are available.

Appropriations are extended for fiscal years 2006 through 2026 [42 USC §13317(g)] (see section 202(g) of the Act), although no annual amount is set forth in the Act. If appropriated funds are insufficient to make full payments, 60 percent of funds will be assigned to facilities that use solar, wind, ocean, geothermal, or closed-loop biomass technologies, and the remaining 40 percent will be assigned to other projects, including those that use landfill gas [42 USC §13317(a)(4)] (see section 202(a)(4) of the Act).

Federal Purchase Requirement

Section 203 of the Act establishes a federal purchase requirement for renewable energy. 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.

Rural and Remote Communities Electrification Grants
 
Section 209 of the Act establishes grants for the purposes of:

• Increasing energy efficiency, siting, or upgrading transmission and distribution lines serving rural areas; or
• Providing or modernizing electric generation facilities that serve rural areas.

The grants are available to local governments; peoples’ utility districts; irrigation districts; and cooperative, nonprofit, or limited-dividend associations in rural areas (i.e., population of not more than 10,000 inhabitants). Renewable energy facilities, including facilities generating electricity from landfill gas, are to be given preference in making grants. For each fiscal year beginning in 2006 through 2012, $20 million has been appropriated for these grants.

Loan Guarantees

Section 1701 of the Act authorizes loan guarantees for up to 80 percent of the project cost of an eligible project. Eligible projects include projects that both reduce greenhouse gas emissions and employ significantly improved technologies. Additionally, projects must fall into one of 10 broad categories, one of which is renewable energy systems.

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. USDA set aside $200 million of Treasury loan funds in 2005 for such projects. 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.