Resources for Funding Landfill Gas Energy Projects
Various resources are available to provide financing or incentives for landfill gas (LFG) energy projects, including tax credits and exemptions, production incentives, loans, and grants. On this page, LMOP provides information about the federal incentives most commonly used in LFG energy project development, with links to an external database that provides detailed information about numerous incentives.
EPA does not intend for this website to provide an exhaustive list of available funding resources for LFG energy projects. The Database of State Incentives for Renewables & Efficiency (DSIRE), Exit funded by the U.S. Department of Energy and managed by LMOP State Partner NC Clean Energy Technology Center, is a comprehensive source of information on state, local, utility and select federal incentives that promote renewable energy resources, including LFG. The DSIRE frequently asked questions page Exit provides helpful tips on using the database.
Basic Funding Information
For stakeholders new to landfill gas (LFG) energy projects, a basic overview of project economics and financing is provided below. A key component to successful LFG energy projects is identifying and using available financial mechanisms. Potential funding resources include tax credits and exemptions, production incentives, loans and grants. It is important that stakeholders understand the range of available financial mechanisms to select the best options to meet project goals.
More detailed information about project economics is available in Chapter 4 of LMOP’s LFG Energy Project Development Handbook, which provides guidance for performing site-specific economic analyses and discusses the various financing alternatives available for LFG energy projects.
Evaluating the Economics of an LFG Energy Project
Conducting an economic assessment helps to determine if an LFG energy project is viable at a specific landfill. Evaluating a project typically consists of five steps:
- Quantify capital and operations and maintenance expenses
- Estimate energy sales revenues and other revenues streams
- Assess the feasibility of the proposed project design, including modifications to the project design to improve project economics
- Repeat steps 1-3 for any project alternatives
- Assess project financing options
Many financing approaches may be available for a project, including:
- Private Equity Financing – Widely used for LFG energy projects, it involves an investor who is willing to fund all or a portion of the project in return for a share of project ownership. For small projects without access to municipal bonds, private equity financing may be one of the few ways to obtain financing.
- Project Finance – Lenders consider a project’s projected revenues rather than the assets of the developer to ensure repayment. This allows the developer to obtain financing while retaining ownership control of the project.
- Municipal Bond Financing – In the case of municipally owned landfills and municipal end users, the local government might issue tax-preferred bonds to finance the LFG energy project. This approach is the most cost-effective way to finance a project, because the interest rate is often 1 or 2 percent below commercial debt interest rates, and can often be structured for long repayment periods.
- Direct Municipal Funding – The operating budget of the city, county, landfill authority or other municipal government is used to fund the LFG energy project. It eliminates the need to obtain outside financing or project partners, and it avoids the delays caused from their project evaluation needs.
- Lease Financing – The project owner/operator leases all or part of the LFG energy project assets, which usually allows the transfer of tax benefits or credits to an entity that can best make use of them. The benefit of lease financing is that it frees up capital funds of the owner/operator while allowing them control of the project. The disadvantages include complex accounting and liability issues, as well as loss of tax benefits to the project owner/operator.
Renewable Electricity Production Tax Credit
Information provided is for background reference only; consult a tax professional for guidance.
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 renewable energy resources. The PTC provides a corporate tax credit of 1.2 cents/kWh for electricity generated from landfill gas (LFG), open-loop biomass, municipal solid waste resources, qualified hydroelectric, and marine and hydrokinetic (150 kW or larger). Electricity from wind, closed-loop biomass and geothermal resources receive as much as 2.3 cents/kWh. The PTC is phased down for wind facilities and expires for all other renewable energy technologies commencing construction after December 31, 2016.
On April 15, 2013, the IRS released guidance for how it determines eligibility for the PTC for renewable energy projects. To qualify, a facility must have begun construction before a specific date. A project is considered under construction if "physical work of a significant nature has begun" or at least 5% of the total cost of the project has been incurred. See Notice 2013-29 at https://www.irs.gov/irb/2013-20_IRB/ar09.html Exit. The IRS released additional guidance on September 20, 2013 clarifying how a taxpayer satisfies these criteria. See Notice 2013-60 at https://www.irs.gov/pub/irs-drop/n-13-60.pdf (PDF) (7 pp, 21K) Exit.
Additional information regarding the PTC can be found online using the Database of State Incentives for Renewables & Efficiency (DSIRE) at http://programs.dsireusa.org/system/program/detail/734 Exit.
Renewable Fuel Standard
The Renewable Fuel Standard (RFS) program was created under the Energy Policy Act of 2005 and further expanded by the Energy Independence and Security Act of 2007. The program requires obligated parties, including refiners or importers of gasoline or diesel fuel, to meet a Renewable Volume Obligation (RVO) based on the amount of petroleum-based fuels they produce or import annually. One way for these parties to meet compliance requirements (the RVO) is by obtaining credits known as Renewable Identification Numbers (RINs).
The RFS created four categories of renewable fuel: cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel. The program sets minimum life cycle greenhouse gas reduction thresholds for each category. To generate RINs, the fuel must meet one of the EPA-approved pathways. RINs generated from qualified pathways are allowed to be blended into transportation fuel, heating oil and jet fuel.
The RFS allowed producers of biogas to generate advanced biofuel (D5) RINs when the biogas was derived from landfills, sewage treatment plants, and manure digesters. In July 2014, EPA modified the existing pathway to specify that compressed natural gas (CNG) or liquefied natural gas (LNG) is the fuel and the biogas is the feedstock. Further, EPA allowed fuels derived from landfill biogas to qualify for cellulosic biofuel (D3) RINs, rather than just D5 RINs. EPA also added a new renewable electricity pathway for electricity used in electric vehicles.
To generate RINs, the renewable electricity and renewable CNG/LNG must be used for transportation purposes. The use or sale of renewable electricity, CNG, or LNG as transportation fuel must be demonstrated through either written contracts or signed affidavits, when contracts are not available.
State Funding Resources and Renewable Portfolio Standards
There are many state resources for landfill gas (LFG) energy projects, including resources provided by state agencies and private foundations. The Database of State Incentives for Renewables & Efficiency (DSIRE) Exit, is a comprehensive resource for state financial incentives as well as rules, regulations, and policies that encourage renewable energy, including LFG energy. DSIRE, which is managed by LMOP State Partner NC Clean Energy Technology Center, was established in 1995 and is funded by the U.S. Department of Energy.
State Renewable Portfolio Standards
A renewable portfolio standard (RPS) is a legislative requirement for utilities to generate or sell a certain percentage of their electricity from renewable energy sources. The percentage requirements under RPS programs vary widely, but currently all state-wide RPSs classify LFG as a renewable resource. In some states, all utilities are subject to the RPS requirements; in other states, only public utilities or investor-owned utilities are required to meet the percentage standard. In a few instances, cities or utilities have implemented their own RPS in the absence of a state-wide program, such as LMOP Energy Partner JEA in Florida.
As of April 2016, 37 states, the District of Columbia, Guam, N. Mariana Islands, Puerto Rico and the U.S. Virgin Islands have an active RPS or a renewable portfolio goal (RPG), where LFG is potentially an eligible renewable energy resource (see the map below).
For more information about and updates to RPS/RPG programs and their requirements, see the Database of State Incentives for Renewables & Efficiency (DSIRE) Exit. The Filter feature in DSIRE Exit can be useful for obtaining a comprehensive list of up-to-date RPS/RPG that apply to LFG. Select the “Apply Filter” button at the right, select “Program Type”, check the box for “Renewables Portfolio Standard” and select “Apply Filters” at the bottom.