The Internal Revenue Service (IRS) issued a new, comprehensive notice, officially opening the application process for the latest round Clean Renewable Energy Bonds (CREB). Congress recently approved $800 million in bonding authority for cooperatives. The application deadline is August 4, 2009.

Prior to the CREB program, which was created by the Energy Policy Act of 2005, cooperatives had been hampered in their efforts to develop renewable energy by their inability, as not-for-profit entities, to take advantage of the production tax credits available to for-profit firms. Since the start of the program, the new bonds have contributed to significant growth in renewable energy capacity owned by cooperatives. In 2006 cooperatives received $313,712,810 in CREB allocations; in 2007, they received $138,973,580.

Cooperatives are using the new bonds to develop an array of renewable projects, including, among others, wind turbines for the Alaska Villages Electric Cooperatives, which have allowed the towns to reduce their dependence on diesel; refurbishing carbon-neutral hydroelectric facilities; expanding landfill gas projects; and installing photovoltaic arrays at schools.

One new feature of the program is a “bullet maturity,” meaning the entire principal on the bond can be repaid at the end of its term rather than through level annual principal repayments. This modification increases the level of government subsidy for the bond. To offset this increased subsidy, the new bonds require that the issuer contribute 30% of the interest payments owed to the bondholder, while the government provides a tax credit equivalent to 70% of the interest payment.

In addition, new CREBs are “strippable,” meaning the bond and the tax credit can be held by different owners, and a reserve fund can be established to invest monies (on a limited basis) needed to repay the bond at maturity.