As part of the Energy Policy Act of 2005 (“2005 Act”), Congress created a new financial instrument known as Clean Renewable Energy Bonds (“CREBs”). Under the 2005 Act, government bodies (cities, counties, states, Indian tribal governments, etc.), public power providers, cooperative electric companies, and certain clean renewable energy bond lender were authorized to issue up to $800 million in CREBs. In 2008, Congress authorized continuation of the $800 million CREBs program. And in February 2009, the American Recovery and Reinvestment Act of 2009 (“2009 Act”) authorized an additional $1.6 billion for the “New CREBs” program, bringing the total allocation to $2.4 billion

CREBs are tax credit bonds for which the United States government pays interest on the bonds in the form of quarterly federal tax credits, rather than the issuer making interest payments directly to the lender. The rate of the tax credit (set daily) and the maximum term of the bond (set monthly) are determined by the U.S. Treasury.

Under the original 2005 Act, the CREBs program provided qualified issuers with a means to borrow at an interest rate of 0%. Under the 2009 Act, the federal tax credit was decreased to 70% of the interest on the bonds. Any remaining interest is paid by the issuer. Unlike traditional tax-exempt bonds, the tax credits received by CREBs bondholders are treated as interest and included in a bondholder’s taxable income.

Facilities financed with CREBs must be owned by a governmental body, public power provider, or cooperative electric company. In April 2009, the IRS issued guidance for securing “New CREBs” allocations. Eligible projects include facilities that generate electricity from a range of sources including:

                        • Wind
                        • Closed-Loop Biomass
                        • Open-Loop Biomass
                        • Solar Energy
                        • Geothermal Energy
      • Small Irrigation Power
      • Qualifying Hydropower
      • Landfill Gas
      • Marine and Hydrokinetic Energy
      • Trash Combustion

Although the 2005 Act contained the requirement that 95% of the bond proceeds must be spent within five years, the 2009 Act requires that all bond proceeds must be spent within three years.

CREBs Experience
Digging Deeper info

Financing Public Sector Projects with Clean Renewable Energy Bonds (CREBs) – National Renewable Energy Laboratory, December 2009 (PDF) file
New Clean Renewable Energy Bonds – Orrick, Herrington & Sutcliffe, 2009 (PDF) file
Tax-Subsidized Financing Options for Energy Projects and Programs – Orrick, Herrington & Sutcliffe,
August 2009 (PDF) file
An Explanation of Clean Renewable Energy Bonds – Orrick, Herrington & Sutcliffe, 2006 (PDF) file
Clean Renewable Energy Bond Maturities & Rates – U.S. Treasury (PDF) file