The US Treasury released $2.2bn in new bonds this week to help kickstart the renewables sector and accelerate the rollout of low-carbon energy projects.
The new financial instruments, Clean Renewable Energy Bonds (CREBs), will function as low-interest loans to renewable project owners, providing them with an alternative to traditional sources of finance, many of which have dried up in the last year as a result of the recession.
CREBs were originally authorised as part of the Energy Policy Act 2005, before $800m in CREBs were then created under the Emergency Economic Stabilisation Act of 2008. This figure was then increased to $2.4bn under the Obama administration's stimulus package, introduced earlier this year.
The instruments are similar to the production tax credits awarded to renewable projects, and apply largely to the same projects. However, they differ in that they serve as a financing tool rather than providing post-implementation tax relief. They therefore serve as a more immediate cash injection for the renewables sector and are intended to help get planned projects, such as wind or solar farms, into the construction phase.
Under a CREB, the borrower, in this case a government agency or a utility, sells the bond to a lender, which then becomes the bondholder. In normal bond conditions, the issuer then has to pay interest to the bondholder. But in the CREB scheme, the Federal government picks up most of the tab, paying interest in the form of a tax credit to the bondholder.
The Internal Revenue Service allocated $800m each to governmental bodies and public power providers, along with $609m to co-operative electric companies. Applications for the first two categories were oversubscribed, but not enough co-operatives applied for the entire third of the CREB funds officially allocated to them, which is why the full $2.4bn in CREBs allocated in the stimulus package appears to be underused, with only $2.2bn allocated.
The bonds are the latest in a series of funding mechanisms designed to help accelerate the development of US renewable energy capacity.
Earlier this year, the government also announced a direct grant scheme designed to provide projects with Federal funding, while $2.3bn worth of tax breaks was also made available to clean energy firms this summer.
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