Combined Heat and Power Partnership
Qualified Energy Conservation Bonds (QECBs)
|Date Last Updated||11/16/2012|
|Incentive Administrator/Contact Office||U.S. Internal Revenue Service (IRS)|
|Incentive Initiation Date||4/7/2009|
|Incentive Size and Funding Source||The Energy Improvement and Extension Act of 2008 authorized the issuance of Qualified Energy Conservation Bonds (QECBs). Generally, for qualified tax credit bonds such as QECBs, the borrower who issues the bond pays back only the principal of the bond, and the bondholder receives federal tax credits in lieu of the traditional bond interest. The tax credit may be taken quarterly to offset the tax liability of the bondholder. The tax credit rate is set daily by the U.S. Treasury Department; however, energy conservation bondholders will receive only 70% of the full rate set by the Treasury Department. QECB rates are available on the Treasury Department website. Credits exceeding a bondholder's tax liability may be carried forward to the succeeding tax year, but cannot be refunded. Energy conservation bonds differ from traditional tax-exempt bonds in that the tax credits issued through the program are treated as taxable income for the bondholder.|
For QECBs issued after March 18, 2010, the bond issuer may make an irrevocable election to receive a direct payment from the Department of Treasury equivalent to the amount of the non-refundable tax credit described above, which would otherwise accrue to the bondholder. The direct payment comes in the form of a refundable tax credit to the issuer in lieu of a tax credit to the bondholder. The advantage of either option is that it creates a lower effective interest rate for the issuer because the federal government subsidizes a portion of the interest costs.
|Eligible Recipient||Bonds may be used by state, local and tribal governments to finance certain types of energy projects. CHP systems that use municipal solid waste or biomass as feedstock appear to be eligible because QECBs can be used for projects eligible for the PTC. Fuel cells and microturbines are listed technologies that are supported. However, QECBs can be used for a variety of purposes, including community energy conservation programs such as PACE; so CHP systems may have difficulty competing for limited funding (authorization level $800 million).|
|Eligible Fuel||Does Not Specify|
|Eligible Project Size (MW)||Does Not Specify|
|Minimum Efficiency Required (%)||Does Not Specify|
|Other Selected Eligibility Criteria||The definition of "qualified energy conservation projects" is fairly broad and contains elements relating to energy efficiency capital expenditures in public buildings that reduce energy consumption by at least 20%; green community programs (including loans and grants to implement such programs); renewable energy production; various research and development applications; mass commuting facilities that reduce energy consumption; several types of energy related demonstration projects; and public energy efficiency education campaigns. Renewable energy facilities that are eligible for Clean Renewable Energy Bonds are also eligible for QECBs.|
|Other Incentive Details||The October 2008 enabling legislation set a limit of $800 million on the volume of energy conservation tax credit bonds that may be issued by state and local governments. The American Recovery and Reinvestment Act of 2009 expanded the allowable bond volume to $3.2 billion. In April 2009 the IRS issued Notice 2009-29, providing interim guidance on how the program will operate and how the bond volume will be allocated. Subsequently, H.R. 2847 enacted in March 2010 introduced an option allowing issuers of QECBs and new Clean Renewable Energy Bonds to recoup part of the interest they pay on a qualified bond through a direct subsidy from the Department of Treasury. Guidance from the IRS on this option was issued in April 2010 under Notice 2010-35.|
QECBs are not subject to a U.S. Department of Treasury application and approval process. Bond volume is instead allocated to each state based on the state's percentage of the U.S. population as of July 1, 2008. Each state is then required to allocate a portion of its allocation to "large local governments" within the state based on the local government's percentage of the state's population. Large local governments are defined as municipalities and counties with populations of 100,000 or more. Large local governments may reallocate their designated portion back to the state if they choose to do so. IRS Notice 2009-29 contains a list of the QECB allocations for each state and U.S. territory. Implementing allocations and reallocations most often, but not always, take place through State Energy Offices. As of this writing, some states have yet to assign implementation responsibilities to a specific state agency.