IDBs could be alternative to federal clean energy tax credits

Even though federal production tax credits for clean energy were extended through 2013, their pending expiration caused much anxiety within the industry.  

With another deadline looming at the end of this year, the industry would do well to consider alternatives to the Production Tax Credit that would mean less reliance on federal tax credits as a key source of clean energy financing. A new financing model for clean energy development could be such an alternative.

The Clean Energy and Bond Finance Initiative's (CE+BFI) Industrial Development Bond (IDB) leverages bond financing to achieve relatively low cost capital for renewable energy. This type of qualified private activity bond provides tax-exempt interest rates to private borrowers who meet public benefit requirements.

For example, manufacturers in the supply chain of clean energy, such as solar panel, wind turbine and biomass equipment, can receive tax-exempt financing for clean energy projects. Changes to the federal tax code for IDBs could allow any manufacturer to place clean energy generation equipment on their facilities. Whole-facility clean energy generation is not a currently permitted use of IDB proceeds, but was temporarily allowed from 2009-2010.

During this time, the California Industrial & Economic Development Bank (I-Bank) issued an IDB to finance the majority of costs related to a solar panel installation on a manufacturing facility. At some point, Congress could act to authorize a permanent rule change, making tax-exempt bonds an option for all small- to mid-sized American manufacturers seeking lower-cost, clean energy.

"Bond finance, or long-term debt, can become the bedrock finance tool for clean energy, as it is for transportation, housing, and other economic development sectors," said Toby Rittner, president and CEO of the Council of Development Finance Agencies.

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