# Presentation: 767361

## Using CREBs to Finance Renewable Energy Projects

- Can CREBs work for me?

- March 22, 2007

***Mike Costanti, Principal***
*Matney Frantz Engineering, LLC**Bozeman, Montana*

***Summary Presentation***

## CREB Overview

- Clean Renewable Energy Bonds (CREBs) were created by the Energy Policy Act of 2005 (Baucus and Grassley)
- Provide gov’t entities with the ability to obtain interest-free financing for renewable energy projects by providing investors with a federal tax credit in lieu of interest payments
- 2006 CREBs were authorized for $800M through FY07:
- $500M:  Cities, Counties, Tribes
- $300M:  Rural Electric Co-ops
- Allocations made from smallest to largest (pyramid)
- CREBs are an excellent funding vehicle for county/city/tribally-owned renewable energy projects

## Why CREBs?

- Tax-exempt vs. Taxable Entities
- PTC and MACRS depreciation are only applicable to taxable entities
*The tax benefits on these taxable projects can easily comprise 60% of the project’s value to the investor*
- CREBs sought to level the playing field for tax-exempt entities, e.g. achieve parity with the PTC and depreciation benefits
*Political subdivisions (e.g. cities, counties), tribes, and co-ops are tax-exempt*

## 2006 CREB ROUND

- 743 CREB applications were received
- $2.5B in allocation requests
- 2.5 times what was available (a seemingly popular program)
- Applications from 40 states
- 610 projects approved (November 20, 2006)
- 532 city/county/tribal projects, 22 states
- $23,000 to $3.2M
- 78 co-op projects, 24 states
- $120,000 to $31M

## 2007 CREB ROUND

- Recent federal congressional action authorized a _second_ CREB round
- Extended the 2006 CREB Round Issuance Date to December 31, 2008
- $400M will be allocated (at this point)
- $250M for city/county/tribes
- $150M for co-ops
- Applications due July 13, 2007
**What will the allocation cutoffs be?**

## How CREBs Work?

- _NOT A GRANT_
- Revenue vs. General Obligation (GO) bonds
- Interest & Tax Credits
- Ratable payments
- Credit rate tied to Treasury Index
- 1st Round:  Must issue bonds by December 31, 2008
- 95% hard costs, 5% soft costs
- Arbitrage:  Spend proceeds within 5 years

## CREB Challenges

- New program, never been done
- Who will buy?
- Will they sell at a discount?
- What will the due diligence requirements be?
- The “Time Clock Issue”
- Need to make first pmt 12 months after issuance
- Debt Service Reserve Fund
- An allowable use of CREB proceeds?

## MT’s 1st Round CREB Projects

- MFE submitted CREB applications on behalf of 35 cities and counties during the 2006 cycle
- 33 of the 35 applications were approved
- $30.6M CREB allocations totaling 34 MW (wind)
- The two largest applications ($3.5M and $4.0M) were just above the cutoff
- All projects will be 100% CREB financed and _built using re-manufactured turbines_

## Why Re-manufactured Turbines?

- 3 Main Reasons to Use RWTG:
**Installed Cost:**
- New projects:  		$1,500-$4,000 per kW
- Re-manufactured projects:	$900-$1,200 per kW
**Re-manufacturing Process**
- Better materials, tooling, controls
- Better than original
- Great warranties
**Well matched to rural electric loads**
- Turbines range from 65-kW to 660-kW
- Built upon a distributed generation philosophy

## Why CREBs Worked Well in MT

- 5 Main Reasons:
- 8 of the 20 poorest counties in US in MT
- 5 of these received CREB allocations
- MT is 47th in that US in terms of per capita income
- Looking for new revenue streams
- Foundation and understanding in place
- NREL/WPA, HCE, etc
- Economic Development Impacts
- Property Taxes, Local Impact Fees, PILOT payments
- Construction and Annual Phase Jobs
- Landowner Easement Payments
- First MW-class project
- Judith Gap:  135-MW, 90 turbines, very visible, working well

## MT’s Core CREB Team

- Matney-Frantz Engineering
- Prepare and submits CREB applications
- Program Manager, Engineer
- Oversee real estate, financing, design, contracting and operations
- Senator Baucus’s Office
- RC&Ds, LDOs, State Energy Offices
- Orrick Law Firm (Washington, DC)
- Federal tax opinions
- Dorsey & Whitney LLP (Missoula, MT)
- Local tax opinions
- (Working with state-specific firms may make sense...)

## The CREB Process

- Make Philosophical Conclusion:
*“**Local gov’t should not compete with private industry.”*
*OR*
*“**My CREB allocation is not enough...I want more**.”*
- Bring together a qualified team to assist you
- Submit Application
- Technical Requirements:  *Issuing authority, Engineer’s approval letter, Project description, Regulatory approval plan, and Financing plan*
- Build your project
- Local gov’t procurement guidelines

## “Is a CREB Application for Me?”

- Renewable energy projects are a “three-legged stool”:
- Renewable Resource
- Transmission Access & Capacity
- Project Buyer / On-site offsets
- At a minimum you will need to work with a qualified engineer to assess your “3-legged stool”
- Renewable Resources:  *wind,, geothermal, biomass, small hydro, etc*
- Transmission Access/Capacity:  *FERC mandated SGIA*
- Project Buyer:  *Direct utility sale, QF, net metering, bi-lateral sale*
- Conclusion:  *Does it appear that you have the required project components to submit a CREB application?*

## “What if I’m Successful?”

- In the end, your CREB project _must_ make _legal_, _financial_, and _technical_ sense to move forward
- If any of these 3 items do not line up, your project will not be built (nor will anyone purchase your bond!)
- These determinations must be done by a qualified legal, financial, and technical team
- The feasibility process typically take 3-12 months
- Start thinking about how you’ll pay for these costs

## Things to be Thinking About

- There is no such thing as a dumb question!
- Importance of “philosophical discussions”
- Working with a qualified team
- Submitting a solid application
- How to pay for feasibility if successful?
- How to deal with the “Time Clock” and DSRF issues

## Thank you for your time