Follow the Money: Utilizing Federally-Subsidized Bonds for Solar

As with many public projects, finding a way to pay for the upfront costs of a solar installation can be the largest stumbling block to a local government’s ambitions to go solar. One under-utilized source of financing is federally-subsidized bonds, particularly Qualified Energy Conservation Bonds (QECBs) or Clean Renewable Energy Bonds (CREBs). While understanding and utilizing these financing mechanisms can be challenging, QECBs and CREBs offer public entities a large pool of low-cost financing for clean energy projects.

How Tax Credit Bonds Work

QECBs and CREBs are federally-subsidized tax credit bonds, meaning the bondholder (i.e., the investor) receives federal tax credits in lieu of interest payments. The issuer (i.e., the local government) thus pays no or low interest on the bond. Under a 2010 law, issuers of QECBs or CREBs may elect to receive a direct payment from the federal government equal to the size of the tax credit the investor would have received. The investor then receives (taxable) interest income on the bond payments.

Tax Credit Rate

The Treasury sets the credit rate so the investor would earn returns equal to what it would earn with a market interest rate for the bond without discount or subsidy. With a QECB or CREB, the subsidy in the form of the tax credit is equal to 70% of the IRS-determined credit rate on the bonds. The partially reduced tax credit rate means issuers will likely need to pay a low amount of interest or bond discount to attract investors. The credits are taxable, and therefore the value of the credits must be included in the investor’s taxable income.

Bond Term

The Treasury sets a limit for the maximum term length based on the present value of half of the bond’s principal, calculated with a discount rate equal to 110% of the long term adjusted applicable federal rate. In recent issuances, terms have been around 15-17 years.


QECBs and CREBs have the same federal tax credit structure, but differ in terms of their allocation amounts, award processes, who can apply, and what they can fund. Key differences are summarized in the table below:

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QECBs CREBs Eligible Issuers Government entities (state, local, and tribal) Government entities (state, local, and tribal) Electric Cooperatives Public Power Providers Certain Lenders Eligible Projects Qualified energy conservation projects, including but not limited to: • Renewable energy generation • Energy conservation in public buildings • Green community programs • Research and development • Demonstration projects. May also be used for privately owned projects. Capital expenditures for renewable energy generation Allocations $3.2 billion volume cap set by Congress Allocated amongst states by IRS and further allocated to local governments by population Unused volume carries over indefinitely $1.4 billion volume cap made available in 2015 Allocated between issuer types. Participants must apply to IRS for an allocation Unused volume reallocated



The IRS allocates the original bond volume authorized by Congress over specified periods and between categories of eligible issuers. The IRS made the last allocation of the remaining volume cap of new CREBs ($1.4 billion) available in 2015. Governments and electric cooperatives apply on a rolling basis, while public power providers have a closed-end application period. For the current period, beginning September 1, 2015, the available CREB volume caps are approximately $433 million for governmental entities and $196 million for electric cooperatives. The IRS updates the available volumes approximately every 60 days at


The American Recovery and Reinvestment Act of 2009 expanded the total QECB volume to $3.2 billion. IRS allocated this total amongst states by population; the original state allocations were published in IRS Notice 2009-29. States have further allocated their totals amongst local jurisdictions. The Energy Programs Consortium tracks allocations and issuances of QECB bonds, and provides a list of known issuances and remaining state volumes on its website. As of August, 2015, only 36.48% of total QECB volumes have been issued.

The QECB or CREB issuer must use the proceeds within 3 years of bond issuance, and 10% of the expenditures must be incurred within 6 months of the issuance. The issuer can request an extension past 3 years for a “reasonable cause” of delay.

Challenges and barriers to using energy bonds

While federal energy bonds allow local governments to finance projects at very favorable terms, there are significant barriers to their utilization. First and foremost, it is time consuming and expensive for local governments to issue bonds, even federally subsidized bonds. Due to the costs of issuing bonds, including legal and financial advisor fees, as well as the time and costs of voter approval in the case of certain municipal bonds, bond funding is often utilized only for larger projects. However, in the case of QECBs, some jurisdictions have allocations that are too small to be worthwhile.

One solution around this barrier is to aggregate multiple projects into one bond issuance. For example, the North Carolina Agricultural Finance Authority established a “green community program” in which it grants loans to solar and other types of private clean energy development using proceeds from a QECB issuance. Boulder, CO used QECB allocations to launch a commercial PACE program, which in turn has funded many projects, including solar installations. Discrete projects could also be pooled across municipal jurisdictions and issued by a State agency or other coordinating group.

Other solutions to high issuance costs include bundling a QECB issuance with other, non-energy bond issuances, or using other sources of funds, such as Energy Efficiency and Conservation Block Grants, to cover administrative costs or buy-down interest rates.

Local governments may also hesitate to use federal energy bonds due to debt aversion. In these cases, QECBs could be used to fund privately-owned clean energy projects, where the private entity holds the debt. Private activity QECBs are limited to 30% of the jurisdiction’s allocation, however.

Additional resources

For a deeper dive into using QECBs or CREBs to finance a clean energy project, several resources are available:

• The Database of State Incentives for Renewables and Efficiency contains summaries and links to more information for both CREBs and QECBs.

• In addition to its regular updates of known QECB issuances, the Energy Programs Consortium has published a detailed issue paper on QECBs, which includes basic information about how the bonds work, challenges and barriers to utilizing them, and several case studies of projects funded with QECBs.

• The National Renewable Energy Laboratory has a guide for utilizing CREBs: Financing Public Sector Projects with Clean Renewable Energy Bonds (CREBs).

• The U.S. Department of Energy also provides information on both types of bonds, including a presentation-format QECB and CREB primer.

• The IRS publishes current bond credit rates, terms, allocation availability, and answers to frequently asked questions about using federal tax credit bonds.

• For additional information or assistance, contact the Solar Outreach Partnership at!

*Note: This post pertains to “New” CREBs. “New” CREBs refer to allocations authorized under 26 USC 54 and available starting in 2009. While the Energy Policy Act of 2005 created the original CREB program, “New” CREB bond allocations have significantly different rules than the “Old” CREB allocations.