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Green Community Program for Renewable Energy

 

The North Carolina Agricultural Finance Authority (the “Authority”) has established a loan program to promote the development and implementation of renewable energy resources on agricultural land across the State of North Carolina (the “State”) in order to encourage alternative use of agricultural property and to promote energy conservation and renewable energy production in conjunction with agricultural activities (the “Program”).  The Program will assist applicants to finance “green” energy conservation projects that are located on, or otherwise have a strong nexus to, agricultural land or agricultural activity.  Under the Program, the Authority will issue qualified energy conservation bonds (“QECBs”) under section 54D(e)(4) of the Internal Revenue Code of 1986, as amended (the “Code”), and use the proceeds to make agricultural loans under Chapter 122D of the North Carolina General Statutes (the “Act”) in order to finance qualified energy conservation projects (as defined in the Code and related Internal Revenue Service publications).  This program is intended to be a “green community program” under § 54D(f)(1)(A)(ii) of the Code, as interpreted in IRS Notice 2012-44 issued in June, 2012 (the “Notice”).

Green Community Program.  Under the Code and the Notice, the purpose of a “green community program” is to promote the purposes of energy conservation, energy efficiency, or environmental conservation initiatives relating to energy consumption, broadly construed.  A green community program must involve a loan (or other repayment mechanism) or grant program that is broadly available to members of the general public, including individuals or businesses. A green community program need not affect the entire geographical area or all the residents and businesses within the jurisdiction of the entity that implements the program, so long as the program broadly benefits the general public, residents or businesses in the affected area of the State. 

The Authority is creating this green community program in order to provide financing throughout the State for persons and entities who are installing and operating qualified conservation projects on agricultural land.  Any person or entity who meets the criteria set forth in this Program description and the application is eligible to participate.  The requirements that a Project must meet in order to qualify for consideration in the Program are set forth below.

Qualified Conservation Purposes.  In order to be considered for approval, a Project must meet the requirements of a “green community program,” and promote the purposes of energy conservation, energy efficiency, or environmental conservation initiatives relating to energy consumption, broadly construed. The Authority will consider applications for loans to finance such projects that include distributed generation initiatives or rural development involving the production of electricity from renewable energy and other qualified conservation purposes. 

The types of projects that the Authority will consider financing include the following:

  • Rural development involving the production of electricity from renewable energy sources (as further defined in Section 45(d) of the Code), including:

  • Wind energy facilities

  • Closed loop biomass facilities

  • Open-loop biomass facilities

  • Geothermal facilities

  • Solar energy facilities

  • Small irrigation power facilities

  • Distributed Generation Initiatives (involving the generation of electricity from multiple renewable energy sources)

  • Research facilities to support research in the following areas:

  • Development of cellulosic ethanol or other non-fossil fuels

  • Technologies for the capture and sequestration of carbon dioxide produced through the use of fossil fuels

  • Increasing the efficiencies of existing technologies for producing non-fossil fuels

  • Automobile battery technologies and other technologies to reduce fossil fuel consumption in transpiration

  • Demonstration projects located on agricultural land and designed to promote the commercialization of:

  •  Green building technology

  • Conversion of agricultural waste for use in the production of fuel or otherwise

  • Advanced battery manufacturing technologies

  • Technologies to reduce peak use of electricity, or

  • Technologies for the capture and sequestration of carbon dioxide emitted from combusting fossil fuels in order to produce electricity

Agricultural Nexus.  Once an applicant has determined that its project promotes a “qualified conservation purpose,” in order to be included in the Program the applicant must also demonstrate that the Project has a significant nexus to agriculture, defined for this purpose as “the commercial production, storage, processing, marketing, distribution or export of any agronomic, floricultural, horticultural, viticultural, silvicultural or aquacultural crop including, but not limited to, farm products, livestock and livestock products, poultry and poultry products, milk and dairy products, fruit and other horticultural products, and seafood and aquacultural products.”  NCGS §122D-3(2).  Such a nexus could be demonstrated by locating the Project on land that is leased from an owner who is also using the land for agricultural purposes, or the pursuit of some form of agriculture on the same land, or use of agricultural products or by-products as part of green energy production.

Description of the Program.  The Authority intends to make the Program available across the State to any person or entity who meets the qualifications for a loan from the Program.  The Authority does not intend to lend its own funds to Participants; rather, the Authority intends to apply to the North Carolina Federal Tax Reform Allocation Committee (“TRAC”) for an allocation of qualified energy conservation bond authority that the Authority will then use to allow loans to qualified applicants to be qualified as QECBs under the Code.  The participant is responsible for locating a lender who is willing to underwrite a loan to the participant for the project, or to place the loan in the financial marketplace.  Note that any placement of the debt is limited to banks, insurance companies, or  “qualified institutional buyers” within the meaning of Rule 144A of the Securities Exchange Act of 1934, as amended.  The QECBs shall not be deemed to constitute a debt or a pledge of the faith and credit of the State of North Carolina or any political subdivision or agency thereof, including the Authority, but shall be payable solely from the revenues and other funds provided under the proposed agreements with the applicant.

If an applicant is approved to participate in the Program, the Authority will sub-allocate a portion of the allocation of QECB authority to that participant, and the loan obtained by the participant will be eligible to be treated as a qualified tax credit bond under Section 54D of the Code.  At the participant’s election, the Authority will designate the QECB relating to that participant’s project as a direct payment bond under Section 6431 of the Code, which will entitle the participant to a payment from the United States Treasury of an amount equal to the lesser of the interest rate actually paid with respect to the loan, and 70% of the lesser of the interest actually paid and the interest that would have been paid if the interest were calculated at the rate shown on the qualified tax credit web page (https://www.treasurydirect.gov/GA-SL/SLGS/selectQTCDate.html) on the date the bonds are sold (or the date on which the bank and the participant sign a binding agreement if a private placement).

Green Community Program.   Because the Program is a green community program under Section 54D of the Code, defined as a program to make loans, grants or other repayment mechanisms to public and private entities to finance qualified conservation purposes, bonds or debt obligations issued or entered into as part of a green community program are not treated as private activity bonds for purposes of §54D(e)(3) (which otherwise limits the amount of allocation for privately owned projects to 30% of total allocation).

Application process.  An applicant for a loan through the Program must complete the attached application.  Particular attention should be given to providing information as to how the Project qualifies as a “qualified conservation purpose” under Section 54D of the Code and IRS Notice 2009-29, and the nexus between the Project and agriculture.

Upon receipt and satisfactory review of the application, the staff of the Authority will give tentative approval to the Project, as evidenced by an approval letter that will include authorization for the participant to reimburse itself for Project expenditures from the proceeds of the QECB, as required by the Code.  The Authority’s acceptance of a Project for inclusion in the Program is not an endorsement of either the feasibility of the Project or the validity of its financial operations.  The Authority will then allocate a portion of the QECB allocation it has already received for the Program to the Project, or, if it does not have any available QECB allocation, include the Project in the amount requested for the Program in its next request for allocation to TRAC.  The Authority will cooperate with the Borrower and the participant in the closing of the loan.  The participant will have 120 days following receipt of allocation to close the loan, unless a shorter or longer period is required or allowed by TRAC.

By submitting an application, the applicant agrees (a) to provide to the Authority all information which it reasonably needs in connection with the issuance and sale of the QECBs including, without limitation, descriptions of and information regarding the Project or any part thereof, and any other information regarding the activities of the applicants as may be reasonably requested by the Authority or TRAC, including any certificates, representations or other evidence required thereby, and (b) to indemnify, defend and hold the Authority harmless against any loss or damage to property or injury or death of any person or persons occurring in connection with the financing,  constructing, equipping or operation of the Project, including attorneys’ fees.   

Fees.  The Authority will charge each participant a fee equal to 1% of the aggregate amount of the loan closed for that participant under the Program. Such fee will be due prior to or at the closing of the loan, and may be paid from loan proceeds to the extent permitted by the Code.  The participant will be required to pay all of the Authority’s fees and out-of-pocket expenses relating to the Bonds and the Project, including in particular the reasonable fees and expenses of the Authority’s counsel and bond counsel, and the fees charged by any underwriter, placement agent or lender in connection with the QECB or the project.

 

 

 



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