Renewable Energy Incentives
Investment in and use of renewable energy is both encouraged and required by a range of Federal, State, and local government legislation and utility incentives. The following is a brief description of the major types currently in place:
Federal Renewable Energy Production Tax Credit (PTC) — The PTC is an inflation-adjusted tax credit for electricity produced from qualifying renewable energy sources or technologies. The PTC was initiated with the Energy Policy Act of 1992, and subsequently renewed and amended several times, most recently in the American Recovery and Reinvestment Act of 2009 (ARRA). Under current law (as of June 2011), most types of eligible projects have to be in service by December 31, 2013; and wind power projects by December 31, 2012. Eligible projects can take an inflation-adjusted tax credit for electricity generated over 10 years, with some exceptions. At various times, several forms of renewable energy have become eligible for this credit. They include closed and open-loop biomass, geothermal, landfill gas, irrigation-produced power, municipal solid waste, wind facilities, and marine and hydrokinetic energy.
Federal Renewable Energy Investment Tax Credit (ITC) — The Energy Investment Tax Credit is the alternative to the production tax credit discussed above. An investment tax credit can be taken for the equipment (property) eligible to receive the PTC, and for facilities that produce electricity from solar and geothermal energy, qualified fuel cell power plants, stationary microturbine power plants, geothermal heat pumps, small wind plants, and combined heat and power plants. Investors can either take the ITC, which generally provides for a 30% tax credit, or the PTC described above.
Federal Renewable Energy Investment Grant — The ARRA established a grant program for investors that cannot use the PTC or ITC. Although a variety of renewables are eligible for this provision, in 2010, most of the dollars expended were directed to wind and solar power.
Renewable Portfolio Standards (RPS) and State Mandates or Goals — A RPS is typically a requirement that a percentage of electric power sales come from renewable energy. Some States have specific mandates for power generation from renewable energy while others have voluntary goals. In 2010, about 37 States, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin and Mariana Islands had an RPS, mandate, or goal. Compliance with RPS policies can sometime require or allow for the trading of renewable energy credits (RECs) (see RECs below).
Renewable Energy Certificates (RECs) — RECs, also known as renewable energy credits, green certificates, green tags, or tradable renewable certificates, are financial products that are sold, purchased, and traded. These financial products allow the purchaser to pay for renewable generation without the need for physical or contractual delivery of the generation.
State Financial Incentives — About 32 States subsidize the installation of renewable energy equipment through a variety of measures, including grants, rebates, and tax credits. For example, in California, a State "buy-down" program (a grant for the purchase of small renewable energy systems) for photovoltaic (PV) equipment helped to increase the number and size of PV systems installed on houses and commercial buildings.
Net Metering Programs — Net metering allows electric utility customers to install grid-connected renewable energy systems on their property to offset their electrical load and/or sell-back electricity to their utility. Customers are billed for the "net" amount of electricity that they consume; that is, their total consumption minus the amount that they generated with their on-site renewable system. Forty-three States along with the District of Columbia now have State-wide net metering programs in place, and individual utilities in three other States offer net metering.
Feed in Tariffs (FITs) — Several States and individual electric utilities in the United States have established special rates for purchasing or buying electricity from certain types of renewable energy systems. These rates, sometimes known as "Feed in Tariffs" (FITs), are generally higher than retail electricity prices to encourage new projects of specific types of renewable technologies.
Green Power Programs — U.S. consumers in many States can purchase "green power," which represents electricity generated from specific types of renewable energy resources. In 2009 there were about 722 electric utilities in 48 States offering green power to their customers. Most of these programs sell power produced by wind and landfill gas, and generally involve the physical or contractual delivery of the generation resource to the customer or utility (as opposed to "green tags" or "green certificates," discussed above in the section on RECs).
A Biodiesel and Standard Gasoline Pump
Ethanol and Other Renewable Motor Fuels — There are also a variety of Federal and State requirements and incentives for the production, sale, and use of ethanol, biodiesel, and other fuels made from biomass. The Federal Energy Independence and Security Act of 2007 requires that 36 billion gallons of biofuels be used in the U.S. per year by 2022. Several states have their own renewable fuel standards or requirements. There are a variety of other Federal programs that provide financial support and incentives for ethanol and other biofuels producers, and many states have their own programs that support or promote the use of biofuels. The most important of these programs is the Volumetric Ethanol Excise Tax Credit (VEETC) which provides blenders with a $0.45 per gallon credit for each gallon of ethanol that is mixed with gasoline for use as a motor fuel.
Biofuels Tariff — The U.S. imposes a $0.54 per gallon tariff on imports of biofuels, largely offsetting the $0.45 per gallon income tax credit available to all ethanol blenders described above. While potential ethanol imports from most countries, such as Brazil, are impacted by this provision, due to special trade arrangements, eligible nations in the Caribbean are exempt from this levy.
Renewables Research and Development (R&D) — The U.S. Department of Energy (DOE), and other Federal government agencies, fund research and development of renewable energy technologies. The renewables R&D share of total DOE R&D spending rose from 24% in 2007 to 31% in 2010. Most of the R&D is carried out at the National Labs and in cooperation with academic institutions and private companies.
Energy Loan Programs — EPACT 2005 authorized the U.S Department of Energy (DOE) to provide loan support to "innovative clean energy technologies" that: "avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases." These technologies include: biomass, hydrogen, solar, wind, and hydropower. The ARRA amended EPACT by authorizing loan guarantees to biofuels projects, as well as by not requiring eligible renewable technologies to be "innovative." Funding under the program includes investment in two of the world's largest solar power plants and one of the world's largest wind power facilities.
Clean Renewable Energy Bonds (CREBs) — Established under of EPACT 2005, allows purchasers to obtain a tax credit that provides an after-tax return equal to that of a comparable taxable investment. As of November 2010, applications for CREBs were no longer being accepted.
