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Renewable energy explained Incentives

Renewable energy requirements and incentives

Federal, state, and local governments and electric utilities encourage investing in and using renewable energy and, in some cases, require it. This is an overview of the major programs and incentives available for renewable energy production and use in the United States. The Database of State Incentives for Renewables & Efficiency® (DSIRE) is a comprehensive source of detailed information on government and utility requirements and incentives for renewable energy.

Wind Farm at The Cerro Gordo Project, West of Mason City, Iowa

A wind farm in Iowa

Source: National Renewable Energy Laboratory (public domain)

Image of a solar photovoltaic system on the roof of a house.

Photovoltaic panels on a house

Source: National Renewable Energy Laboratory (copyrighted)

Government financial incentives

Several federal government tax credits, grants, and loan programs are available for qualifying renewable energy technologies and projects. The federal tax incentives, or credits, for qualifying renewable energy projects and equipment include the Renewable Electricity Production Tax Credit (PTC), the Investment Tax Credit (ITC), the Residential Energy Credit, and the Modified Accelerated Cost-Recovery System (MACRS). Grant and loan programs may be available from several government agencies, including the U.S. Department of Agriculture, the U.S. Department of Energy (DOE), and the U.S. Department of the Interior. Most states also provide financial incentives to encourage renewable energy production and use.

Renewable portfolio standards or goals

A renewable portfolio standard (RPS) typically requires that a percentage of the electric power sales in a state comes from renewable energy sources. Some states have specific requirements, and some have voluntary goals, within a specified time frame, for the share of electricity generation or sales in a state that come from renewable energy. Compliance with RPS policies may require or allow utilities to trade renewable energy certificates.

Renewable energy certificates or credits

Financial products are available for sale, purchase, or trade that allow a purchaser to pay for renewable energy production without directly producing or purchasing the renewable energy. The most widely available products are renewable energy certificates, or credits (RECs). These products may also be called green tags, green energy certificates, or tradable renewable certificates, depending on the entity that markets them. Electric utilities can use RECS to comply with state renewable energy portfolio standards. Many companies use RECS or similar products to meet their voluntary targets or goals to reduce greenhouse gas emissions in their operations.

Net metering

Net metering allows electric utility customers to install qualifying renewable energy systems on their properties and to connect them to an electric utility's distribution system (or grid). These mainly state-based programs vary, but in general, electric utilities bill their net metering customers for the net electricity their customers use during a defined period. Net electricity is the customer's total electricity consumption minus the electricity that their renewable energy system generates and delivers to the grid. According to the DSIRE website (as of 12/27/2022), 44 states and the District of Columbia have some form of state net metering policy. Two states (Idaho and Texas) do not have statewide rules, but several utilities in those states allow net metering. Most net metered systems are solar photovoltaic (PV) systems.

Feed-in tariffs (FITs)

Several states and individual electric utilities have established special rates for purchasing electricity from certain types of renewable energy systems. These rates, sometimes known as feed-in tariffs (FITs), are generally higher than electricity rates otherwise available to the generator. FITs are intended to encourage new projects for specific types of renewable energy technologies.

Consumer options for purchasing electricity generated with renewable energy sources

Nearly every electricity consumer in the United States, by default, uses some electricity generated with renewable sources because of the interconnected nature of the U.S. electricity system. For consumers who want to purchase electricity solely produced with renewable energy, many states have the option to choose electricity providers, and some of the participating electricity providers may sell electricity specifically generated with renewable energy. Availability of these programs depends on state regulations for retail electric power markets. Consumers can also voluntarily purchase green power, even if retail electricity choice is not available. Most of these voluntary programs generally involve contractual accounting for renewable electricity generation rather the physical or contractual delivery of the electricity to the customer or utility.

Biofuels and other fuels for vehicles

Several federal and state requirements and incentives are in effect for producing, selling, and using biofuels and other alternative vehicle fuels. Federal law requires the use of biofuels, or qualifying substitutes, in the U.S. transportation fuel supply. The U.S. Environmental Protection Agency sets annual volume requirements for these fuels. Other federal programs provide financial support for biofuels producers. Many states have their own programs that support or promote biofuels. The DOE's Alternative Fuel Data Center is a source of information on these types of programs.

A standard gas and biodiesel pump.

A biodiesel fuel pump

Source: Stock photography (copyrighted)

Renewables research and development

The U.S. Department of Energy (DOE) and other federal government agencies fund research and development for renewable energy technologies. The DOE's national laboroatories carry out or manage most of this research and development in colaboration with academic institutions and private companies. The availability of these programs depends on annual appropriations from the U.S. Congress.

Last updated: December 30, 2022