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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. Many programs and incentives are currently available. The Database of State Incentives for Renewables & Efficiency® (DSIRE) is a comprehensive source of 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 or 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 have some financial incentives available to support or subsidize the installation of renewable energy equipment.

Renewable portfolio standards and state mandates or goals

A renewable portfolio standard (RPS) typically requires that a percentage of electric power sales in a state comes from renewable energy sources. Some states have specific mandates for power generation from renewable energy, and some states have voluntary goals. Compliance with RPS policies will sometimes require or allow trading of Renewable Energy Certificates.

Renewable Energy Certificates or Credits (RECs)

There are financial products available for sale, purchase, or trade that allow a purchaser to pay for renewable energy production without directly obtaining the energy from renewable energy sources. The most widely available products are often (but not always) called renewable energy certificates or credits (RECs), which may be used by electric utilities to comply with state renewable energy portfolio standards. Other products, such as green tags or green certificates, may be available to facilitate purchase of renewable energy production by consumers in areas where local utilities do not offer a green power option (see below).

Net metering

Net metering allows electric utility customers to install qualifying renewable energy systems on their properties and to connect the systems to an electric utility's distribution system (or grid). The programs vary, but in general, electric utilities bill their net metering customers for the net amount of electricity the customers use during a defined period. The net amount is the customer's total electricity consumption minus the amount of electricity that the customer's renewable energy system generates. In some states, utility customers can sell excess electricity that they generate with their systems to the utility. As of June 2020, 35 states and the District of Columbia have state-developed mandatory net metering for certain utilities, five states have statewide distributed generation compensation rules other than net metering, and five states are in transition to statewide distributed generation compensation rules other than net metering. Two states do not have statewide rules, but some utilities in those two states allow net metering. Most net metered systems are solar photovoltaic systems.

Feed-in tariffs (FITs)

Several states and individual electric utilities in the United States 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 of specific types of renewable energy technologies.

Green power purchasing

Consumers in nearly every state can purchase green power, which represents electricity generated from specific types of renewable energy resources. Most of these voluntary programs generally involve the physical or contractual delivery of the electricity generation resource to the customer or utility.

Ethanol and other renewable motor fuels

Several federal and state requirements and incentives are in effect 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 United States per year by 2022. Several states have their own renewable fuel standards or requirements. Other federal programs provide financial support and incentives for ethanol and other biofuels producers. Many states have their own programs that support or promote the use of 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

DOE and other federal government agencies fund research and development of renewable energy technologies. Most of the research and development is carried out at the National Labs and in cooperation with academic institutions and private companies. The availability of these programs depends on annual appropriations from the U.S. Congress.

Last updated: November 20, 2020