DSIRE organizes incentives and policies that promote renewable energy and energy efficiency into two general categories — (1) Financial Incentives and (2) Rules, Regulations & Policies — and roughly 30 specific types of incentives and policies. This glossary provides a description of each specific incentive and policy type.
Corporate Tax Incentives
Corporate tax incentives include tax credits, deductions and exemptions. These incentives are available in some states to corporations that purchase and install eligible renewable energy or energy efficiency equipment, or to construct green buildings. In a few cases, the incentive is based on the amount of energy produced by an eligible facility. Some states allow the tax credit only if a corporation has invested a minimum amount in an eligible project. Typically, there is a maximum limit on the dollar amount of the credit or deduction. In recent years, the federal government has offered corporate tax incentives for renewables and energy efficiency. (Note that corporate tax incentives designed to support manufacturing and the development of renewable energy systems or equipment, or energy efficiency equipment, are categorized as “Industry Recruitment/Support” in DSIRE.)
Feed in Tariff
A Feed in Tariff (FIT) provides a fixed price for the purchase of electricity generated (per kWh) from a qualifying renewable resource for a given period of time. All of the electricity generated is sold to the utility at the fixed price, which is usually set above the retail price of electricity. A FIT guarantees a fixed premium rate for a given period of time, which provides a reliable revenue stream for developers to finance investments in renewable energy.
States offer a variety of grant programs to encourage the use and development of renewables and energy efficiency. Most programs offer support for a broad range of technologies, while a few programs focus on promoting a single technology, such as photovoltaic (PV) systems. Grants are available primarily to the commercial, industrial, utility, education and/or government sectors. Most grant programs are designed to pay down the cost of eligible systems or equipment. Others focus on research and development, or support project commercialization. In recent years, the federal government has offered grants for renewables and energy efficiency projects for end-users. Grants are usually competitive.
Green Building Incentives
Green buildings are designed and constructed using practices and materials that minimize the impacts of the building on the environment and human health. Many cities and counties offer financial incentives to promote green building. The most common form of incentive is a reduction or waiver of a building permit fee. Several organizations issue certification for green buildings, including the U.S. Green Building Council (LEED certification), the Green Building Initiative (Green Globes certification), and the NAHB Research Center (National Green Building Certification). (Note that this category includes green building incentives that do not fall under other DSIRE incentive categories, such as tax incentives and grant programs.)
To promote economic development and the creation of jobs, some states offer financial incentives to recruit or cultivate the manufacturing and development of renewable energy systems and equipment. These incentives commonly take the form of tax credits, tax exemptions and grants. In some cases, the amount of the incentive depends on the quantity of eligible equipment that a company manufactures. Most of these incentives apply to several renewable energy technologies, but a few states target specific technologies, such as wind or solar. These incentives are usually designed as temporary measures to support industries in their early years. They commonly include a sunset provision to encourage the industries to become self-sufficient.
Loan programs provide financing for the purchase of renewable energy or energy efficiency systems or equipment. Low-interest or zero-interest loans for energy efficiency projects are a common demand-side management (DSM) practice for electric utilities. State governments also offer low-interest loans for a broad range of renewable energy and energy efficiency measures. These programs are commonly available to the residential, commercial, industrial, transportation, public and/or non-profit sectors. Loan rates and terms vary by program; in some cases, they are determined on an individual project basis. Loan terms are generally 10 years or less. In recent years, the federal government has offered loans and/or loan guarantees for renewables and energy efficiency projects.
Property-Assessed Clean Energy (PACE) financing effectively allows property owners to borrow money to pay for renewable energy and/or energy-efficiency improvements. The amount borrowed is typically repaid over a period of years via a special assessment on the owner’s property. In general, local governments (such as cities and counties) that choose to offer PACE financing must be authorized to do so by state law.
Performance-based incentives (PBIs), also known as production incentives, provide cash payments based on the number of kilowatt-hours (kWh) or BTUs generated by a renewable energy system. A “feed-in tariff” is an example of a PBI. To ensure project quality, payments based on a system’s actual performance are generally more effective than payments based on a system’s rated capacity. (Note that tax incentives based on the amount of energy produced by an eligible facility are categorized as “Corporate Tax Incentives” or “Personal Tax Incentives” in DSIRE.)
Personal Tax Incentives
Personal tax incentives include income tax credits and deductions. Many states offer these incentives to reduce the expense of purchasing and installing renewable energy or energy efficiency systems and equipment. The percentage of the credit or deduction varies by state, and in most cases, there is a maximum limit on the dollar amount of the credit or deduction. An allowable credit may include carryover provisions, or it may be structured so that the credit is spread out over a certain number of years. Eligible technologies vary widely by state. In recent years, the federal government has offered personal tax credits for renewables and energy efficiency.
Property Tax Incentives
Property tax incentives include exemptions, exclusions, abatements and credits. Most property tax incentives provide that the added value of a renewable energy system is excluded from the valuation of the property for taxation purposes. For example, if a new heating system that uses renewable energy costs more than a conventional heating system, the additional cost of the renewable energy system is not included in the property assessment. In a few cases, property tax incentives apply to the additional cost of a green building. Because property taxes are collected locally, some states have granted local taxing authorities the option of allowing a property tax incentive for renewables.
States, utilities and a few local governments offer rebates to promote the installation of renewable energy and energy efficiency projects. Rebate programs provide cash incentives for equipment installations that meet the specifications of the program.
Renewable Energy Credits (RECs)
Renewable Energy Credits (RECs) represent the environmental attributes of electricity generated through a qualifying renewable energy resource. One REC is issued for every 1 megawatt-hour (MWh) of electricity produced by the qualifying source. Since renewable electricity fed into the electric grid is distributed according to physical laws rather than contractual agreements, RECs help account for who can claim the use of renewable electricity. A State Renewable Portfolio Standard (RPS) typically requires the utilities to procure a certain amount of RECs to demonstrate compliance with their renewable energy requirement. RECs can be bought and sold as commodities in the market, and are issued and tracked by various Generation Information Systems (GIS) that operate within the US electric grid.
Sales Tax Incentives
Sales tax incentives typically provide an exemption from, or refund of, the state sales tax (or sales and use tax) for the purchase of a renewable energy system or energy-efficiency measures. Some states have established an annual “sales tax holiday” for energy efficiency measures by annually allowing a temporary exemption — usually for one or two days — from the state sales tax.
Solar Renewable Energy Credits (SRECs)
Solar Renewable Energy Credits (SRECs) represent the environmental attributes of electricity generated through solar energy. One SREC is issued for every 1 megawatt-hour (MWh) of electricity produced by a qualifying solar generator. Renewable Portfolio Standards (RPS) in certain States include a special solar “carve-out” provision, which mandate utilities to achieve a certain amount of electric generation through solar energy. Utilities usually meet this requirement by procuring the required amount of SRECs. SRECs can be bought and sold as commodities in the market, and are issued and tracked by various Generation Information Systems (GIS) that operate within the US electric grid.
RULES, REGULATIONS & POLICIES
Appliance/Equipment Efficiency Standards
Many states have established minimum efficiency standards for certain appliances and equipment. In these states, the retail sale of appliances and equipment that do not meet the established standards is prohibited. The federal government has also established efficiency standards for certain appliances and equipment. When both the federal government and a state have adopted efficiency standards for the same type of appliance or equipment, the federal standard overrides the state standard (even if the state standard is stricter).
Building Energy Codes
Building energy codes adopted by states (and some local governments) require commercial and/or residential construction to adhere to certain energy standards. While some government entities have developed their own building energy codes, many use existing codes (sometimes with state-specific amendments), such as the International Energy Conservation Code (IECC), developed and published by the International Code Council (ICC); or ASHRAE 90.1, developed by the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE). A few local building energy codes require certain commercial facilities to meet green building standards.
Energy Efficiency Resource Standards (EERS)
Energy efficiency resource standards (EERS) are state policies that require utilities to meet specific targets for energy savings according to a set schedule. EERS policies establish separate reduction targets for electricity sales, peak electric demand and/or natural gas consumption. In most cases, utilities must achieve energy savings by developing demand-side management (DSM) programs, which typically provide financial incentives to customers to install energy-efficient equipment. An EERS policy is sometimes coupled with a state’s renewables portfolio standard (RPS). In these cases, energy efficiency is typically included as a lower-tier resource. EERS policies are also know as Energy Efficiency Portfolio Standards (EEPS).
Energy Standards for Public Buildings
Many states and local governments, as well as the federal government, have chosen to lead by example by requiring new government buildings to meet strict energy standards. DSIRE includes policies that have established green building standards, energy-reduction goals, equipment-procurement requirements, and/or the use of on-site renewable energy. Many of these policies require that new government buildings (and renovated buildings, in some cases) attain a certain level of certification under the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) program. Equipment-procurement policies often mandate the use of the most efficient equipment, including equipment that meets federal Energy Star criteria. Policies designed to encourage the use of on-site renewables generally establish conditional requirements tied to life-cycle cost analysis.
Equipment Certification Requirements
Policies requiring renewable energy equipment to meet certain standards serve to protect consumers from buying inferior equipment. These requirements not only benefit consumers; they also protect the renewable energy industry by keeping substandard systems out of the market.
Some states require electric utilities to provide their customers with specific information about the electricity that the utility supplies. This information, which generally must be shared with customers periodically, usually includes the utility’s fuel mix percentages and emissions statistics. In states with restructured electricity markets, generation disclosure policies are designed to help consumers make informed decisions about the electricity and suppliers they choose.
Green Power Purchasing Policies
Government entities, businesses, residents, schools, non-profits and others can play a significant role in supporting renewable energy by buying electricity from renewable resources, or by buying renewable energy credits (RECs). Many state and local governments, as well as the federal government, have committed to buying green power to account for a certain percentage of their electricity consumption. Green power purchases are typically executed through contracts with green power marketers or project developers, through utility green power programs, or through community aggregation.
Interconnection standards specify the technical and procedural process by which a customer connects an electricity-generating to the grid. Such standards include the technical and contractual terms that system owners and utilities must abide by. State public utilities commissions typically establish standards for interconnection to the distribution grid, while the Federal Energy Regulatory Commission (FERC) has adopted standards for interconnection to the transmission level. While many states have adopted interconnection standards, some states’ standards apply only to investor-owned utilities (and not to municipal utilities or electric cooperatives).
Line Extension Analysis
When a prospective customer requests electric service for a home or facility that is not currently served by the electric grid, the customer usually must pay a distance-based fee for the cost of extending power lines to the home or facility. In some cases, it is cheaper to use an on-site renewable energy system to meet a prospective customer’s electricity needs. A few states require utilities to provide information regarding renewable energy options when a line extension is requested.
Mandatory Utility Green Power Option
Several states require electric utilities to offer their customers the option to buy electricity generated from renewable resources, commonly known as “green power.” Typically, a utility either offers green power generated using renewable resources that the utility owns (or for which it contracts), or it buys renewable energy credits (RECs) from a provider certified by a state public utilities commission.
For electric customers who generate their own electricity, net metering allows for the flow of electricity both to and from the customer – typically through a single, bi-directional meter. When a customer’s generation exceeds the customer’s use, electricity from the customer flows back to the grid, offsetting electricity consumed by the customer at a different time during the same billing cycle. In effect, the customer uses excess generation to offset electricity that the customer otherwise would have to purchase at the utility’s full retail rate. Net metering is required by law in most U.S. states, but state policies vary widely.
Public Benefit Funds
Most public benefit funds (PBFs) were developed by states during the electric utility restructuring era, in the late 1990s, to ensure continued support for renewable energy, energy efficiency and low-income energy programs. These funds are commonly supported through a very small surcharge on electricity consumption (e.g., $0.002/kWh). This charge is sometimes referred to as a “system benefits charge” (SBC). PBFs commonly support rebate programs, loan programs, research and development, and energy education programs.
Renewable Portfolio Standards
Renewable portfolio standards (RPSs) require utilities to use or procure renewable energy or renewable energy credits (RECs) to account for a certain percentage of their retail electricity sales — or a certain amount of generating capacity — according to a specified schedule. (Renewable portfolio goals are similar to RPS policies, but goals are not legally binding.) Most U.S. states have established an RPS. The term “set-aside” or “carve-out” refers to a provision within an RPS that requires utilities to use a specific renewable resource (usually solar energy) to account for a certain percentage of their retail electricity sales (or a certain amount of generating capacity) according to a set schedule.
Solar & Wind Access Policies
Solar and wind access policies are designed to establish a right to install and operate a solar or wind energy system at a home or other facility. Some solar access laws also ensure a system’s access to sunlight. These laws may be implemented at both the state and local levels. In some states, access rights prohibit homeowners associations, neighborhood covenants and local ordinances from restricting a homeowner’s right to use solar energy. Easements, the most common form of solar access policy, allow for the rights to existing access to a renewable resource on the part of one property owner to be secured from an owner whose property could be developed in such a way as to restrict that resource. An easement is usually transferred with the property title. At the local level, communities use several policies to protect solar access, including solar access ordinances, development guidelines requiring proper street orientation, zoning ordinances that contain building height restrictions, and solar permits.
Solar & Wind Contractor Licensing
Some states have established a licensing process for solar-energy contractors and/or wind-energy contractors. These requirements are designed to ensure that contractors have the necessary knowledge and experience to install systems properly. Solar licenses typically take the form of either a separate, specialized solar contractor’s license, or a specialty classification under a general electrical or plumbing license.
Solar & Wind Permitting Standards
Permitting standards can facilitate the installation of wind and solar energy systems by clarifying the conditions and fees involved in project development. Some local governments have adopted simplified or expedited permitting standards for wind and/or solar. “Top-of-the-stack” permitting (or fast-track permitting) saves system owners and project developers time and money. Some states have capped fees that local governments may charge for a permit for a solar or wind energy system. In addition, some states have developed or supported model wind ordinances for use by local governments.
Value of Solar Tariff (VOST)
A Value of Solar Tariff (VOST) is a payment offered to solar electricity generators based on the comprehensive value of solar generation in the electric grid. The method used to calculate value of solar tariff typically includes a quantitative analysis of the various costs and benefits of a solar energy. These value components may include avoided fuel value, avoided generation capacity value, transmission and distribution costs, environmental costs, and others. Since the costs and benefits of solar energy differ significantly by location, grid structure, generation mix, and other factors, the VOST approach attempts to provide solar generators a price that reflects the costs and benefits of solar energy in that particular location.