From 2005 to 2014, wind and solar power generation has seen an almost tenfold increase in the United States. Such rapid development is the result of a variety of federal and state, top-down and bottom-up drivers, as well as the macro-environment of cost-reduction globally and early adoption in Europe. Notable federal and state incentives include:
The Investment Tax Credit
The U.S. tax code currently provides a 30% Investment Tax Credit (ITC), eligible in the first year of operation either under Section 25 or Section 48 of the tax code for eligible technologies. Eligible technologies include: solar heating; solar electric; geothermal electric; combined heat and power; fuel cells; small wind; and energy efficiency. The Section 25 credit is for persons using the solar or energy efficiency property for residential purposes and, as currently written, will expire at the end of 2016. The Section 48 ITC can be used by businesses to offset income from a trade or business (e.g., all commercial and utility-scale installations and TPO residential, government, or non-profit installations) and, as currently enacted, will revert to 10% in 2017.
The Production Tax Credit
The federal renewable electricity production tax credit (PTC) is an inflation-adjusted per-kilowatt hour (kWh) tax credit for electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year. Originally enacted in 1992, the PTC has been renewed and expanded numerous times, most recently in December 2014. As currently written, eligible projects can receive the credit if they began construction by the end of 2014 and place the project in service by 2016.
The tax credit amount is $0.015 per kWh in 1993 dollars for some technologies and half of that amount for others. The amount is adjusted for inflation by multiplying the tax credit amount by the inflation adjustment factor for the calendar year in which the sale occurs, rounded to the nearest 0.1 cents. Currently the credit is $0.023/kWh for wind, geothermal, closed-loop biomass and $0.011/kWh for other eligible technologies (including hydroelectric, landfill gas, tidal, and wave). Generally projects can receive the credit for the first 10 years of operation.
Renewable Portfolio Standards
State-level Renewable Portfolio Standard (RPS) policies are a significant driver for utility-scale solar development, especially in areas with good solar resources. An RPS requires electric utilities or load serving entities (LSEs) to source a percentage of their electric load from renewable electricity generation. These targets are typically expressed as a percentage of total electricity consumption and range from approximately 2% in Iowa to 33% in California. As of March 2015, 44 states, D.C., and Puerto Rico have established mandatory RPS policies.
An increasing number of states have adopted distributed generation (DG), solar set-aside, or credit multiplier provisions in their RPS policies to provide differential support to promising technologies that are currently of higher cost. A solar set-aside stipulates that a portion of the annual renewable energy compliance requirements be fulfilled with solar electricity. Credit multipliers give favored technologies more credit towards meeting RPS requirements than other technologies. As of March 2015, solar provisions have been implemented in 21 states and Washington, D.C.
Although design details can vary considerably, RPS policies typically enforce compliance through penalties, and many include the trading of renewable energy certificates (RECs), up-front cash grants, performance-based cash grants, state and local tax credits, and feed-in tariffs. The strongest RPS policies incorporate noncompliance penalties, either in the form of fines or an alternative compliance payment (ACP). An ACP requires suppliers to pay a predetermined amount (per kilowatt-hour) if they fall short in meeting the RPS. Local jurisdictions without strong state solar mandates (e.g., Austin, Texas) have also developed solar initiatives.
RECs or Performance Based Incentives (PBI)
RECs are tradable, non-tangible energy commodities that represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource. RECS are classified in many different ways, depending on the vintage year the REC was generated, location of the facility, and the type of renewable power that created it. Solar renewable energy certificates (SRECs) are RECs that are specifically generated by solar energy. These certificates can be sold and traded or bartered, and the owner of the REC can claim to have purchased renewable energy. Utilities purchase RECs to satisfy state RPS requirements. The price of a REC will depend on the relative supply and demand of the specific vintage of REC, as well as any ACP law in place for noncompliance. Renewable facilities typically qualify for generating program compliant RECs for a given period of time (e.g., 20 years). PBI’s differ from RECs in that the value of the credit given to projects for renewable energy generation is set over a fixed period of time for which the project can receive the incentive.
The federal and state policies, as well as carbon markets and the future impact of Clean Power Plan (see more in NREL’s presentation: Zhou, Ella. 2015. U.S. Renewable Energy Policy and Industry. Golden, CO: NREL), are accounted for differently in different market models in the United States. The primary differences are between vertically integrated utilities and regional transmission organizations (RTOs). For a vertically integrated utility which has its own generation and is the sole buyer of non-utility power, a regulator approves generation plans and rates to cover new investment and incentivize energy efficiency. Under the RTO model, the RTO cannot own generation, and retail customers may select from among several competitive retail electric providers; the independent system operator holds responsibility for both reliability as well as wholesale markets for power and related services. See NREL’s CIFF report on grid development for more details on U.S. market models (Hurlbut et al. 2015. ‘Renewable Energy-Friendly’ Grid Development Strategies, Golden, CO: NREL.)
In addition to federal and state policies, the reduction of “soft” costs, especially through financing and business innovations, has played a crucial role in the promotion of renewable energy in the United States. “Soft” costs, referring to the non-hardware costs of photovoltaic (PV) systems in particular, including customer acquisition, permitting, inspection, interconnection, installation labor, financing, etc. are both a major challenge and a major opportunity for reducing PV system prices and stimulating PV deployment. Financing and business innovations have proliferated in the United States to take advantage of favorable policies and regional electricity prices. These include third-party ownership, shared solar, securitization, yieldco’s, and others. See NREL’s CIFF report on distributed generation for more details on financing and business innovations, as well as regional electricity pricing policies that contributed to the rise of distributed PV such as net-metering and value-of-solar tariff (Lowder et al. 2015. Historical and Current U.S. Strategies for Boosting Distributed Generation. Golden, CO: NREL).
As part of the workshop “RE development situation and outlook – focus on 2020, prospect of 2030“, Ms Ella Zhou from NREL, the National Laboratory of the U.S. Department of Energy, gave a presentation on the renewable energy policy and industry of the United States.
Download the presentation here: US RE policy and industry