Financial Incentives for Investment in Residential Renewable Energy Systems
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Introduction
There are a variety of financial incentives available for individuals who invest in, or purchase, renewable energy systems for their homes. The information given here is only a general guide. You should consult state and federal tax codes, and/or a certified public accountant or tax attorney, to determine exact eligibility and provisions for the financial incentives described below.
Incentives for Equipment Purchases
There are many states offering one or more financial incentives for purchasing solar, wind, and geothermal energy equipment for residential applications. These incentives include income tax credits, property tax exemptions, state sales tax exemptions, loan programs, special grant programs.
The North Carolina Solar Center and the Interstate Renewable Energy Council developed and administer the Database of State Incentives for Renewable Energy (DSIRE), which shows all incentives by state and type, and includes sources of the applicable state statutes and forms when available.
You may contact your state income tax office and/or state energy office to determine availability, provisions, and eligibility requirements.
A few electric utilities in the United States offer financial incentives for the use of renewable energy technologies. These incentives include equipment leasing programs, rebates, and low- to no-interest loans, and grant programs. You should contact your local utility for specific information on any programs they offer.
As of December 2003, there are no federal income tax incentives for homeowners for purchasing renewable energy equipment.
Incentives for Producing Your Own Power
At this time there are no federal incentives for installing renewable energy power system on residences that are not connected to an electric power utility's transmission and distribution system or "grid." Most states also do not provide incentives for remote homes. There are some indirect incentives for installing a "grid" connected system.
Under the Public Utilities Regulatory Policy Act (PURPA) of 1978, utilities are required to purchase electricity produced by a Qualifying Facility (QF). A QF includes power producers who use renewable sources of energy such as biomass, geothermal, hydroelectricity, solar, and wind, or are cogenerators who produce both heat and electricity using any type of fuel. PURPA requires utilities to purchase electricity from these power producers at a rate approved by a state utility regulatory agency [commonly called a Public Utility Commission (PUC) or Public Service Commission (PSC)], under federal guidelines. PURPA also requires utilities to sell electricity to these producers. Some states have developed their own programs for QFs and utilities.
The rates that utilities pay for renewable-source electricity and the method of accounting for it (metering) are largely state or utility-specific, as are the requirements for connecting to the utility's transmission and distribution system. In most cases, the price paid by the utility for the power generated and the interconnection requirements will greatly reduce the possibility of the self-generator from profiting from such an arrangement. For information on the utility interconnection requirement, contact your local utility.
The Federal Energy Regulatory Commission (FERC) is the U.S. government agency that has authority over interpretation and implementation of PURPA. To obtain QF status, the system owner, operator, or their legal designees or representatives of a QF should file either a notice of self-certification, or an Application for Commission Certification of Qualifying Status with FERC. The choice of whether to certify the facility through a notice of self-certification (for which there is no fee) or to apply for Commission certification (for which a fee of over $12,000 is charged) is up to the applicant. Contact info for FERC is provided below.
There are city, county, state, and other federal government regulations that apply to the construction and operation of a renewable energy system. Obtaining FERC QF status does not allow the small power producer to avoid meeting the conditions of these laws and regulations.
For those small power producers who obtain QF status, there is a federal Renewable Electricity Production Credit (REPC), for selling surplus electricity generated with a wind turbine to an unrelated party (i.e., a utility).
When originally established, the credit was available to wind electric power generators brought on-line on or before June 30, 1999. In November 1999, the REPC was extended for 30 months, and made effective retroactively to June 30, 1999. On March 9, 2002, President Bush signed a law that extended the credit retroactively from the end of 2001 to December 31, 2003.
The credit is adjusted annually for inflation. The adjusted rate for 2002 is now 1.8? per kilowatt-hour (kWh) sold. This adjustment is for a 10-year period after a facility is placed into service. The credit is proportionally phased out over a 3?/kWh range if the national average electricity price from these sources exceeds a threshold price of 8?/kWh.
For example, if an individual/homeowner establishes a small business for the purpose of selling wind generated electricity, and installs a wind generator and sells 10,000 kWh of surplus electricity to a local utility over a year, the power producer can apply for a tax credit of $170.00. This incentive bolsters the economic feasibility of wind energy system owners that take advantage of PURPA (see above).
For information on and to claim the REPC, see IRS Form 8835: Renewable Electricity Production Credit. Form 3800: General Business Credit may also need to be filed. See referral to the IRS below.
The Tennessee Valley Authority (TVA) and participating power distributors have created a production incentive program to reward TVA customers (in Alabama, Georgia, Kentucky, Mississippi, and Tennessee) for generating electricity using renewable energy resources. Under the Green Power Switch (CPS) Generation Partners Program, TVA and participating distributors will pay $0.15 per kWh for all electricity generated by solar and wind energy systems, with a maximum system size of 50 kW. The program, available to residential and small commercial customers, is intended to create green power for TVA's GPS program. In addition, residential system owners may also qualify for an additional $500 award to help offset start-up costs. For details, contact the Tennessee Valley Authority.
An alternative to selling power to a utility is to establish a so-called "net" metering or billing arrangement with the electric utility.
Electric utilities in many states are required to offer so-called "net" metering and billing programs. These programs allow owners of qualifying renewable energy power systems to connect their systems to an electric utility. Qualifying systems are defined in the specific statute that authorizes net metering in each state. There is no uniform definition of a qualifying system for all states. However, in all programs the basic idea is to allow electric utility customers to offset their electricity consumption with a qualifying generator. The utility's customer is only billed for the net amount of electricity that the customer consumes over a billing cycle (typically one month, but some utilities have a longer billing option). Thus the system owner effectively obtains the same value for the output from the renewable energy system as he/she pays for electricity from the utility, up to the point where excess power is produced. Any excess power produced may be bought by the utility at a rate determined by the state utility regulatory agency. In some states, the utility is not required to purchase excess generation in net metering situations. Each utility may have its own requirements for the physical interconnection of the system with their grid.
As of December 2003, there were 32 states with state net metering statutes: Arkansas, California, Connecticut, Delaware, Georgia, Hawaii, Indiana, Iowa, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, Utah, Vermont, Virginia, Washington, Wisconsin, and Wyoming. Individual utilities in Arizona, Colorado, Florida, Idaho, Illinois, and Kentucky offer net metering. Net metering is under consideration in several other states and the District of Columbia. Each state has restrictions on the types of technologies or fuels, the type of customer, and the capacity of the generating source that net metering applies to. The U.S. Congress is also considering a national net metering provision.
