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This section discusses financial incentives for renewable energy development, which are currently offered by the federal government, 36 states (not including New Mexico), some utilities, and several private or quasi-private entities. Incentives include loans, cash payments and tax relief. Often, the same incentive can aid both suppliers and consumers of renewable energy technologies-for example, tax incentives for installing a renewable energy project either for personal use, or for electricity to be sold to other end-users. In the following section, we include some incentive programs that could benefit clean energy development in Mesa del Sol, as well as approaches taken elsewhere that New Mexico might adapt. This section does not address non-financial measures that governments may take, such as net metering.
- Financial incentives for suppliers of renewable energy
Because financing for suppliers is usually justified by local economic benefits, these incentives tend to come from states, rather than the federal government. Most state financing programs exist in traditional regulated electricity markets. However, as states restructure their electric systems, many may levy a "system benefits charge (SBC)" or wires fee on each kilowatt-hour of electricity distributed. Among other purposes, these funds can be used for public interest programs at risk in a market-oriented system, including those for sustainable energy development.
Manufacturing: Eight states offer incentives for in-state renewable energy manufacturing. Incentives include grants, overseas marketing assistance, corporate tax exemptions, property tax exemptions, and tax credits for investors in manufacturing facilities. For example, Virginia's PV Manufacturer Grant Program offers $4.5 million annually until 2001 to companies locating and operating PV manufacturing plants in the state. The program pays firms based on their PV production, at a rate between 75 cents/watt (for in-state manufacture from raw materials to final product) and 20 cents/watt (for in-state assembly only). Firms may receive the benefits for up to five years. The incentive program attracted a $1.5 million facility owned by Atlantis Energie of Switzerland, and a $25 million Solarex (now BP Solarex) facility employing up to 100 workers.
The U.S. Small Business Administration's 7(a)(12) Energy and Conservation Loan program offers loans for small businesses engaged in the design, engineering, manufacturing, distribution, marketing, installing, or servicing of energy devices or techniques that conserve U.S. energy resources. Terms for working capital are 7 years; for equipment 10 years; and for buildings 25 years. The interest rate usually cannot exceed 2.75 percent over the prime lending rate, although loans under $50,000 may have higher rates. The SBA will guarantee up to 80 percent of a loan less than $100,000, and 75 percent of a loan more than $100,000. SBA's share of a loan cannot exceed $750,000 to any business.
Installation, Operation, and Research: Thirty-six states, the federal government, and private entities such as utilities offer financial incentives for renewable energy technology installation and/or operation. Incentives are targeted both at the supplier of the renewable energy technology, as well as the consumer. For suppliers, incentives include low-interest loans, revolving loan programs dedicated to renewable energy or energy efficiency, grants, assistance in research and demonstration projects, leasing and lease-purchase options; tax deductions, tax credits, property tax exemptions, and excise tax exemptions. For example:
- Minnesota pays 1.5 cents/kilowatt-hour for electricity created by new, small wind projects. Projects receive payments for up to 10 years, with an annual statewide capacity ceiling of 100 MW. Projects must commence operation by 2005 to qualify.
- The Federal government's 1.5-cent, inflation-adjusted Production Tax Credit (PTC) for electricity generated from wind or closed-loop biomass (i.e., biomass grown specifically for power generation) expired in June 1999. Both houses of Congress included provisions to revive the PTC in their draft tax packages. As of August 1999, President Clinton is expected to veto the Congressional tax bill, but the PTC will likely remain part of the final compromise tax package. The credit may also be expanded, for example to biomass from animal wastes such as chicken litter, and to electricity generated by blending biomass into the fuel stream of coal-fired powerplants.
- The federal Renewable Energy Production Incentive (REPI) pays 1.5 cents (adjusted for inflation) per renewable kWh generated by public or customer-owned entities, which do not pay income tax and therefore do not qualify for the PTC. Payments depend on the availability of funds, which frequently fall short of eligible projects. Solar, wind, geothermal and closed-loop biomass projects qualify, as, if funds remain, do landfill-gas projects.
- The New York State Energy Research and Development Agency (NYSERDA) offers, on average, $2 million annually for research and development projects in the commercial, industrial and residential sector for solar, alternative fuels, geothermal, wind, biomass, waste and other energy sources. The program funds 50% of project costs, in grants ranging from $10,000 to $200,000. The program has supported firms including Plug Power, a stationary fuel cell manufacturer.
- The Utility Photovoltaic Group (UPVG) and U.S. Department of Energy's Technology Experience to Accelerate Markets in Utility Photovoltaics program (TEAM-UP) provides grants to investor-owned, municipal and rural cooperative utilities, energy service companies, and utility subsidiaries and affiliates, to install PV applications, including central-station and distributed applications. TEAM-UP is partially funding the installation of 4 MW of PV in 1999, the result of three years of investments. Overall, the program provides $14.9 million of $72 million for the installation of 7.3 MW of PV.
- Financial incentives for end-users of renewable energy
Finance is a normal part of consumer markets for automobiles, furniture, home improvements, and other consumer purchases. As one experts notes in the case of solar power systems, "2% to 5% of PV purchasers buy for cash, while the other 95% to 98% require some form of third-party financing… Financing converts the high up-front cost of a solar system into monthly payments, making it affordable and comparable to the monthly payments for utility service." Incentive programs frequently use their funds to make the terms of finance more favorable, although rebates and direct payments also exist.
Commercial: The Business Energy Tax Credit, a part of the federal Energy Policy Act of 1992, offers commercial establishments a one-time, annual credit equal to 10 percent of the purchase, installation, or investment of qualifying solar energy systems. The federal government also offers 5-year accelerated depreciation for solar equipment in commercial establishments, as opposed to a normal 20-year depreciation schedule.
Government: The Federal Energy Management Program offers Energy Savings Performance Contracts (ESPCs) to federal facilities. ESPCs permit federal facilities to pay for energy-efficient technologies over 25 years, and eliminates any up-front cost for energy audits, equipment, and installation. ESCOs will fund up-front costs, making their profit from the subsequent energy savings. ESPCs can incorporate renewable energy technologies that are funded by energy savings.
The U.S. Department of Housing and Urban Development (HUD) runs a Community Development Block Grant Program for local non-profit and development corporations. The program distributes more than $4.5 billion annually in loans, grants and subsidies to local governments to fund the acquisition, construction, reconstruction and installation of power generating and distribution facilities. Energy efficiency and renewable energy programs are encouraged.
Residential: Fannie Mae, the nation's largest source of home mortgage funds, offers several products that homebuyers and builders can use to finance solar thermal systems (e.g., water heaters) and PV. One product, the "Remodeler," is a second mortgage option with a $50,000 limit that allows homeowners to make energy improvements without changing the financial structure of their mortgage. Another program, the Consumer Energy Loan, allows utilities to offer consumers low-interest loans for energy efficiency, including solar thermal. Fannie Mae has issued 40,000 loans though this program, for amounts ranging from $1,000 to $20,000.
From 1993 to 1999, the Sacramento Municipal Utility District's (SMUD) PV Pioneers I program encouraged homeowners to install rooftop PV. SMUD covered the cost of purchasing, installing and operating the systems over a ten-year period, and sold the electricity generated by the systems to the homeowner at regular SMUD rates. Homeowners also paid a $4 monthly premium, which declines if electricity prices rise. After 10 years, SMUD will sell the system to the homeowner, extend the agreement or remove the system. SMUD has begun the PV Pioneers II program, in which the utility subsidizes PV systems for homeowners willing to buy them.
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