Renewable Energy 101 and the Importance of Incentives

By Rosaly Byrd and Laurèn DeMates

The Global Perspective

Increasing the use of renewable energy decreases the use of fossil fuels, which equates to energy security and the reduction of greenhouse gas emissions (GHGs) to address climate change. No matter the motivation, many countries are making efforts to diversify their energy sources and the importance of this transition has been acknowledged on many international fronts including the important role of sustainable energy generation in reducing poverty via the UNDP.

According to the International Energy Agency (IEA), renewables made up 20% of the global energy matrix in 2011, but this number is expected to increase to 25% by 2018. Renewables are actually the fastest growing energy source. But in order for the renewables to be competitive with traditional energy sources, it is important for governments to use incentives to support developing industries such as wind, solar, biofuels, geothermal and small-scale hydropower.

Many countries have established national and state level policies to incentivize the generation and use of renewable energy. The “feed-in tariff” is the most common incentive used by governments to attract renewable energy production. Feed-in tariffs are a guarantee to renewable energy producers that they will be able to sell the electricity they generate at a given price, which the government sets in advance so that these producers can compete. Feed-in tariffs, ‘dirty’ energy penalties, and direct tax breaks for renewable power are successful forms of production-side incentives. Many countries have developed other policies to incentivize the generation and consumption of renewables, both on the individual/household and the larger producer level. Here are a few examples:

Australia. The Small-scale Renewable Energy Scheme (SRES) in Australia is a system that helps households with the purchase cost of setting up a small renewable energy system at home. Along with the SRES program, household owners can sell the energy they produce or even earn credits by reducing overall energy consumption with the country’s Small-scale Technology Certificates program (STC).

Germany. In addition to a national feed-in tariff, Germany offers various subsidies to incentivize the use of renewable energy in buildings and boasts the most installed capacity for solar. Subsidies are granted to new buildings that have a heating system based on renewable energy or to new buildings that reach new standards in regard to renewables.

China. China is one of the world’s largest investors in renewables. The country’s CIT (Corporate Income Tax), that gives a reduced rate for qualified technology, and the value added tax that gives refunds on the sale of renewable power are two incentives the country is using to attract alternative sources of energy. China also subsidies renewable energy projects in order to compensate operators’ costs.

Brazil. National policies include PROCEL (incentives for energy conservation) and PROFINA (policy to promote renewable energy generation). On the state level, the state of Minas Gerais has developed an incentive system that includes tax breaks for investors building modules, inverters, and solar plants with possible assistance from the local state bank. Minas Gerais also uses a resource mapping tool to help companies develop solar capabilities and has the country’s first solar-powered soccer stadium.

The Local Perspective – U.S.

There are 3 ways to support alternative energy at the household or business level and which option to pursue depends on your personal situation or project. 1.) on-site renewables (usually solar or small wind-turbine); 2.) purchasing renewable energy credits (RECs), the positive attributes of renewables that can be bought anywhere; or 3.) purchasing ‘green power’, electricity produced from off-site renewables. The avenue in which to purchase green power depends on the regulatory structure of your state (i.e., whether electricity is provided through a sole utility company vs. an open and competitive energy market). If there is a competitive energy market then there are multiple suppliers and service providers in which to buy green power, but if your state has not been restructured then contact your local utility and ask about their ‘green pricing’ or green power programs. (There are over 850 utilities in the U.S. that offer green pricing options).

Since there is no national level feed-in-tariff policy in the United States, it comes down to states and local utilities to set and provide incentives to businesses and residential users in support of alternative energy. Although the use of solar in the U.S. continues to break records, there are two aspects that can either create strong incentives or act as barriers for renewable energy production at the household or business level: net-metering and interconnection procedures. Net metering refers to the ability of households who have installed onsite renewables such as solar to receive credit for the energy that their systems produce and is fed back into the grid. Interconnection procedures are the technical and legal rules for allowing an on-site system to connect to the grid in the first place, that of which can either be characterized by ease or red tape that discourages interconnection. Free the Grid offers a great map that rates states on their interconnection procedures and net-metering:

There are other incentives in place to support the production of on-site renewable energy and it is in the best interest of all to utilize these incentives. Database of State Incentives for Renewables and Efficiency (DSIRE) breaks down financial incentives available for renewable energy offered at the federal, state, utility, local, and non-profit levels. It also illustrates that even though there is not a national feed-in tariff that the federal government does offer support in terms of personal tax, corporate tax, grants, loans, and industry support:

Of course using less energy in our daily lives is the most effective action we can take, but we can also support renewables ourselves and support businesses that use renewable energy. Individuals can assist in the transition to a low-carbon economy utilizing and supporting the power of alternatives.

2 thoughts

  1. Follow up: I attended a panel event last about how to improve energy efficiency in your home or business. Edward T. Borer Jr., Energy Plant Manager at Princeton University, confirmed that the DSIRE website (link towards the end of this blog post) is the place to learn about incentives available.

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