Incentives to Increase Renewable Energy. Linda M. Wagner Senior Legal and Policy Advisor Illinois Commerce Commission

Transcription

1 Incentives to Increase Renewable Energy Linda M. Wagner Senior Legal and Policy Advisor Illinois Commerce Commission August 13, 2013

2 Overview Generally, how to encourage renewable energy Specifically, how Illinois does it Start with the big picture and work down Variety of tools exist to promote renewable energy Select information and all of the maps are provided with the written permission of DSIRE (Database of State Incentives for Renewables & Efficiency) 2

3 Public Utility Regulatory Policies Act In 1978, the Public Utility Regulatory Policies Act (PURPA) became Federal law. PURPA requires utilities to purchase any electricity generated by qualifying facilities. The requirement applies to renewable facilities of up to 80 MW capacity. Standard purchase prices are established by State Commissions (like the Illinois Commerce Commission) for each electric utility and may not exceed the utility s avoided costs. Owners of qualifying facilities also have the option of negotiating with the utility for a different price than the standard price. 3

4 Illinois Power Agency Act Generally, the Illinois Power Agency (IPA) is responsible for developing electricity procurement plans for residential and small commercial customers of the two largest electric utilities in Illinois, but in doing so also must satisfy a renewable portfolio standard (RPS). The IPA Act finds that with respect to a diverse electricity supply portfolio: Including cost-effective renewable resources in that portfolio will reduce long-term direct and indirect costs to consumers by decreasing environmental impacts and by avoiding or delaying the need for new generation, transmission, and distribution infrastructure. 4

5 Renewable Portfolio Standards RPS 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. 5

6 Renewable Portfolio Standard Policies.. / March states,+ Washington DC and 2 territories,have Renewable Portfolio Standards (8 states and 2 territories have renewable portfolio goals).

7 RPS Carve-Outs 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. 7

8 Renewable Portfolio Standard Policies with Solar / Distributed Generation Provisions. / March states,+ Washington DC have Renewable Portfolio Standards with Solar and/or Distributed Generation provisions

9 Illinois Renewable Portfolio Standard Section 1-75(c) of the IPA Act requires that procurement plans include cost-effective renewable energy resources. Minimum percentages of each utility s total supply to serve the load of eligible retail customers are set forth, culminating in at least 25% by June 1, To the extent available, at least 75% of the renewable energy resources used to meet the standards must come from wind generation. 9

10 By June 1, 2015 and thereafter, 6% of the renewable resources to meet the standards must come from photovoltaics (PV). By June 1, 2015 and thereafter, 1% of the renewable resources must come from distributed renewable energy generation devices. The IPA Act provides limits on the amounts paid for renewable resources by eligible retail customers. 10

11 Interconnection Standards Interconnection Standards specify the technical and procedural process by which an owner/operator connects an electricity generating unit to the grid. Such standards include the technical and contractual terms that system owners and utilities must abide by. State Public Utility Commissions (PUC) 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 municipal utilities or electric cooperatives.) 11

12 Illinois Standardized Interconnection Rules 83 Ill. Adm. Code 466 (Part 466): Electric Interconnection of Distributed Generation Facilities 83 Ill. Adm. Code 467 (Part 467): Electric Interconnection of Large Distributed Generation Facilities 83 Ill. Adm. Code 468 (Part 468): Distributed Generation Installer Certification 12

13 Feed-In Tariff The utility purchases electricity generated by a customer at a premium, usually at a price greater than the utility s avoided cost. It is typically offered as a fixed price for a fixed period of time. The price varies based on the renewable resource. There is an ongoing legal debate over whether State regulators can order utilities to do this. Laws requiring this are considered by many to be the most effective policy for encouraging renewables. 13

14 Net Metering For electric customers who generate their own electricity, net metering allows for the measured and compensated 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. 14

15 In effect, the customer uses excess generation to spin the meter backward. Result is the price paid to the customer for generation is essentially equal to the customer s retail rate. Federal law requires States to have a net metering policy, but does not dictate what the policy must be Helpful for very small generators, such as solar panel owners or owners of a single wind turbine. 15

16 Net Metering. / July states, + Washington DC & 4 territories,have adopted a net metering policy. Note: Numbers indicate individual system capacity limit in kilowatts. Some limits vary by customer type, technology and/or application. Other limits might also apply. This map generally does not address statutory changes until administrative rules have been adopted to implement such changes.

17 Net Metering in Illinois Net electricity metering is required by Section of the Illinois Public Utilities Act. The Legislature made a finding and declared that a program to provide net electricity metering for eligible customers can encourage private investment in renewable energy resources, stimulate economic growth, enhance the continued diversification of Illinois energy resource mix, and protect the Illinois environment. 83 Ill. Adm. Code 465 (Part 465): Net Metering 17

18 Power Purchase Agreements Authorization for Power Purchase Agreements (PPA) usually lies in the definition of a utility in State statutes, regulations or case law; in State PUC decisions or Orders; and/or in rules and guidelines for State incentive programs. Even though a State may have authorized the use of third-party PPAs, it does not mean that these arrangements are allowed in every jurisdiction (e.g., municipal utilities may not allow third-party PPAs, even though allowed by investor-owned utilities). 18

19 Although a third-party PPA provider may not be subject to the same regulations as utilities, additional licensing requirements may still apply. In Illinois, issues have revolved around long-term vs. short-term PPAs. For example, what if the IPA procurement plan requires a long-term PPA and the prices subsequently goes down? 19

20 Renewable Electricity Production Tax Credit The Federal renewable electricity production tax credit (PTC) is a per-kilowatt-hour tax credit for electricity generated by wind, geothermal or closedloop biomass (dedicated energy crops). Originally enacted in 1992, the PTC has been renewed and expanded numerous times, most recently on January 1,

21 The tax credit amount is 2.3 cents/kwh for wind, geothermal and closed loop biomass and 1.1 cents/kwh for other eligible technologies. Construction deadlines apply and the rules governing the PTC vary by resource and facility type. The duration of the credit is generally 10 years after the date the facility is placed in service. The PTC can in effect get wind and other qualifying renewable technologies down into the price range of conventional energy sources. 21

22 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. 22

23 Illinois Sales Tax Exemption for Wind Energy Business Designated High Impact Business A business establishing a new wind power facility in Illinois that will not be located in an Enterprise Zone may be eligible for designation as a High Impact Business. After receiving the designation, the facility is entitled to a full exemption of the State Sales Tax (6.25%) and any additional local State Sales Taxes for building materials incorporated into the facility. Certain eligibility conditions exist. 23

24 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. 24

25 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. 38 States, plus Washington, D.C. and Puerto Rico offer property tax incentives for renewables. 25

26 Illinois Property Tax Incentive for Solar Energy Systems Illinois offers a special assessment of solar energy systems for property tax purposes. For property owners who register with a Chief County Assessment Officer, solar energy equipment is valued at no more than a conventional system. Eligible equipment includes both active and passive solar energy systems. Exemption is not valid for equipment that is equally usable in conventional energy system or for components that serve nonsolar energy generating purposes. 26

27 Commercial Wind Energy Property Valuation in Illinois Prior to 2007, wind energy devices generating electricity for commercial sale were assessed differently depending on where they were located. Some counties valued the entire turbine structure (tower plus generation equipment) as real property, subject to taxation, while others deemed only the tower portion as taxable property. This difference in valuation procedure meant that the taxable value of identical wind turbines could vary by as much as 75% from county to county. 27

28 This created dramatically different tax loads and complicated projects that crossed county lines. In October 2007, Illinois passed a law providing consistent valuation procedures for commercial wind farm equipment. For 10 years, beginning in the 2007 assessment year, wind energy devices larger than 500 kw and producing power for commercial sale are valued at $360,000/MW of capacity, annually adjusted for inflation according to the U.S. Consumer Price Index. 28

29 Tax Credits and Deductions The Federal Energy Policy Act of 2005 established a corporate tax deduction for energy efficient commercial buildings placed in service from January 1, 2006 through December 31, This deduction was subsequently extended through A tax deduction of $1.80 per square foot is available to owners of new or existing buildings, who install: (1) interior lighting; (2) building envelope; or (3) heating, cooling, ventilation, or hot water systems. 29

30 Grants for Various Sectors or Customer Classes 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 PV systems. Grants commonly limit eligibility to the residential, commercial, industrial, utility, education and/or government sectors. 30

31 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. 31

32 Grant Programs for Renewables / January Puerto Rico, The Virgin Islands. Notes: This map only addresses grant programs for end-users. It does not address grants programs that support Research & Development, nor does it include grants for geothermal heat pumps or other efficiency technologies. 22 states, + 2 territories,offer grant programs for renewables.

33 Solar and Wind Energy Rebate Program in Illinois The Renewable Energy Resources Program (RERP) in Illinois promotes the development of renewable energy in Illinois. The program is funded by the Renewable Energy Resources Trust Fund the State s public benefits fund and is administered by the Illinois Department of Commerce and Economic Opportunity (DCEO). All technologies and sectors are limited to $10,000 per project. 33

34 The program is open to customers of investor-owned and municipal utilities, as well as electric cooperatives, which impose the Renewable Energy Resources and Coal Technology Development Assistance Charge. Eligible applicants include individuals, businesses, associations, public and private schools, colleges and universities, public sector entities, and nonprofit organizations. Must contribute 25% of total project cost for rebate. 34

35 Right to Generate in Illinois Illinois law prohibits homeowners associations, common interest community associations, and condominium unit owners associations from preventing homeowners from using or installing solar energy systems. These associations may not deny homeowners permission to install solar energy systems, but they may specify the location of the solar energy system, as long as such specifications do not impair the effective operation of the system. 35

36 A provision was recently added for wind energy, but wind energy devices may be restricted by the associations. The law requires that the associations adopt an energy policy statement specifying details such as location, design, and architectural requirements of solar energy systems. If wind energy systems are allowed, the architectural requirements must be included. 36

37 Local Programs Green buildings minimize the impacts of the building on human health and the environment and are offered financial incentives such as waiver of a building permit fee or streamlining the permit process timeline. (Chicago) Rebates for residential geothermal heat pumps. Requires post installation inspection. (Springfield) Rebates for residential and commercial PV systems are limited to $15,000 per customer account. (Springfield) 37

38 Loan Programs Provide financing for the purchase of renewable energy or energy efficient systems or equipment. Low-interest or zero-interest loans for energy efficiency projects are a common demand side management practice for electric utilities. State governments also offer low-interest loans for a broad range of renewable energy and energy efficiency measures. Property-Assessed Clean Energy (PACE) financing allows property owners to borrow to pay for renewable energy improvements. 38