FINANCIAL INCENTIVES FOR CLEAN DG Tom Bourgeois Director of Research Pace Univ' Energy Project

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FINANCIAL INCENTIVES FOR CLEAN DG Tom
BourgeoisDirector of ResearchPace Univ. Energy
Project
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Policy Instruments
Public Financing Tax Code Loan Programs Other
Financial Incentives
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TAX POLICY INSTRUMENTS

• Investment Tax Credits (ITC)
• Accelerated Depreciation / Expensing
• Production Tax Credits (PTC)

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INVESTMENT TAX CREDITS

• H.R. 6 House Energy Bill and the Counterpart
  Senate
• Bill (S 14) Provided a 10 ITC for Qualified CHP
  System Property
• To Qualify a CHP System must meet a 60
  efficiency threshold
• At least 20 of useful energy used for thermal
  energy and at least 20 of useful energy for
  electrical/mechanical

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INVESTMENT TAX CREDITS

• Provisions Sunset after 3 Years (for systems
  placed in service prior to 1/1/2007)
• CHP System Size must be lt 15 MWs
• The Energy Bills in the 108th Congress removed
  provisions that would have lengthened the
  depreciation period for industrial systems

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ACCELERATED DECPRECIATION

• Depreciation Periods Vary Based upon Ownership
• The Same Equipment May Face Depreciation Periods
  ranging from 15 to 39 Years
• Industrial sites 15 or 20 years
• Smaller Commercial/Residential 27.5 years
  (rental property) or 39 years (owner-occupied)

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PRODUCTION TAX CREDITS (PTC)

• A Facility is paid for kW and kWH produced, not
  simply for investment at the site
• The PTC may have superior efficiency properties,
  the more the equipment runs, the more incentive
  is paid
• The PTC may be preferred for areas where the DG
  is mitigating local or regional system congestion
  

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PRODUCTION TAX CREDITS (PTC)

• Wind and Biomass tax credits exist at the federal
  level, MN has considered a state PTC
• The PTC has higher risk to the recipient than the
  ITC, as payment is tied to production
• For any given amount, the CHP system owner would
  prefer ITC to PTC

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STATE ALTERNATIVES

• CT could pass an ITC incremental to the Federal
  Provision, if enacted
• CT could enact an ITC regardless of federal
  activity
• CT may examine its tax treatment regarding
  depreciation of CHP system property
• Many states conform their depreciation schedules
  with the Federal (coupled), and for good reason

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Debt Financing Instruments
Tax Exempt Financing Tax Exempt Lease
Programs Loan Guarantee Programs Other Rate
Reduction Measures
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Tax Exempt Financing
Certain State Authorities Can Issue Tax Exempt
Bonds for Capital Equipment and Structures The
Beneficiary is typically an Institutional /
Non-Profit Entity (Hospital, Nursing Home,
College /University, etc.,) Certain Regional
Authorities (e.g. IDAs) May be Authorized to
Issue Tax Exempt Instruments. In NYS Civic
Facility Revenue Bonds are an alternative to
State Sources A Master Lease may be preferred
method for small issues
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Debt Policy Instruments
CT may have Authority to do Loan Guarantees for
Capital Equipment Investments The State may
capitalize a revolving loan fund specifically for
investments in strategically sited Clean DG /
CHP In NYS, DASNY has financed CHP Capital
Equipment Investments through the TELP Program
and Power of 2 Jointly Administered with
NYSERDA
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Other Financial Instruments
Economic Development Zones Brownfield Cleanup
and Redevelopment Market Based Emissions
Programs (ERCs Allowances)
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Brownfields Cleanup
An ITC ranging from 10 to as much as 22 for
capital equipment structures (including CHP
systems) Credits are increased by 8 for
location in ENV-Zones Credits are further
increased by 2 for cleanup to the highest level
(Track 1) Credits are fully refundable if
taxpayer liability lt tax credit the Tax Dept will
write a check for the difference
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Market Based Environmental Incentives
Utilization of programs that will pay Clean DG
and CHP for demonstrable environmental
benefits Emission Reduction Credits (ERCs) are
worth 9,000 to 12,000 per ton in recent years
in NY Metro Area (Severe Non-Attainment
Area) Emission Allowances can be distributed to
EE/RE resources under EPA Guidance. Could credit
Clean DG for as much as 1.5 lbs/MWH of displaced
electricity
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Emission Allowances and ERCs
All states may create an EE/RE Set-Aside for the
Allowance Program 5 states have, CT has not
(NY, MA have) Illustrative Example large
Multi-Building, Mult-family complex in NYC,
Emission Allowances can be distributed to EE/RE
resources under EPA Guidance. Could credit Clean
DG for as much as 1.5 lbs/MWH of displaced
electricity
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ERC NOx ALLOWANCES CONTRIBUTION TO PROJECT
ECONOMICS

• Assume 7.5 Tons of ERCs Certified and sold
• at 11,000 / Ton
• Assume 2,500 MWHs Generated at the Site
• Assume Formula for Awarding Allowances for
  Displaced Electric NOX credits this site with
  3,750 lbs (1.875 Tons) of NOx
• Allowances at 2,750/ton 1.875 tons 5,
  156 per year for 5 Years
• NPV of Emissions Credits is
• ERC at 82,500 NPV of 5156 per year for 5
  years
• 82,500 19,547 102,047

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Utility / Regulatory Incentives
Location-Based Incentives for new investments
(e.g. /kW payment in auction for resources
within constraint) Special clean DG / CHP gas
rates Standby Tariff waiver for clean,
high-efficiency DG
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Summary Consider the Objectives
Clean DG for TD System Relief? Clean DG for
Environmental Benefits? Clean DG for Economic
Development / Reliability?
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SUMMARY Consider the Objectives
Tax Policy (Credits, ITC, Loan Programs) are
typically not geographically targeted though
they can be EDZs and NYS Brownfield Cleanup
Tax Credits are examples of programs that are
targeted to census tracts. If improving
reliability is paramount the PTC might be
favored, if Environmental Improvements, then pay
for progressively better emissions profiles
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SUMMARY Consider the Objectives
Use Existing institutions where feasible e.g.,
a hospital/ health-care/ university financing
agency, or, an existing economic development
agency Align with pre-existing programs when
possible e.g. cross market energy, economic,
and environmental incentives and technical
assistance . Be aware of interactions with other
jurisdictions and regulatory authorities