State  Clean  Energy  Funds

      n  Effective Mechanism to  Encourage Clean Energy Supply

A                             clean energy fund is one of several
                             tools that states can use to accelerate
                             the development of energy efficiency
                       and clean distributed generation (DG),
                       including renewable energy and combined
                       heat and power (CHP).
                       Clean energy funds provide a funding stream
                       that can be customized  in ways that best
                       meet a state's energy goals, natural
                       resources,  and industry presence.  State clean
                       energy funds often receive money from public
                       benefit funds (PBFs). PBFs have been used to
                       support energy efficiency, renewable energy,
                       and clean DG programs in competitive
                       markets. In most cases, states fund their
                       PBFs through systems benefit charges (SBCs),
                       which are small fees (typically in the range of
                       0.001 - 0.01 cents/kilowatt-hour [kWh])
                       added to the electricity  rates paid  by
How Do Clean Energy Funds
Encourage the Application of
Clean Energy?
Clean energy funds can be used to:
• Provide funding to narrow any gaps
  between the market price of electricity and
  the generating costs of clean energy
• Address technical, regulatory, and market
  barriers for emerging technologies.
• Stimulate the development of companion
  industries and infrastructure that are
  crucial to the success of clean energy.
• Promote consumers' awareness of clean

                         What Is Clean DG and What Are Its Benefits?
                         DG is the generation of electricity at or near the energy end-user. Clean energy
                         technologies include renewable energy sources such as solar, wind, geothermal, biomass,
                         biogas, and low-impact hydroelectric, as well as CHP (the simultaneous generation of
                         electric and thermal energy from a single source).
                         Clean DG projects yield numerous public benefits, including:
                         •  Bringing economic development to a state.
                         •  Reducing peak electrical demand on the grid.
                         •  Reducing electric grid constraints.
                         •  Reducing grid congestion in targeted load  pockets, potentially deferring or displacing
                           more expensive transmission and distribution infrastructure investments.
                         •  Reducing the environmental impact of power generation.
                         •  Reducing fuel price volatility.

Well-designed clean energy funds provide a state with
strategic opportunities to:
•  Design a cohesive strategy. By combining a range of
   clean energy support programs and funding
   mechanisms "under one roof," states can develop a
   cohesive strategy to address a  range of clean energy
   market issues.
•  Support long-term goals. While many clean energy
   policies are aimed at jump-starting markets for
   commercially ready  technologies, clean energy funds
   can be designed to  fund initiatives with  longer-term
   benefits, such as research  and  development and
   technology demonstration.
•  Complement other clean energy policies. Because of
   their flexibility, clean energy funds can  be used to
   complement and leverage other state and federal
   policies. For example,  clean energy funds can be used
   to increase the effectiveness of other policies, such as
   federal tax incentives, Renewable Portfolio Standards
   (RPS), and net metering standards by reducing
   equipment costs, addressing market barriers, and
   providing consumer education and outreach.

What Are the Key Elements
of a Clean Energy Fund?
Key elements of a clean energy fund include the funding
source, the entity that administers the fund, and the
model for allocating the funds.
Funding source - In most cases, states use SBCs to fund
their clean energy funds. SBCs are generally designated by
a state's legislature and administered by the state's public
utility commission (PUC).
Administration - States have chosen several organizational
models for administering their clean energy funds. These
have included state energy offices (California), quasi-public
agencies (Connecticut, Massachusetts), public regulatory
agencies (New Jersey), non-profit organizations
(Pennsylvania),  and utilities (Arizona).
Fund allocation  - Three basics funding models are used to
allocate funding:
• The investment model uses state loans and equity to
  provide initial investment in clean energy companies
  and projects.
• The project development model directly promotes clean
  energy project installation by providing production
  incentives and grants/rebates.
• The industry development model uses business
  development grants, marketing support programs,
  research and development grants, resource
  assessments, technical assistance, consumer education,
  and demonstration projects to facilitate market

Which States Have Established  Clean
Energy Funds?
As of December 2006, 15 states and the District of
Columbia had established clean energy funds: Arizona,
California, Connecticut, Delaware, the District of Columbia,
Illinois, Massachusetts, Minnesota, Montana, New Jersey,
New York, Ohio, Oregon, Pennsylvania, Rhode Island, and
Wisconsin (see Figure  1). The  size of these funds ranges
from about $1 million to more than $100 million a year.
  Figure 1
  States with Clean Energy Funds
                                                                Washington, DC
                                                                             PBF for renewable energy
                                                                             Voluntary PBF for renewable energy
                                                                       Source: Navigant Consulting, Inc. 2005, and the Database of
                                                                       State Incentives for Renewable Energy (DSIRE).

Features of several state clean energy fund programs are
highlighted below:
New Jersey. New Jersey's statewide clean energy
initiative, the New Jersey Clean Energy Program™
(NJCEP), is administered by the New Jersey Board of
Public Utilities. The NJCEP provides education, training,
and financial incentives in three program areas:
•  Residential Programs, which include  heating equipment
   rebates, home energy analyses, residential solar
   rebates, and the Comfort Partners program for income-
   eligible households.
•  Commercial & Industrial Programs, which offer
   incentives and technical assistance to commercial,
   industrial, and municipal customers.  The program's
   goals include increasing energy efficiency, reducing
   overall system peak demand, and  encouraging the use
   of emerging technologies throughout the state. A
   Combined Heat and Power Program  offers financial
   incentives for CHP installations.
•  Renewable Energy Programs, which  offer support to
   customers interested in implementing renewable energy
   generation technologies and systems. NJCEP offers
   rebates towards the installation of renewable
   generation systems such as solar electric, wind, or
   sustainable biomass; low-interest loans for businesses,
   schools, and municipalities that want to combine
   energy efficient and renewable energy technologies;
   and grants for utility-scale projects and startup
The NJCEP energy efficiency and  renewable energy
programs have been managed and implemented by the
state's seven investor-owned  utilities and gas public
utilities but management is currently transitioning to third-
party program  management.
To learn more about clean energy funding  in New Jersey,
New York. The New York State Energy Research and
Development Authority (NYSERDA) administers the New
York Energy $mart program,  which provides energy
efficiency, research and development, and  environmental
protection activities. Among other things, the Energy
$mart program administers the New York Energy $mart
Loan Program, which provides an interest rate reduction
of up to 4 percent (400 basis points) off of a participating
lender's normal loan interest rate for a  term of up to 10
years on loans for certain energy efficiency improvements
and/or renewable technologies. In addition, NYSERDA
administers other programs to facilitate the development
of clean energy in New York State. These include the
DG/CHP Program, which  has approved more than 80
DG/CHP systems for funding, representing 90 megawatts
(MW) of peak demand reduction.
For more information about the Energy $mart Loan
Program, visit
For more information about NYSERDA's DG/CHP
Applications Program, visit
Connecticut. The Connecticut Clean Energy Fund is
managed by Connecticut Innovations, Inc., a quasi-
governmental investment organization. The program has
three major components:
•  Installed Capacity Program, which supports long-term
   contracts for clean energy projects and incentive
   programs for host supply or onsite installations of clean
   DG projects.
•  Technology Demonstration Program, which supports
   the demonstration of new clean energy technologies
   and innovative applications, while also providing
   infrastructure support  to the emerging clean energy
•  Public Awareness and Education Programs, which
   support local clean energy campaigns to influence the
   buying behavior of electricity customers so that they
   voluntarily support clean energy.
For more information, visit
Massachusetts. The Massachusetts Renewable Energy
Trust is managed by the  Massachusetts Technology
Collaborative (MTC), an independent economic
development agency focused on expanding the renewable
energy sector and Massachusetts^ innovation economy.
The State Division of Energy Resources provides oversight
and planning assistance.  MTC's approach is to first identify
barriers to renewable energy growth in Massachusetts,
then leverage additional funds from other sources,
including private companies and nonprofits. MTC's goals
include maximizing public benefit by creating new high-
tech jobs and producing  clean  energy. To learn more, visit

Elements of a Successful  Policy
Based on the experiences of states that have developed
clean energy funds, a number of best practices have
emerged for designing effective funds. States considering
establishing clean energy funds can use the best practices
that follow as models for developing their own policies.
•  Establish a working group of interested stakeholders
   (e.g., electric utilities, the state PUC, clean energy
   advocates, project developers, state energy offices,
   and state environmental agencies) to develop
   recommendations for design and administration of
   the funding mechanism (i.e., the SBC).
•  Develop draft legislation for consideration by the state
   legislature, if legislation is required to implement an SBC.
•  Based on  the state's  specific clean energy goals,
   determine both the stage of technology development
   and the kind of incentives needed to support each
   technology. State clean energy funds often include a
   portfolio of program options to support both emerging
   and technically proven technologies.
•  Design funding sources to promote consistency in
   funding from year to year. The ability to carry forward
   excess annual  contributions can  be an important
   feature, especially during early years when activities
   are ramping up.  Employ mechanisms, such as  set
   percentage tariffs, that help ensure consistent funding
   levels and protect against the diversion of funding to
   other state needs.
•  Develop programs that will complement other state and
   federal clean energy  initiatives, such as RPS, tax
   credits, and loan programs. This coordination  can
   include policies that allow developers to leverage other
   funding sources without activating "double-dipping"
   clauses, which prevent developers from taking
   advantage of multiple federal or state incentives
•  Develop measurable targets (e.g., green power
   participation rates, infrastructure development
   measured in MW of new capacity, peek load reduction
                   from clean DG) and monitor progress toward reaching
                   these targets.
                 • Be willing and able to shift fund priorities and develop
                   new or modified programs in response to changes in
                   markets or technologies as they develop.
                 • Publicize success stories and goals that have been
                   achieved. Make sure that state officials, office holders,
                   and  the public remain aware of the clean energy fund
                   and  know that it is achieving the desired results.

                 EPA Assistance Available
                 The EPA CHP Partnership is a voluntary program that
                 seeks to reduce the environmental impact of power
                 generation by promoting the use of cost-effective CHP.
                 The Partnership assists state policy makers and regulators
                 to evaluate opportunities to encourage CHP through the
                 implementation of policies and programs. The Partnership
                 has also assisted states in developing  incentive programs.

                 Additional  Resources
                 EPA has created The Clean Energy-Environment Guide to
                 Action. The Guide provides an overview of clean energy
                 supply  technology options and, in addition to clean energy
                 funds, presents a range of policies that states have adopted
                 to encourage continued growth of clean energy technologies
                 and energy efficiency. The Guide is available at
                 The Database of State Incentives for Renewable
                 Energy (DSIRE) is a comprehensive source of
                 information on state, local, utility, and selected federal
                 incentives that promote renewable energy.
                 The Clean Energy States Alliance (CESA) is a
                 nonprofit organization  that provides information and
                 technical services to state clean energy funds and works
                 with them to build and expand clean energy markets in
                 the United States.
  For more information, contact:
             ~ L      j
           Katrina Pielli
U.S. Environmental Protection Agency
Combined Heat and Power Partnership
        Phone: 202-343-9610
    e.maN .

Last updated April 12, 2007