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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
customers.
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
technologies.
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
energy.
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.
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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
transformation.
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).
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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
businesses.
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,
visit www.njcleanenergy.com.
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 www.nyserda.org/loanfund/default.asp.
For more information about NYSERDA's DG/CHP
Applications Program, visit www.nyserda.org/
programs/industry/industrialprograms.asp#chp.
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
industry.
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 www.ctcleanenergy.com.
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
www.mtpc.org/renewableenergy/index.htm.
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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
simultaneously.
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.
See www.epa.gov/chp.
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
www.epa.gov/cleanenergy/stateandlocal/guidetoaction.htm.
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.
See www.dsireusa.org.
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.
See www.cleanenergystates.org.
For more information, contact:
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&EPA COMBINED HEAT AND
POWER PARTNERSHIP
Katrina Pielli
U.S. Environmental Protection Agency
Combined Heat and Power Partnership
Phone: 202-343-9610
e.maN . pjenLkatrjna@epa.gov
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Last updated April 12, 2007
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