Clean Tech Corner: How to support the renewable energy industry
Understanding incentives and subsidies
With summer officially in full swing, it seems appropriate to step back, relax and address a topic that is familiar, yet consistently confusing: incentives (cue scary plot twist music) — yes, that widely used yet often-misunderstood word commonly brought up when mentioning renewable energy generation.
Let’s begin by clarifying a few common mistakes. First, and arguably most significant, is the confusion between an incentive and a subsidy. An incentive is created to incite or spur an action. In the context of clean tech, incentives have been created as a way to accomplish specific energy policy objectives to develop and deploy more renewable energy or energy efficiency.
In New Hampshire these policy-driven incentives have created the Renewable Energy Certificate (REC) program – which is a market-driven program to incentivize hosts to build more renewable energy throughout the state. By monetizing a megawatt hour (MWh) of clean energy, it creates a market that helps achieve a policy goal to greater diversify and consume clean energy in the state – i.e. the Renewable Portfolio Standard. Businesses and citizens alike take advantage of the incentive, which has resulted in massive system demand and hundreds of new jobs while retaining a portion of the roughly four billion energy dollars that flow out of the state every year.
Incentives can come in many forms. Most commonly these include tax credits, grants, loans, tax exemptions and market-driven programs. As with many types of policy-driven incentives, they will be phased out as time goes along and the policy objective is achieved or changes.
In comparison, a subsidy is a mechanism largely designed to help a vulnerable population or business sector struggling to remain competitive, usually for a certain reason. While a subsidy can also fall under a policy position, it can act in a much different manner than an incentive. Take, for example, the fossil fuel industry. Due to a potential outside force, the value of the commodity may drop significantly in value, which may force the producers out of business. A policy position can be created to help producers and a subsidy can be provided to all U.S. producers to help their businesses. In fact this subsidy is being provided — the federal government spends roughly $37.5 billion every year supporting fossil fuel activities. When used appropriately, a subsidy is absolutely a worthwhile support mechanism to keep a commodity competitive and lessen a burden witnessed by that industry, business or individual. Subsidies can come in many similar forms as incentives but are created for different reasons.
All industries utilize incentives or subsidies in one form or another. This is common practice as our society continually places various importance and policies toward different sectors of our economy. For New Hampshire’s renewables industry, we have witnessed the benefit of the established incentives through the significant increase in demand for renewables by homeowners and businesses alike, as well as through helping to further contribute to our state’s economy and policy goal — namely to consume a more diverse and cleaner electrical supply in the state. How can we tell these programs are incentives instead of subsidies? Specifically because the amount of each rebate lowers over time, such as from $6,000 to $2,500 for a residential solar rebate over the last several years, while demand continues to grow exponentially.
Instability in the market, however, can prolong the need for incentives, thus underscoring the need for stable incentives to drive investment as we continue to see more renewable development. Renewables are not alone, as many sectors of our economy depend on steady incentives to witness business success.
Governor Sununu and the legislature recently demonstrated this understanding for the need to support renewable based incentives through the passage of SB 129. This law will be beneficial for the continued exponential growth of this industry, and we certainly argue this is good policy. (Settling credit music)
Until next month…keep it clean New Hampshire!
Michael Behrmann is director of the NH Clean Tech Council.