The Role of Government Incentives for Renewable Energy Proliferation

There are a slew of government incentives to subsidize renewable energy development. These incentives go a long way toward making the investment in renewable energy a practical choice. It can be hard to justify an investment when the math might indicate a 10 to 20 year timeline to receive a return on that investment, but incentives drive those return times down with a more practical ‘big picture’ perspective.

The savings from renewable energy include environmental costs, security costs and economic costs. However, in a down economy it’s tough to pull together funds for capital improvements that have long-term returns, especially when the costs for traditional fossil fuel energy sources are low due to complex market forces. Governments have a big role to play toward encouraging capital expenditure on renewables that factor in the long-term benefits that make these choices very beneficial for our global sustainability.

Aggressive Targets

There are increasingly high targets for percentage of renewable energy being passed into law on both federal and regional levels. The government of Australia just passed a target of 20% contribution to electricity production from renewables by 2020, which matches the aggressive goal set by the European Union. The United States doesn’t have a federal mandate, but many states have a goal of 15 to 20 percent renewable energy by 2020.

These aggressive goals create a considerable market for renewable energy action that likely wouldn’t have come about without established targets. The targets provide a sense of urgency and mandate movements from energy providers and large energy consumers.

Taxes Now and Future

Several local entities waive the sales tax on any solar hardware sales for home-based systems. Savings of three to six percent can add up considerably when a whole-home system cost reaches into the tens of thousands of doallars. Similarly, for utility-scale plants the value of the plants are often assessed at a much lower level of property tax than comparable traditional energy plants.

Carbon tax and trade is a growing possibility for power companies and large energy consumers. The incentive to make renewable energy choices now, in order to avoid carbon taxes in the future, is growing. Where carbon cap and trade schemes already exist, there are increasing incentives for companies to drive down their emissions in order to sell their credits for polluting less. Here, the threat of future taxes on emissions provides a powerful incentive for large greenhouse gas emitters to make a change.

Loans, Grants and Rebates

The use of loans, grants and rebates provide a means to incentivize the installation of renewable energy in homes and businesses. There are a great number of creative solutions that have been devised in order to make these investments attainable and practical for all income levels and business sizes.

There’s a growing movement for the creation of third party leasing agents that cover the full cost of the installation of solar panels on a home, and then charge the homeowner a monthly fee to recoup the install cost. The homeowner gets to use the energy generated by the new system, which draws down their utility bill, and they gradually pay off the capital improvement cost of the new system. Here, the monthly bill can equal the cost of the savings, so it provides a good incentive to help quickly proliferate these systems.

Several municipalities have set up special renewable energy grant programs that help to fund the installation of solar water heaters and photovoltaicarrays for low-income or nonprofit entities. The funding mechanism for these grants are often the taxes that would have been collected from their sale and use. Instead of going into the general tax coffers, these funds are instead funneled into a program fund to be disbursed.

One of the most typical incentives provided by power companies is a rebate program that reimburses the homeowner for grid-connected utility installations. The power companies are often saddled with deadlines to meet a specific target of renewable energy generation, and the cost of creating plants is far more expensive than getting homeowners to install their own systems. The power company gains an ally by providing guidance through the installation process, reimbursing the homeowner after the system is online and performing to a set standard.

Through renewable energy quotas, tax credits, rebates and other incentives, the government is going a long way in spurring renewable energy investments for long term benefits for all.