Perspective

Congress should not impose a federal renewable portfolio standard (RPS).

Since 1978, the federal government has relied on tax incentives to promote the generation of electric power from renewable resources-"green" power from hydroelectric facilities and windmills, solar panels and photovoltaic cells, facilities that burn biomass, municipal waste and landfill gas, and geothermal and ocean thermal resources.

For several years, however, the U.S. Congress has looked into promoting green power through a federal Renewable Portfolio Standard (RPS)-an alternative to tax incentives. An RPS-in effect a quota on green power-would require that a specified percentage of electric power sold by electric utilities be derived from renewable resources.

Should Congress include a green-power quota in any comprehensive energy bill?

Federal Tax Incentives

A federal RPS would supplement or perhaps even replace the use of tax incentives for green-power development. Four incentives are available under the Internal Revenue Code for investments in power generation from renewable resources.

First enacted for a four-year period in 1978, a business energy tax credit now authorizes a tax credit of 10 percent on the cost of equipment purchased and installed for power generation from solar panels or geothermal resources. The tax credit is available for equipment that complies with U.S. Department of Energy performance standards. In 1992, the tax credit became a permanent feature of the code. This incentive, however, is not available to electric utilities.

The code was revised in 1992 to authorize an electric power production credit of 1.5 cents per kilowatt-hour for power generated from windmills and in facilities that burn biomass or chicken waste. The credit is reduced, however, for green power otherwise sold for more than 8 cents/kWh. The credit expired last December.

For entities that pay no federal income tax (, state and local government bodies) and non-profit electric rural cooperatives that own and operate electric power facilities, the Energy Policy Act of 1992 authorizes a production incentive, or incentive payment, of 1.5 cents/kWh for power generated:

1) from windmills and solar panels;
2) in facilities that burn biomass; and
3) from geothermal resources.

This production incentive expired in 2002.

A research tax credit adopted in 1981 not just for green power research but for basic scientific research in general has contributed to increased research on, and development of, green-power technologies. The research tax credit authorizes a credit of 20 percent of "qualified research" expenses in excess of a threshold amount, in addition to a credit of 20 percent of "basic research" payments. Both terms are defined and qualified in detail in the code. The research tax credit expires this summer.

The federal government also has promoted the development of green power through a requirement, included in the Public Utility Regulatory Policies Act of 1978 (PURPA), for electric utilities to purchase the output of small power production plants-, plants that generate power from windmills, solar panels, or geothermal resources, as well as plants that generate less than 30 MW of electric power in facilities that burn biomass or municipal waste. PURPA exempts small power plants from rate regulations under the Federal Power Act