Renewable Energy Rebates
Renewable energy rebates, also sometimes referred to as buy-down programs, provide a refund or discount for the cost of new renewable energy installations. Rebate programs are often administered through local utilities or state agencies. And rebates are generally obtained through an application process. Rebate payments vary. They're often based on the installed capacity of a system with the rebate value set at a given rate (i.e., dollars per watt). Payments may also be limited by size or dollar value, and/or include a one-time payment for renewable energy credits.
Rebate programs may be most effective when designed and implemented as part of a suite of policies. Rebates can be applied to jumpstart or rapidly expand a specific renewable energy technology market. Meanwhile, additional complementary policy measures may be put in place to drive larger scale shifts in renewable energy production.
BackgroundA primary driver of renewable energy rebate programs is the desire to stimulate early market growth for emerging technologies. By stimulating early-stage market growth, cost reductions may be achieved by economies of scale or
the elimination of supply chain bottlenecks. Additional drivers may include:
- Reduced utility load growth
- Internalization of environmental and energy security attributes of renewable technologies
- Desire to elicit technical and market barriers of renewable technologies.
Rebate programs have played a significant role in the emergence of distributed generation renewable energy markets. They're likely to continue to play a critical role in the deployment and diffusion of renewables.
Rebate programs should be designed to fit at a specific point in the technology development and deployment cycle. If initiated late in the deployment cycle, they can become very expensive if required to support a large and rapidly growing industry. Similarly, if initiated too early, they may be underutilized or ineffective at reducing technology costs. As such, there are some specific challenges associated with rebate programs.
The primary fiscal challenge is assessing the proper rebate amount. A well-designed rebate program will provide a rebate sufficient to encourage market growth, but not so large that the program cannot meet demand. Electricity price and additional state, local, and federal incentives should be reviewed carefully when considering the correct rebate amount. These variables can greatly affect how economic a specific renewable energy system is within a given market. Establishing a viable rebate amount also requires considering:
- Expected technology cost reductions over time
- How to proceed if those cost reductions are not realized
- How often rebate values should be reevaluated.
Free-ridership is defined as the allocation of rebates to individuals who are likely to purchase a renewable energy technology without a rebate. In states where market activity is moderate or high prior to rebate program implementation, free-ridership can dramatically increase the cost of new rebate programs and reduce their market impacts. High-growth markets are not viable candidates for rebate programs due to free-ridership.
Many rebate programs are capacity- or cost-based. This means there is a specific up-front rebate per watt or per dollar spent to develop the facility. However, these rebates may not provide any incentives for a system owner to ensure maximum production from their system. As a result, some rebate programs have shifted to performance-based or expected performance-based incentives. Expected performance-based incentives adjust the full up-front incentive payment in accordance with expected performance.
Administrative Burden and Costs
Challenges for rebate programs also include minimizing overhead and administrative costs. Administrative cost reductions may result from a streamlined application and permitting process as well as increasing the standardization of rebate allocations.
When evaluating the potential outcome of a rebate program, two primary examples of non-cost market barriers that must be considered are net-metering and interconnection rules or standards. In addition, the following all affect the outcome of a given program and should not be underestimated when planning rebate programs:
- Local zoning requirements
- Program publicity
- Public desire for clean energy
- Public concern over energy independence or the environment
- General public awareness
- Disposable income.
Policy Duration and Flexibility
Another challenge for rebate programs is how to move forward when markets and technology costs do not follow the expected trajectories. Many policymakers and constituents view rebate programs as a temporary boost to emerging markets. So far, rebate program administrators and policymakers have had only limited success in forecasting the timing and extent of technology cost reductions. Technology cost increases may result from factors beyond the control of program administrators or technology producers. Even as production and installation becomes more efficient, volatile commodity prices—market growth that results in supply chain bottlenecks—or inflationary pressures can generally all drive up prices. In these cases, it can be difficult to evaluate program success and develop a plan for continued program implementation.
Design Best Practices
A successful renewable energy rebate program may:
- Reduce technology costs
- Demonstrate technological feasibility
- Reveal potential market barriers
- Increase market penetration of renewable energy technologies.
Some best practices for designing a renewable energy rebate program include the following:
Having an appreciation of the market-initiating attributes and scale limitations of the rebate programs
Having the ability to address non-cost barriers including public awareness, net-metering, and interconnection standards. This may involve implementing a suite of policies in conjunction with a given rebate program.
Targeting the right technology at the right time. Technologies that make good candidates for rebate programs should be at the proper point in the technology development and diffusion cycle. This is likely to require careful technology and market analysis.
Having a clear knowledge of and consideration for existing state, local, or federal incentives, as well as their impacts on current market activity and expected market activity under the new rebate program
Targeting technologies with foreseeable concrete cost reductions at scale and a methodology for addressing unexpected changes in cost
Establishing the proper rebate amount based on existing market trends, the cost of alternatives, and the size of market that is desired
Providing a clear and specific mechanism for reevaluation and adjustment of rebate values based on changes in market dynamics during the life of the rebate program
Having a level of funding that is able to exceed existing market demand and sustain growth, so market volatility resulting from changes in rebate availability and funding are minimized.
The information for this summary about renewable energy rebates comes from an NREL technical report, State Clean Energy Practices: Renewable Energy Rebates.
For more information on renewable energy rebates, see the NREL technical report, Southeast Regional Clean Energy Policy Analysis.
The following databases provide information about policy implementation and the status of legislation in the states:
- Database of State Incentives for Renewable and Efficiency
- National Conference of State Legislatures' Energy and Environment Legislation Tracking Database