Report on the Study of the Tax and Rate Treatment of Renewable Energy Projects
This study was conducted in response to Section 1205 of the Energy Policy Act of 1992 (EPACT), requiring the U.S. Department of Energy in conjunction with state regulatory commissions to determine if conventional tax measures and ratemaking procedures provide economic barriers to or incentives for the adoption of renewable electric generating plants compared to conventional ones. For this study, we defined barriers and incentives in terms of financial criteria used by investor-owned utilities (IOUs) and nonutility electricity generators (NUGs) when making decisions on technologies for new generating plants. For IOUs, the major criterion used was the levelized cost of producing power over the useful life of the technology. For NUGs, the major criterion used was the internal rate of return. Clearly, there are many factors outside the scope of this study that relate to the decisionmaking process of IOUs and NUGs. This study to determine barriers and incentives does not attempt to determine which technologies would most likely be adopted by IOUs and NUGs. Technologies are only cost (in)effective relative to a given power system and its set of internal and external conditions. Other technology-related factors such as availability, dispatchability, diversity, and reliability of generating alternatives are also considered in the decisionmaking process used by IOUs and NUGs. The results of this study show only the relative impact of certain tax measures and ratemaking procedures on financial criteria that IOUs and NUGs use as inputs to make technology-adoption decisions. Where these tax measures and ratemaking procedures provide incentives for an alternative, they increase the likelihood that the alternative will be selected by IOUs or NUGs when making generating-resource decisions. In quantifying the parameters of the seven renewable and four conventional generating options studied, we used today's ''conventional wisdom'' on the values of variables defining the technologies. We did not speculate on the technological evolution of the generating options, consequent changes in their costs, and changes in their attractiveness to IOUs and NUGs in the future. Consistent with the direction provided by the legislation, this study was limited to the portions of the electric power industry that make decisions on generating technologies. We did not investigate barriers or incentives that may result from tax policies affecting other segments of the fuel cycle, such as incentives for production of fossil fuels. It was also not possible to quantify the ratemaking treatment of risks. For example, the ratemaking procedure of passing through the costs of fuel to customers removes the risk of unexpected fuel price fluctuations for decisionmakers selecting conventional technologies. The structure of financial, labor, materials, fuel, and purchased power contracts are also beyond the scope of this ,study. Finally, the transmission and distribution of electric power was not studied.
- Research Organization:
- Oak Ridge National Lab. (ORNL), Oak Ridge, TN (United States)
- Sponsoring Organization:
- US Department of Energy (US)
- DOE Contract Number:
- AC05-00OR22725
- OSTI ID:
- 814400
- Report Number(s):
- ORNL-6772; TRN: US0304206
- Resource Relation:
- Other Information: PBD: 1 Jan 1993
- Country of Publication:
- United States
- Language:
- English
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