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As Some Federal Energy Incentives End, New York Takes Action

Grand Central Terminal clock in New York City

Quietly, while the United States focused on its national election, a set of federal clean energy incentives phased out at the end of 2016. Now that they have vanished, states may seek to create replacements to keep these markets alive and help them grow. For example, New York State Energy Research and Development Authority (NYSERDA) is now strategically replacing the missing incentives for renewable heating and cooling.

The decision to sunset the incentives was made long before the election. According to the United States Department of Energy, corporate tax credits for combined heat and power systems, geothermal heat pumps, microturbine technology, hybrid solar lighting, small wind installations, and fuel cells all expired at the end of the year. For the residential market, credits for fuel cells, geothermal power, and small wind installations ended at the same time.

The incentives were not necessarily timed to end when the markets matured. The current regional competitiveness of these technologies varies based on many factors. 

Because the ground source heat pump market still requires upfront financing to thrive in New York, NYSERDA plans to allocate $15 million to support it over a two-year period. The individual incentives are $1500 per ton for residences and $1200 per ton for commercial or industrial buildings.

“There was a 30-percent tax credit on ground source heat pump installation that expired at the end of December,” said Donovan Gordon, director of renewable heating and cooling at NYSERDA. “So we introduced this near-term bridge incentive for market continuity so they’ll have some level of support while NYSERDA develops a longer-term, broader incentive for all the renewable heating and cooling technologies.”

NYSERDA has published a policy framework explaining its initial goals. New York stakeholders can submit comments on the policy document until March 10. On March 2, NYSERDA plans to hold a webinar on this topic.

New York’s larger plan for supporting renewable heating and cooling technologies involves multiple steps. First, a bridge incentive for ground source heat pumps is being put in place. This program is scheduled to launch in the second quarter of 2017. To prevent a financing gap, the payments will be retroactive to cover any installations that took place after Dec. 31.

Second, NYSERDA is looking at creating a longer-term, performance-based incentive that will cover more technologies – including air source heat pumps, which are relatively cost-effective.

“Solar thermal – which is still considered a solar panel technology – still gets the benefit of a federal tax credit and a state tax credit,” Gordon said.

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Differences between States

Reforming the Energy Vision’s policy approach has transformed the landscape of clean energy financing in New York. This strategic support for renewable thermal technologies is taking place within that framework.

For states that have different policy structures, it may be more difficult to take action quickly when federal incentives vanish.

New York has been trying to improve the return on investment of renewable heating and cooling for around 15 years, Gordon said. The state’s goals are cost reduction, introducing mandates, and improving customer acceptance. The current barriers these technologies face in New York relate to upfront cost, customer receptivity, workforce training, and technology financing.

Tradeoffs among Models

The policy document explains why it’s effective to use upfront incentives in the short term and then replace them with performance-based ones later.

“We need upfront incentives to buy down the cost,” Gordon said. “If there’s a direct rebate in the program we’re designing, the rebate goes directly to the contractor unless the customer says, ‘I want the money.’ It’s supposed to be taken directly off the cost of the system. So they get the benefit upfront. But in the long term, we think that performance-based incentives mean we can reward the technology that gives the most benefit.”

Creating performance-based incentives involves looking into how heat pumps add value for the utility grid and reduce overall carbon emissions – and compensating the contractors who buy the heat pumps accordingly.

“The purchaser or owner of the heat pump is not realizing the value it’s creating,” Gordon said. “We’re trying to figure out how to get that value back to them – whether it’s a rebate, reduced cost, or some other way they realize that benefit.”

Thermal renewable energy certificates, also known as T-RECS, have piqued New York’s interest. This past month, the New York Department of Public Service hosted a meeting with the geothermal industry to talk about this financing option. Speakers from Massachusetts and New Hampshire talked about their states’ experiences.

“The other thing that we’re looking at that we want to explore with the public service commission (PSC) is called rate reform,” Gordon said. “Rate reform is a request to the PSC to reform electric rates so heat pumps would have a reduced rate.”

NYSERDA also mentioned tariffs as an option, but is not planning to create them.

This is a crucial time for other states to follow New York’s lead and strategize about how to support energy-efficient renewable heating and cooling technologies in the absence of federal incentives.

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