State and local policymakers possess numerous options and tools with which to create targeted incentives for desirable CHP development. Policy instruments include public financing, tax incentives, loan and financing programs, utility and/or regulatory incentives, and market-based approaches. Depending upon the policy objective, a variety of strategies can succeed. For example, economic development authorities may wish to target incentives in particular geographic areas, departments of environmental protection to encourage particularly clean technologies, or both agencies might focus on brownfield redevelopment. Possibilities include direct subsidies of certain desirable technologies, a wide range of tax incentives that may be targeted in several ways, particular provisions of utility tariffs, etc.
The EPA has produced a database about the state level incentives for CHP.
Mechanisms to consider include:
- Systems Benefit Charge or other funding to provide direct support for desirable projects.
- Investment Tax Credits (ITC) to encourage capital investment. ITCs may be tied to CHP system efficiency, and states may enact ITCs that are incremental to or separate from Federal provisions.
- Production Tax Credit (PCT) to credit the facility based on energy produced, providing an incentive for reliable operation.
- Development Incentives such as tax incentives for brownfield redevelopment investments or loan guarantees may include CHP.
- Accelerated Depreciation or Expensing to ease the debt burden and shorten payoff periods. Under Federal rules, depreciation periods depend on what type of business owns the facility (industrial sites typically take depreciation faster than commercial or residential).
- Tax Exempt Financing or tax exempt leasing to promote investment.
- Loan guarantees to reduce risk to customers installing CHP.
- Emission Reduction Credits for distributed generation provide market based incentive to reduce NOx emissions-credits may be sold in existing emission markets.
- Tariff Exemptions from standby or other charges for highly efficient CHP, or other regulatory mechanisms to deployment recognize the system benefits of CHP.
Examples of policies implemented at the state level include:
- The New York State Energy Research and Development Authority (NYSERDA), has used funding from a state System Benefits Charge to promote CHP installations and research through the periodic issuance of Program Opportunity Notices, available on its web site.
- A NY Brownfield ITC provides up to 22% for capital investments including CHP in certified brownfield sites.
- Wind and Biomass tax credits exist at the federal level, and MN has considered a state PTC.
- In NY, DASNY has financed CHP capital equipment investments through the "TELP" Program and "Power of 2" Jointly Administered with NYSERDA.
- All states may create an Energy Efficiency/Renewable Energy set-aside of Emission Reduction Credits under EPA guidance, with clean DG eligible for 1.5 lbs per MWh of displaced electricity; roughly 5 states have done so.
- Ohio 's Technology Investment Tax Credit (TITC) program offers a variety of benefits to Ohio taxpayers who invest in small, research and development and technology-oriented firms - this novel idea could be adapted to CHP developers as well.