Order Code IB10041
Issue Brief for Congress
Received through the CRS Web
Renewable Energy:
Tax Credit, Budget, and
Electricity Production Issues

Updated February 6, 2003
Fred Sissine
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Renewable Energy Concept
Contribution to National Energy Supply
Role in Long-Term Energy Supply
History
Tax Credits
Public Utility Regulatory Policies Act
State and Local Government Roles
DOE’s Office of Energy Efficiency and Renewable Energy
Renewables Provisions in Omnibus Energy Bills
Renewable Energy Portfolio Standard (RPS)
Renewable Energy Fuel Standard (RFS)
Production Tax Credit and Production Incentive
Residential Tax Credit
Alternative Fuels Incentives
Renewable Energy Labels
FY2004 DOE Budget
FY2003 DOE Budget
FY2003 USDA Budget
Electricity from Renewable Energy
Renewables Under Electric Industry Restructuring
Green Power
Distributed Generation
Net Metering
Climate Change and Renewables
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
CRS Reports
FOR ADDITIONAL READING
Web Sites

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Renewable Energy:
Tax Credit, Budget, and Electricity Restructuring Issues
SUMMARY
Energy security, a major driver of federal
balances), which is identical to the level
renewable energy programs in the past, came
recommend by the Senate Appropriations
back into play as oil and gas prices rose late in
Committee in the 107th Congress. This level
the year 2000. The terrorist attack of
is $52.0 million, or 13%, more than the House
September 11, 2001, led to heightened
Appropriations Committee recommended in
concern about energy security and the
the 107th Congress. It includes increases of
vulnerability of energy infrastructure Further,
$10.5 million for Geothermal, $9.5 million for
the 2001 electricity shortages in California
Hydrogen, $6.0 million for Wind, $4.1 million
brought a new emphasis to the role that
for Concentrating Solar, $4.0 million for
renewable energy may play in electricity
Program Support, $3.3 million for
supply.
Photovoltaics, and $3.0 million for
Renewable American Indian Resources.
In the 107th Congress, debate over
renewable energy programs focused on tax
The FY2004 budget request for DOE’s
credits, incentives, budget, and provisions of
Renewable Energy Program seeks $444.2
the omnibus energy policy bill, H.R. 4.
million (excluding a general reduction), which

is $37.2 million more than the FY2003
Also, worldwide emphasis on
request and is $3.9 million lower than the
environmental problems of air and water
Senate-passed version of H.J.Res. 2, which
pollution and global climate change, and the
would make appropriations for FY2003. The
related development of clean energy
request presents a new budget structure.
technologies in western Europe and Japan,
may remain important influences on
Both the House and Senate versions of
renewable energy policymaking. Concern
H.R. 4 would have extended the renewable
about technology competitiveness may also be
energy production tax credit (for 2 years),
a factor in debate.
expanded the renewable energy production
incentive, and created a residential tax credit
For DOE’s FY2003 Renewable Energy
for some renewable energy equipment. The
Program, the Bush Administration sought
Senate version also had a renewable energy
$407.0 million, an $11.3 million (3%)
portfolio standard (RPS) that set a target for
increase relative to the FY2002 appropriation,
future electricity production. This provision
not accounting for inflation.
stimulated intense negotiations in the
conference committee on H.R. 4, which did
In the 107th Congress, the House
not resolve some concern about the
Appropriations Committee recommended
“feasibility” of reaching target percentages.
$396.0 million for the FY2003 Program,
Further, the Senate version proposed a
which is $11.0 million less than the request.
renewable energy fuel standard, which was
In contrast, the Senate-passed version of the
subject to a debate about whether to eliminate
FY2003 Omnibus Appropriations Bill
the federal ban on methyl tertiary-butyl ether
(H.J.Res. 2) recommends $448.1 million
(MTBE).
(excluding $15.0 million in prior year
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On February 3, 2003, the Bush Administration issued its FY2004 budget request. For
DOE’s Renewable Energy Program, it seeks $444.2 million (excluding a general reduction),
which is $37.2 million more than the FY2003 request and includes $48.1 million more for
Hydrogen (as part of the Freedom Fuel Initiative) and $15 million more for a National
Climate Change Technology Initiative. It would also would terminate the Concentrating
Solar Power Program and cut Biomass by $16.3 million, Solar Buildings by $5 million, and
Renewable American Indian Renewables by $2.3 million. The request is $3.9 million lower
than the Senate-passed version of H.J.Res 2, which would make appropriations for FY2003.
The request presents a new budget structure.
On January 29, 2003, the House disagreed to the Senate amendment for H.J.Res 2 and
appointed conferees. On January 23, 2003, the Senate passed the Omnibus Appropriations
bill for FY2003 (H.J.Res. 2), which includes the Energy and Water Appropriations bill
(Congressional Record of January 15, 2003, p. S492). For the DOE Renewable Energy
Program, it contains $448.1 million (excluding $15.0 million in prior year balances). This
is identical to the amount that the Senate Appropriations Committee had recommended in
the 107th Congress. Compared to the Administration’s request of $407.0 million, the Senate
level would add $41.1 million, or 10%, excluding inflation. Compared to FY2002, the
Senate level would add $52.1 million, or 13%, excluding inflation. The House
Appropriations Committee recommendation in the 107th Congress was the same as the
FY2002 level.
In the 107th Congress, conference committee negotiations over the omnibus energy bill,
H.R. 4, were not completed. Key renewables provisions that reportedly (Inside Energy,
October 21, p. 1-5) were not agreed to included the renewable energy portfolio standard
(RPS), renewable energy fuel standard, the renewable energy production tax credit, a
residential tax credit, and several incentives for alternative fuels and vehicles.
(The DOE FY2004 Budget Request is on the DOE web site at
[http://www.mbe.doe.gov/budget/04budget/content/es/solar.pdf].)
BACKGROUND AND ANALYSIS
Renewable Energy Concept
Renewable energy is derived from resources that are generally not depleted by human
use, such as the sun, wind, and water movement. These primary sources of energy can be
converted into heat, electricity and mechanical energy in several ways. There are some
mature technologies for conversion of renewable energy such as hydropower, biomass, and
waste combustion. Other conversion technologies, such as wind turbines and photovoltaics,
are already well-developed, but have not achieved the technological efficiency and market
penetration which many expect they will ultimately reach. Although geothermal energy is
produced from geological rather than solar sources, it is often included as a renewable energy
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resource and this brief treats it as one. Commercial nuclear power is not generally
considered to be a renewable energy resource. (For further definitions of renewable energy,
see the National Renewable Energy Laboratory’s web site information on “Clean Energy
101" [http://www.nrel.gov/clean_energy/].)
Contribution to National Energy Supply
According to the Energy Information Administration’s (EIA’s) Annual Energy Outlook
2002, renewable energy resources supplied about 6.5 Q (quadrillion Btu’s or quads) of the
99.3 Q the nation used in 2000, or about 6.6% of national energy demand. More than half
of renewable energy production takes the form of electricity supply. Of this, most is
provided by large hydropower. However, from 1998 through 2000, declining hydroelectric
availability led to a slight drop in national renewable energy use. Industrial use of
renewables, supplied primarily by biofuels, accounts for most of the remaining contribution.
After more than 25 years of federal support, some note that renewable energy has
achieved neither a high level of market penetration nor a growing market share among other
energy sources. A recent review of renewable energy studies by Resources for the Future,
Renewable Energy: Winner, Loser, or Innocent Victim?, concludes that the lower-than-
projected market penetration and flat market share are due primarily to declining fossil fuel
and electricity prices during this period. In contrast, however, it notes that the costs for
renewable energy technologies have declined by amounts equal to or exceeding those of
earlier projections.
EIA’s Annual Energy Outlook 2002 projects that current policies would yield a 1.6%
average annual increase in renewable energy production through 2020, resulting in a 38%
total increase. This would amount to about 6.8% of the projected 131 Q total demand in
2020. (Detailed breakdowns of renewable energy use appear in EIA’s Renewable Energy
Annual 2000 and Renewable Energy 2000: Issues and Trends.)
Role in Long-Term Energy Supply
Our Common Future, the 1987 report of the United Nations’ World Commission on
Environment and Development, found that “energy efficiency can only buy time for the
world to develop ‘low-energy paths’ based on renewable sources.” Although many
renewable energy systems are in a relatively early stage of development, they offer the world
“a potentially huge primary energy source, sustainable in perpetuity and available in various
forms to every nation on Earth.” It suggested that a Research, Development, and
Demonstration (R,D&D) program of renewable energy projects is required to attain the same
level of primary energy that is now obtained from a mix of fossil, nuclear, and renewable
energy resources.
The Agenda 21 adopted at the 1992 United Nations Conference on Environment and
Development (UNCED) concluded that mitigating urban air pollution and the adverse impact
of energy use on the atmosphere — such as acid rain and climate change — requires an
emphasis on “clean and renewable energy sources.” The U.N. Commission on Sustainable
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Development oversees implementation of Agenda 21. The 2002 U.N. World Summit on
Sustainable Development (Johannesburg Summit) adopted a Political Declaration and a
Plan of Implementation ([http://www.johannesburgsummit.org/]), which includes “Clean
Energy” as one of five key policy actions. The U.S. Department of State plans to implement
a $43 million Clean Energy Initiative in 2003 ([http://www.state.gov/g/oes/sus/wssd/]), and
the European Union committed to a $700 million energy partnership.
History
The oil embargo of 1973 sparked a quadrupling of energy prices, major economic
shock, and the establishment of a comprehensive federal energy program to help with the
nation’s immediate and long-term energy needs. During the 1970s, the federal renewable
energy program grew rapidly to include basic and applied R&D, and joint federal
participation with the private sector in demonstration projects, commercialization, and
information dissemination. In addition, the federal government instituted market incentives,
such as business and residential tax credits, and created a utility market for non-utility
produced electric power through the Public Utility Regulatory Policies Act (P.L. 95-617).
The subsequent failure of the oil cartel and the return of low oil and gas prices in the
early 1980s slowed the federal program. Despite Congress’s consistent support for a broader,
more aggressive renewable energy program than any Administration, federal spending for
these programs fell steadily through 1990. Until 1994, Congress led policy development and
funding through legislative initiatives and close reviews of annual budget submissions.
FY1995 marked a noteworthy shift, with the 103rd Congress for the first time approving less
funding than the Administration had requested. The 104th Congress approved 23% less than
the Clinton Administration request for FY1996 and 8% less for FY1997. However, funding
turned upward again during the 105th Congress and in the 106th Congress. (A detailed
description of DOE programs appears in DOE’s FY2003 Congressional Budget Request,
DOE/ME-0003, v. 3, February 2002.)
From FY1973 through FY2002, the federal government spent about $14.2 billion (in
2003 constant dollars) for renewable energy R&D. Renewable energy R&D funding grew
from less than $1 million per year in the early 1970s to over $1.4 billion in FY1979 and
FY1980, then declined steadily to $148 million in FY1990. By FY2002, it reached $403
million in 2003 constant dollars.
This spending history can be viewed within the context of DOE spending for the three
major energy supply R&D programs: nuclear, fossil, and energy efficiency R&D. From
FY1948 through FY1972, in 2003 constant dollars, the federal government spent about $24.3
billion for nuclear (fission and fusion) energy R&D and about $5.5 billion for fossil energy
R&D. From FY1973 through FY2002, the federal government spent $49.1 billion for
nuclear (fission and fusion), $24.8 billion for fossil, $14.2 billion for renewables, and $11.1
billion for energy efficiency. Total energy R&D spending from FY1948-FY2002, in 2003
constant dollars, reached $128.9 billion, including $73.4 billion, or 57%, for nuclear, $30.2
billion, or 23%, for fossil, $14.2 billion, or 11%, for renewables, and $11.1 billion, or 9%,
for energy efficiency.
Tax Credits. The Energy Tax Act of 1978 (P.L. 95-618) created residential solar
credits and the residential and business credits for wind energy installations; it expired on
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December 31, 1985. However, business investment credits were extended repeatedly
through the 1980s. Section 1916 of the Energy Policy Act of 1992 (EPACT, P.L. 102-486)
extended the 10% business tax credits for solar and geothermal equipment indefinitely. Also,
EPACT Section 1914 created an income tax “production” credit of 1.5 cents/kwh for
electricity produced by wind and closed-loop biomass (energy crops or trees grown only for
use as a fuel) systems. P.L. 106-170 expanded this credit to include poultry waste. On
March 9, 2002, the Job Creation and Worker Assistance Act of 2002 (P.L. 107-147, H.R.
3090) was signed into law. Section 603 extends the production tax credit for wind, closed-
loop biomass, and poultry waste, retrospectively, from December 31, 2001 to December 31,
2003.
Public Utility Regulatory Policies Act. The Public Utilities Regulatory Policies
Act (PURPA, P.L. 96-917) required electric utilities to purchase power produced by qualified
renewable power facilities. Under PURPA, the Federal Energy Regulatory Commission
(FERC) established rules requiring that electric utilities purchase power from windfarms and
other small power producers at an “avoided cost” price based on energy and capacity costs
that the utility would otherwise incur by generating the power itself or purchasing it
elsewhere. However, to receive avoided cost payments, each renewables facility must file
for, and obtain, qualifying facility (QF) status from FERC. EIA’s Renewable Energy 2000:
Issues reports that, in 1998, QF renewable power capacity reached 12,700 megawatts (MW)
and generation reached 64 billion kilowatt-hours (kwh). Thus, QFs provided about 1.6% of
national electric capacity and about 1.7% of national electricity generation. In comparison,
the capacity of all renewables reached 94,800 MW, or about 12% of national capacity; and
generation for all renewables stood at 418,000, which is about 11.5% of national generation.
State and Local Government Roles. State and local governments have played a
key role in renewable energy development. For example, in the early 1980s, a generous state
investment tax for wind energy in California combined with PURPA and the federal tax
credit to stimulate industry development of the first windfarms. California and New York
have invested some state funds in renewable energy R&D. Recently, Texas and several other
states have used a regulatory tool, the renewable energy portfolio standard (RPS), to
encourage renewable energy. Also, in 2001, the City of San Francisco enacted a $100
million revenue bond (Proposition B, “Vote Solar”) to support solar and wind energy
implementation.
DOE’s Office of Energy Efficiency and Renewable Energy (EERE). This
office is led by the Assistant Secretary for Energy Efficiency and Renewable Energy. In
2002, Assistant Secretary David Garman completed a major reorganization of EERE. The
new management strategy is described in Focused on Results: A New Government Business
Model, available at [http://www.eren.doe.gov/eere/pdfs/eere_reorg.pdf]. More information
a b o u t E E R E i s a v a i l a b l e o n t h e D O E w e b s i t e
[http://www.eren.doe.gov/eere/organization.html].
Renewables Provisions in Omnibus Energy Bills
In the 107th Congress, most legislative action on renewables has focused on the House
and Senate versions of the omnibus energy policy bill, H.R. 4. The renewables provisions
in the House version were taken directly from H.R. 2436, H.R. 2460, H.R. 2511, and H.R.
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2587 and contained many, if not most, of the renewable energy recommendations in the Bush
Administration’s National Energy Policy report. The Senate version of H.R. 4 incorporated
S.Amdt. 2917 to S. 517, which, in turn, replaced S. 1766. Many renewables provisions of
the Senate version were taken directly from S. 388, S. 389, S. 596, and S. 597. The
Conference Committee reportedly had reached agreement on three renewables provisions:
an annual DOE assessment of renewable energy potential (H601/S262, House recedes), a
DOE report on renewable energy potential for American Indian lands (S406, House recedes
with amendment), and a wind/hydro study (S408, House recedes with amendment). Other
key renewables provisions included the renewable energy portfolio standard, the renewable
fuel standard, and a few tax credits and other incentives.
Renewable Energy Portfolio Standard (RPS). Inside Energy (October 21, 2002,
p. 1-5) reported that a “number of changes” from the Senate’s RPS language had been
negotiated and that the changes were being “evaluated by DOE to make sure they are
feasible.” The changes reportedly included “more borrowing and averaging” of credits and
may include a provision “allowing states to opt out of the federal RPS under certain
conditions.” Yet, some conferees still saw the RPS target percentage as “an unachievable
level.”
Section 264 of the Senate version of H.R. 4 (S. 517) proposed that retail electricity
suppliers (utilities, except for municipal and cooperative utilities) be required to obtain a
minimum percentage of their power production from a portfolio of new renewable energy
resources. The minimum energy target or “standard” would start at 1% in 2005, rise at a rate
of about 1.2% every two years, and peak at 10% in 2019.
Eligible resources include solar, wind, ocean, and geothermal energy, most forms of
biomass, landfill gas, and incremental hydropower. A generation offset from renewables
used on site to reduce the measured demand from the grid is also eligible. The base for
calculating the target production level excludes power from eligible renewables, hydropower,
and municipal solid waste. Thus, states with a large amount of existing biomass, hydro, or
other renewable power generation will have a proportionately lower target for new
generation.
Tradable credits are created, which can be purchased in place of power from other
suppliers, to help retailers meet the target at the lowest cost. The credits would function like
the Clean Air Act emission allowance trading system, which has lowered compliance cost
for air pollution regulations. The bill’s credit trading provision is made flexible by allowing
a supplier to “borrow” from expected future credits to fill a present shortfall or to “carry
forward” surplus credits to future years.
A cost cap for the credits was set as the lesser of 1.5 cents/kwh (Section 271) or 200%
of the average market value of the credits. The lower the cost cap, the more it may restrict
portfolio diversity and deter generation from solar and other higher-cost renewable resources.
Utilities sought a cost cap near 1 cent/kwh, while environmental groups sought a cap near
4 to 5 cents/kwh. State experience suggests that a cost cap is key to compliance cost control
and may also allow compliance cost to flow through to customers as a business cost.
Some see a federal RPS as a way to substitute a more market-oriented mechanism for
the PURPA Section 210 requirement that utilities purchase power from renewables at an
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administratively determined “avoided cost.” More than ten states, including Texas, and a
few foreign governments, have an RPS that provides a base of experience for the federal
proposal. In September 2002, California enacted an RPS (SB1078) that requires a 1% annual
increase, ties renewables cost to natural gas prices, and aims to reach 20% by 2017. (For
i n f o r m a t i o n a b o u t R P S p o l i c i e s i n t h e s t a t e s , s e e
[http://www.dsireusa.org/dsire/summarytables/reg1.cfm?&CurrentPageID=7]. For more
general information on RPS, see [http://www.congress.gov/brbk/pdf/ebele27.pdf].)
Renewable Energy Fuel Standard (RFS). According to Inside Fuels and Vehicles
(October 10, 2002, p. 6-7), one major RFS issue for the H.R. 4 Conference Committee was
whether to include elimination of the federal ban on methyl tertiary-butyl ether (MTBE), as
proposed by the House. Section 820 of the Senate version proposed to increase the
renewable energy content of motor fuel, starting in 2003. There was no comparable
provision in the House version. (For more on the Renewable Energy Fuel Standard, see CRS
Report RL31276.)
Production Tax Credit and Production Incentive. The H.R. 4 Conference
Committee did not address tax provisions. Both the House version of H.R. 4 (Section 3102)
and the Senate version (Section 1901-1906) would expand and further extend the renewable
energy production tax credit that was extended by P.L. 107-147 (H.R. 3090). Also, both
versions (House, Section 602; Senate, Section 261) would expand and extend a parallel
renewable energy production “incentive” for state and local governments. This 1.5 cent/kwh
renewable energy production incentive (REPI) was created by EPACT Section 1212. It is
funded through direct appropriations to DOE.
Residential Tax Credit. Section 2103 of the Senate version and Section 3101 of the
House version created a 15% residential tax credit worth up to $2,000 for homeowners who
purchase photovoltaics and solar water heating equipment. The Senate version also provided
a 30% credit worth up to $1,000 for wind energy equipment.
Alternative Fuels Incentives. In the House version of H.R. 4, Sections 2101-2105
call for grants to support alternative fuels and fueling stations and Sections 3104-3106
provide other incentives for alternative fuels and vehicles. Titles XIX, XX, and XXI of the
Senate version had tax credits for alternative fuels, vehicles, and fueling stations.
Renewable Energy Labels. The House version (Section 141A) would have created
an “Energy Sun” label for renewable energy equipment that could serve in a role parallel to
that for the “Energy Star” label for energy-efficient equipment. (The renewables provisions
in the House version are summarized in CRS Report RL31153 and the provisions of the
Senate version are summarized in CRS Report RL31276.)
FY2004 DOE Budget
The FY2004 request for DOE finds that hydrogen energy is the “most promising long-
term revolution in energy use that can help the nation “liberate itself from dependence on
imported oil,” according to the Budget of the U.S. Government FY2004 (p 105). The
FY2004 request for DOE’s Renewable Energy Program elaborates that its aim is to
“accelerate progress” and make hydrogen technologies “cleaner, safer, and lower in cost.”
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Further, it stresses that the new National Climate Change Technology Initiative will create
“competitive solicitations” in applied research that aims to reduce greenhouse gas emission
and will “complement” existing R&D programs.
FY2003 DOE Budget
On September 5, 2002, the House Appropriations Committee reported (H.R. 5431,
H.Rept. 107-681) the FY2003 Energy and Water Appropriations (E&W) Bill, which
recommends $396.0 million for the DOE Renewable Energy Program. This is the same
amount, not accounting for inflation, as the FY2002 appropriation.
As shown in Table 2, the Senate Appropriations Committee (S. 2784, S.Rept. 107-220)
FY2003 recommendation of $448.0 million (excluding $15.0 million in prior year balances)
would provide $52.0 million, or 13%, more for the DOE Renewable Energy Program than
the House Appropriations Committee’s recommendation. This includes $10.5 million more
for Geothermal, $9.5 million more for Hydrogen, $6.0 million more for Wind, $4.1 million
more for Concentrating Solar, $4.0 million more for Program Support, $3.3 million more for
Photovoltaics, and $3.0 million more for Renewable American Indian Resources.
The Senate report on FY2003 Energy and Water Appropriations found that DOE had
not adequately implemented “congressionally-directed activities” set out in the FY2002
conference report and called for a DOE response “before the Conference Committee
completes action on the final [FY2003] bill.” The House report (H.Rept. 107-681) echoed
this concern and it “renewed” an FY2002 directive that DOE provide Congress with
“quantitative measures that can be used to evaluate the potential costs and benefits of various
renewable energy technologies,” to show a basis for its FY2003 budget proposal.
The FY2003 request (as revised by the House Appropriations Committee on March 18,
2002) for DOE’s Renewable Energy Program sought “to meet the growing need for clean and
affordable energy,” according to the Appendix to the U.S. Government’s FY2003 Budget (p.
397). To fulfill this policy, DOE proposed to lift funding from $396.0 million in FY2002
to $407.0 million in FY2003, an increase of $11.0 million (3%) above the FY2002 level.
FY2003 USDA Budget
The Department of Agriculture’s (USDA) renewable energy programs have recently
grown, spurred by federal bioenergy initiatives (P.L. 106-224, Executive Order 13134), the
President’s National Energy Policy, and the Farm Security Act (P.L. 107-171). According
to USDA, renewable energy program funding reached $247.6 million in FY2002. Table 1
shows some funding details. Also, for FY2003, Section 6013 of the Farm Security Act of
2002 provides loan guarantees for renewable energy equipment and broadens the range of
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Table 1. USDA Funding for Renewable Energy Programs
($ millions)
FY2001
FY2002
FY2003*
Biobased Products and Bioenergy Programs
Agricultural Research Service
48.9
64.2
67.4
Commodity Credit Corporation (CCC)*
40.7
150.0
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Cooperative State Research, Education, Extension
23.0
12.3
14.2
Forest Service
12.5
12.5
17.5
Other
8.0
8.2
3.4
Subtotal, Biobased Products and Bioenergy Programs*
133.0
247.2
102.5
Substitution: Solar and Wind Energy Programs
0.4
0.4
0.4
Farm Security Act, Title IX (mandatory appropriations)
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39.0
Total*
133.4
247.6
141.9
*The appropriations for the FY2003 CCC Bioenergy Incentives Program have not yet been
set. The Senate has recommended $50 million and the House has recommended $150 million.
Source: USDA. Office of Energy Policy and New Uses. Selected tables from Roger Conway, October 29,
2002.
renewable energy equipment available for loans. Sections 2101 and 6401 of the Act provide
other programs and incentives for renewable energy ([For more information about USDA
Bioenergy Programs, go to the website at http://www.ars.usda.gov/bbcc/index.htm]).
Electricity from Renewable Energy
The Public Utility Regulatory Policies Act (PURPA) has been key to the growth of
electric power production from renewable energy facilities. Since 1994, state actions to
restructure the electric utility industry have dampened PURPA’s effect. As part of federal
restructuring proposals, some bills have included a repeal of the mandatory renewables
purchase requirement in Section 210 of PURPA. (For a discussion of broader electricity
restructuring issues, see the CRS Electronic Briefing Book on Electricity Restructuring at
[http://www.congress.gov/brbk/html/ebele1.shtml].)
Renewables Under Electric Industry Restructuring. To encourage a continued
role for renewable energy under restructuring, some states and utilities have enacted such
measures as a renewable energy portfolio standard (RPS), public benefits fund (PBF), and/or
“green” pricing and marketing of renewable power. The Senate version of H.R. 4 had an
RPS (see above under "Renewable Energy Portfolio Standard").
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Green Power. The spread of competition in the electric industry has been
accompanied by growth in the market for green power services. The term “green power”
generally refers to electricity supplied in whole or in part from renewable energy sources.
Green pricing is an optional utility service that allows electricity customers who are willing
to pay a premium for the environmental benefits of renewable energy to purchase green
power instead of conventional power. More than 80 utilities have implemented green pricing
programs that can reach more than one-third of the nation’s consumers. Green power
marketing, the selling of green power programs in either the retail or wholesale competitive
marketplace, is underway in the newly competitive electricity markets of California,
Connecticut, Illinois, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island,
and Texas. The growth of green power has led to market information needs for disclosure
and certification, which are discussed in CRS Report RS20270 on Renewable Energy and
Electricity Restructuring. (For more on green power see the web site
[http://www.eren.doe.gov/greenpower/home.shtml].)
Distributed Generation. Distributed generation involves the use of small, modular
electricity generators sited close to the customer load that can enable utilities to defer or
eliminate costly investments in transmission and distribution (T&D) system upgrades, and
provide customers with quality, reliable energy supplies that may have less environmental
impact than traditional fossil fuel generators. Technologies for distributed electricity
generation use wind, solar, bioenergy, fuel cells, gas microturbines, hydrogen, combined heat
and power, and hybrid power systems. For example, DOE’s R&D program is developing
systems under five megawatts in size that would primarily use agricultural or industrial
biomass wastes to supply energy to use on-site or to sell to the grid. As another example,
photovoltaic (PV) systems ranging from one kilowatt to one megawatt are commercially
available. PV has the advantages of being modular and easy to site near the use, it has low
operating and maintenance costs, and its power output curve follows the peak electrical
demand. Its main disadvantage is its initial capital cost. (More information about DOE’s
Distributed Power Program is available at [http://www.eren.doe.gov/distributedpower/]).
During the 2001 electricity crisis in California, FERC waived (EL01-47/000,
[http://www.ferc.fed.us/electric/bulkpower/el01-47-000.pdf]) its prior notice requirements
for businesses with on-site power generators that sell wholesale power to the grid, to help
increase electricity supplies in the Western states. This action tends to encourage more
generation from distributed renewable energy power sources. Also, the House version of
H.R. 4 (Sections 2121-2128) and Senate version of H.R. 4 (Sections 102, 242, 1211) had
provisions for distributed generation.
Net Metering. Net metering allows customers with generating facilities to “turn their
electric meters backwards” when they are feeding power into the grid, so that they receive
retail prices for the excess electricity they generate. This encourages customer investment
in distributed generation, which includes renewable energy equipment. In 2002, California
enacted laws (AB58, Chapter 836; AB2228, Chapter 845) that encourage net metering,
including a provision that permanently raises the size limit from 10 kw to 1 Mw. Further,
the California Public Utilities Commission approved $138 million annually over four years
for programs that reduce peak demand, including a provision for up to 50% of system cost
to customers that install PV, wind, or fuel cells that use renewable fuels ranging in size from
30 kw to 1 MW. Also, the Senate version of H.R. 4 (Section 245) provided for net metering.
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Climate Change and Renewables
Because most forms of renewable energy generate no carbon dioxide (CO ), renewables
2
are seen as a key long-term resource that can substitute for fossil energy sources used to
produce vehicle fuels and electricity. The percentage of renewable energy substitution
depends on technology cost, market penetration, and the use of energy efficiency measures
to control energy prices and demand. DOE’s 2000 report, Scenarios for a Clean Energy
Future, estimates that new policies could triple non-hydro renewables electricity production
in 2010 from a projected business-as-usual 86 billion kilowatt-hours (Bkwh) to 265 Bkwh.
EPA’s Climate Action Report-2002 describes federal renewable energy programs aimed at
reducing greenhouse gas emissions. In Climate Change 2001: Mitigation, the
Intergovernmental Panel on Climate Change looks at the role that renewables can play in
curbing global CO emissions.
2
Since 1988, the federal government has accelerated programs that study the science of
global climate change and has initiated programs aimed at mitigating fossil fuel-generated
carbon dioxide (CO ) and other human-generated emissions. (For more details, see the CRS
2
electronic briefing book on Global Climate Change at
[http://www.congress.gov/brbk/html/ebgcc1.html].)
The federal government funds programs for renewable energy as a mitigation measure
at DOE, the Department of Agriculture (USDA), the Environmental Protection Agency
(EPA), the Agency for International Development (AID), and the World Bank. The latter
two agencies have received funding for renewable energy-related climate actions through
Foreign Operations appropriations bills.
Because CO contributes the largest share of greenhouse gas emission impact, it has
2
been the focus of studies of the potential for reducing emissions through renewable energy
and other means. Except for biofuels and biopower, wherever renewable energy equipment
displaces fossil fuel use, it will also reduce carbon dioxide (CO ) emissions, as well as
2
pollutants that contribute to water pollution, acid rain, and urban smog. In general, the
combustion of biomass for fuel and power production releases CO at an intensity that may
2
rival or exceed that for natural gas. However, the growth of biomass material, which absorbs
CO , offsets this release. Hence, net emissions occur only when combustion is based on
2
deforestation. In a “closed loop” system, biomass combustion is based on rotating energy
crops, there is no net release, and its displacement of any fossil fuel, including natural gas,
reduces CO emissions.
2
LEGISLATION
H.J. Res. 2
Omnibus Appropriations Bill for FY2003. The Energy and Water Appropriations Bill
is part of the Omnibus Bill. It makes appropriations for DOE’s Renewable Energy program.
House passed as a continuing resolution, January 8, 2003. Senate inserted its amendment
(S.Amdt 1) and issued an unnumbered committee print (Congressional Record, p. S492)
January 15, 2003. Passed Senate, amended, January 23, 2003. Senate conferees appointed
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January 23, 2003. House disagreed to Senate amendment and appointed conferees January
29, 2003.
Legislation in the 107th Congress
P.L. 107-147 (H.R. 3090)
Job Creation and Worker Assistance Act of 2002. Section 603 extends the renewable
energy production tax credit for 2 years, retrospectively from December 31, 2001, to
December 31, 2003. Also, Section 602 extends a credit for electric vehicles and Section 606
extends a deduction for clean fuel vehicle property. House Committee on Ways and Means
reported (H.Rept. 107-251) bill on October 17, 2001, with two-year extension of renewables
production tax credit. Passed House October 24, 2001. Senate Finance Committee reported
(Committee Print 107-49) an amendment in the nature of a substitute with an amendment to
the title on November 9, 2001. Section 404 of the Senate version proposed one-year
extension of renewables production tax credit. Brought to the floor November 13, 2001.
Amended in Senate (S.Amdt. 2896) and passed Senate February 14, 2002. House agreed to
Senate amendment March 7, 2002. Signed into law March 9, 2002.
P.L. 107-171 (H.R. 2646)
Farm Security Act. Section 6013 provides loan guarantees for renewable energy
equipment and broadens the range of renewable energy equipment available for loans. Title
IX (p. 347-358) has several renewable energy provisions. Section 902 requires federal
purchases of biobased products, biofuels development, and biodiesel education. It also
provides renewable energy loans (up to $10 million) and grants (up to $200,000). Section
903 extends the Biomass R&D Act of 2000 (P.L. 106-224) through FY2006 and mandates
a $15 million per year appropriation for each year from FY2002 through FY2006. Section
904 provides technical and financial assistance, loans, and loan guarantees for renewable
energy development by rural electric cooperatives. Section 905 addresses measures to
sequester carbon and reduce greenhouse gas emissions. Section 906 directs the Department
of Agriculture to promote renewable fuels production. Section 907 continues and expands
the bioenergy program at the Department of Agriculture. House bill introduced July 26,
2001; referred to Committee on Agriculture. Reported (H.Rept. 107-191, Parts I, II, and III)
August 2, 2001. Passed House October 5, 2001. Senate bill reported in lieu of S. 1628 on
November 27, 2001. Committee on Agriculture, Nutrition, and Forestry filed written report
(S.Rept. 107-117) on December 7, 2001. Amended, incorporated into H.R. 2646 as an
amendment in the nature of a substitute, and passed Senate, February 13, 2002. Conference
report (H.Rept. 107-424) issued May 2, 2002. Signed into law May 13, 2002.
H.R. 4 (House Version)
Securing America’s Future Energy (SAFE) Act of 2001. Incorporates certain renewable
energy provisions from H.R. 2436, H.R. 2460, H.R. 2511, and H.R. 2587. It provides for
biomass on federal lands and geothermal leasing; authorizes R&D funding; creates tax
credits for residential solar and alternative fuel vehicles, and renewable power production;
and modifies hydropower development and licensing. Introduced July 27, 2001; referred to
Committee on Energy and Commerce, and to the Committees on Science, Ways and Means,
Resources, Education and the Workforce, Transportation and Infrastructure, the Budget, and
Financial Services. Passed House, amended, August 2, 2001.
H.R. 4 (Senate Version)
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Energy Policy Act. There are several major renewable energy provisions in this bill,
including a renewable energy portfolio standard and a renewable fuel standard. S. 1766 was
replaced by S. 517 which, in turn, was incorporated into the Senate version of H.R. 4 as an
amendment in the nature of a substitute (S.Amdt 2917) and passed the Senate April 25, 2002.
S.Amdt 3286 added the text of S. 1979 on energy tax measures to the bill.
H.R. 5263 (Bonilla)/S. 2801 (Kohl)
Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
Appropriations Bill, FY2003. Appropriates funding under USDA’s Commodity Credit
Corporation for the Bioenergy Incentives Program. House Appropriations Committee
reported (H.Rept. 107-623) July 11, 2002. Set as Calendar No. 374. Senate Appropriations
Committee reported (S.Rept. 107-223) July 25, 2002. Set as Calendar No. 250.
H.R. 5410 (Kolbe)/S. 2779 (Leahy)
Foreign Operations, Export Financing, and Related Programs Appropriations Bill,
FY2003. Appropriates funding for renewable energy and energy efficiency under programs
of the Global Environment Facility (GEF), U.S. Agency for International Development
(AID), Overseas Private Investment Corporation (OPIC), and other bilateral and multilateral
programs. Senate Appropriations Committee reported (S.Rept. 107-219) July 24, 2002.
Under Development Assistance, includes $175 million in a new account (Sec. 554) to create
a fund for “energy conservation, energy efficiency, and clean energy” in developing
countries. House Appropriations Committee reported (H.Rept. 107-663) September 19,
2002. Under Development Assistance, includes $3 million for clean energy.
H.R. 5431(Callahan)/S. 2784 (Reid)
Energy and Water Development Appropriations Bill, FY2003. Makes appropriations
for DOE’s Renewable Energy Program. Senate bill reported (S.Rept. 107-220) July 24,
2002. Assigned calendar number 514. House bill reported (H.Rept. 107-681) September 5,
2002. Assigned calendar number 423.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. Senate. Committee on Appropriations. Subcommittee on Energy and
Water. DOE FY2003 Budget Request for Energy Efficiency and Renewable Energy.
Hearing held April 18, 2002.
U.S. Congress. House. Committee on Appropriations. Subcommittee on Energy and Water.
DOE FY2003 Renewable Energy Budget Request. Hearing held March 13, 2002.
U.S. Congress. House. Committee on Small Business. Subcommittee on Rural Enterprises,
Agriculture, and Technology. Renewable Fuels. Hearing held July 24, 2001.
[http://www.house.gov/smbiz/hearings/107th/2001/010724a/index.html]
U.S. Congress. House. Committee on Energy and Commerce. Subcommittee on Energy
and Air Quality. The National Energy Policy Report of the National Energy Policy
D e v e l o p m e n t G r o u p . H e a r i n g h e l d J u n e 1 3 , 2 0 0 1 .
[http://energycommerce.house.gov/107/hearings/06132001Hearing271/hearing.htm]
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U.S. Congress. House. Committee on Science. The Nation’s Energy Future: Role of
Renewable Energy and Energy Efficiency. Hearing held February 28, 2001.
CRS Reports
CRS Memorandum. Renewable Energy Portfolio Standard (RPS), by Fred Sissine.
CRS Report RL31033. Energy efficiency and renewable energy fuel equivalents to potential
oil production from the Arctic National Wildlife Refuge (ANWR), by Fred Sissine.
CRS Report RS20270 . Renewable energy and electricity restructuring, by Fred Sissine.
CRS Electronic Briefing Book. Electric utility restructuring and reliability, by Amy Abel.
[http://www.congress.gov/brbk/html/ebele1.shtml]
CRS Issue Brief IB10054. Energy tax policy, by Salvatore Lazzari and Mark Holt.
CRS Report RL30953. Energy tax incentives: a comparison of the National Energy Security
Act of 2001 (S. 389) and the Democratic Alternative (S. 596), by Salvatore Lazzari.
CRS Report RL30369. Fuel ethanol: background and public policy issues, by Brent
Yacobucci.
FOR ADDITIONAL READING
Tables showing DOE Renewable Energy R&D Funding (current and constant) trends back
to FY1974 are available from the author of this issue brief.
Cato Institute. Policy Analysis. Evaluating the case for renewable energy: is government
support warranted? January 10, 2002. 16 p.
Edison Electric Institute. Various articles on renewable energy and distributed power.
Electric Perspectives Online.
Electric Power Research Institute. Various articles on renewable energy technologies. EPRI
Journal Online.[http://www.epri.com/journal/default.asp].
—— Renewable power industry status overview. EPRI December 1998. 1 vol. (EPRI TR-
111893).
—— Renewable energy technology characterizations. Dec. 1997. 266 p.
—— Utility customers go for the green. EPRI Journal, v. 22, March/April 1997: 6-15.
International Energy Agency. Renewables information 2002. Organization for Economic
Cooperation and Development (OECD). December 2002. 170 p.
[http://www.iea.org/stats/files/Ren2002.pdf]
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Loiter, Jeffrey M. and Norberg-Bohm, Vicki. Technology policy and renewable energy:
public roles in the development of new energy technologies. Energy Policy, v. 27, 1999.
p. 85-97.
Organization for Economic Cooperation and Development. International Energy Agency
(IEA). Renewable energy policy in IEA countries. OECD/IEA, Paris, 1998. 253 p.
—— Benign energy? The environmental implications of renewables. 1998. 122 p.
U.S. Department of Interior. Bureau of Land Management. Assessing the potential for
renewab le energy on federal lands. May 2002. 89 p.
[http://www.nrel.gov/docs/gen/fy02/32077Draft.pdf]
U.S. Department of Energy. Interlaboratory Working Group. Scenarios for a Clean Energy
Future. (ORNL/CON-476) November 2000. 350 p.
[http://www.ornl.gov/ORNL/Energy_Eff/CEF.htm]
—— Energy Information Administration. Federal financial interventions and subsidies in
energy markets 1999: primary energy. (SR/OIAF/99-03). September 1999.
—— Lawrence Berkeley Laboratory. Case Studies of State Support for Renewable Energy.
September 2002.
—— Lawrence Berkeley Laboratory and National Renewable Energy Laboratory.
Forecasting the growth of green power markets in the United States. October 2001.
—— National Renewable Energy Laboratory. The Clean Air Act and renewable energy:
opportunities, barriers, and options. (NREL/CP-620-29654). February 2001.
—— Enhancing homeland security through renewable energy – Richard Truly’s remarks
to the National Press Club. March 14, 2002. 7 p.
[http://www.nrel.gov/news/news.html]
U.S. Environmental Protection Agency. Climate action report: The United States of
America's third national communication under the United Nations Framework
C o n v e n t i o n o n C l i m a t e C h a n g e . J u n e 2 0 0 2 . 2 6 0 p .
[http://yosemite.epa.gov/oar/globalwarming.nsf/content/ResourceCenterPublications
USClimateActionReport.html]
U.S. Executive Office of the President. Powerful partnerships: the federal role in
international cooperation on energy innovation. June 1999. 260 p.
U.S. Executive Office of the President. The President’s Management Agenda, Fiscal Year
2002. August 2001. 64 p.
U.S. Executive Office of the President. National Energy Policy Report. May 2001. 170
p. [http://www.whitehouse.gov/energy/National-Energy-Policy.pdf]
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U.S. General Accounting Office. Renewable energy: DOE’s funding and markets for wind
energy and solar cell technologies. (GAO/RCED-99-130) May 1999. 38 p.
—— Solar and renewable resources technologies program. (GAO/RCED-97-188). July
1997. 69 p.
Wiser, Ryan et al. Renewable energy policy and electricity restructuring: a California case
study. Energy Policy, v. 26, 1998. p. 465-475.
Web Sites
American Council for Renewable Energy. [http://www.americanrenewables.org/]
American Solar Energy Society. [http://www.ases.org/]
American Wind Energy Association (AWEA). [http://www.awea.org/]
California Energy Commission. [http://www.energy.ca.gov/renewables/index.html]
Center for Renewable Energy and Sustainable Technology (CREST).
[http://solstice.crest.org/index.shtml]
National Association of Regulatory Utility Commissioners. [http://www.naruc.org/]
National Association of State Energy Offices. [http://www.naseo.org/]
Organization for Economic Cooperation and Development (OECD). International Energy.
Agency. Renewable Energy Newsletter. [http://www.caddet-re.org]
Eighth Session of the Conference of Parties to the United Nations Framework Convention
on Climate Change (New Delhi, COP-8). October 23 - November 1, 2002.
[http://unfccc.int/cop8/index.html]
U.S. Department of Energy. Energy Efficiency and Renewable Energy Network.
[http://www.eren.doe.gov/]
U.S. Department of Energy. Green Power Network Clearinghouse.
[http://www.eren.doe.gov/greenpower/home.shtml]
U.S. Department of Energy. National Renewable Energy Laboratory (NREL).
[http://www.nrel.gov/]
U.S. Department of Energy. Alternative Fuels Data Center. [http://www.afdc.nrel.gov/]
U.S. Environmental Protection Agency. Solar Site. [http://www.epa.gov/solar/]
Vote Solar Initiative. City of San Francisco’s $100 Million Revenue Bond Initiative for
Solar Energy Development. [http://www.votesolar.org/sf.html]
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Table 2. DOE Renewable Energy Budget for FY2001-FY2004
($ millions)
OFFICE OF ENERGY
EFFICIENCY AND RENEWABLE
ENERGY
FY2002 FY2003
FY2003
FY2003 House- Pct.
FY2004
App.
Request H.App.C.
Senate
Senate Diff.
Request
Biofuels - Total
93.0
86.0
86.0
100.0
-14.0
-16%
69.8
Biofuels/Utility Power
-----
-----
33.0
-----
-----
-----
-----
Biofuels/Transportation
-----
-----
53.0
-----
-----
-----
-----
Geothermal
29.0
26.5
26.5
37.0
-10.5
-40%
25.5
Hydrogen
31.0
39.9
35.5
45.0
-9.5
-27%
88.0
Small Hydro
5.3
7.5
6.5
7.5
-1.0
-15%
7.5
Solar Energy
95.0
87.6
87.6
95.0
-7.4
-8%
83.7
Concentrating Solar Power
-----
1.9
1.9
6.0
-4.1
-211%
0.0
Photovoltaics
-----
73.7
73.7
77.0
-3.3
-4%
76.7
Solar Buildings
-----
12.0
12.0
12.0
0.0
0%
7.0
Wind
41.0
44.0
44.0
50.0
-6.0
-14%
41.6
TECHNOLOGIES SUBTOTAL
294.3
291.5
286.1
334.5
-48.4
-17%
316.0
Electric/Storage
63.0
70.4
70.4
75.0
-4.6
-6%
70.8
Superconductivity
-----
47.8
47.8
50.0
-2.2
-5%
47.8
Other
-----
22.6
22.6
25.0
-2.4
-11%
23.0
Renewable Support &
Implementation
14.5
23.9
19.9
29.9
-10.0
-50%
20.9
Dept. Energy Management
1.5
3.0
1.5
3.0
-1.5
-100%
2.3
International Renewables
3.0
6.5
4.0
6.5
-2.5
-63%
6.5
Production Incentive
4.0
4.0
6.0
5.0
1.0
17%
4.0
Renew. Amer. Indian Res.
3.0
8.3
6.3
9.3
-3.0
-48%
6.0
Program Support
3.0
2.1
2.1
6.1
-4.0
-194%
2.1
NREL (incl. construction)
5.0
5.0
5.0
6.8
-1.8
-36%
5.0
Program Direction
19.2
16.2
14.6
16.9
-2.3
-16%
16.6
RENEWABLES, Subtotal
396.0
407.0
396.0
463.1
-67.1
-17%
444.2
Prior Year Balances
-----
-----
-----
-15.0
15.0
-----
-----
RENEWABLES, Total
396.0
407.0
396.0
448.1
-52.1
-13%
444.2
Source: DOE FY2004 Cong. Budget Request, v. 3; Feb. 2003 (p. 244-247); H. Appropriations Committee
Revisions, March 18, 2002; S.Rept. 107-220; H.Rept. 107-681; DOE FY2003 Cong. Budget Request, v. 3; Feb.
2002.
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