Do rebates work? they may have only a tiny impact on renewable consumption.(CONSERVATION)

The Energy Policy Act 2005 (EPACT 2005) Sec. 206 provides for the establishment of a rebate program for expenditures made to install renewable energy systems in connection with a dwelling unit or small business. The amount of the rebate is set at 25 percent of the expenditures made by the consumer or $3,000, whichever is less. Annual funding to carry out this program was authorized in the law, starting with $150 million for Fiscal Year (FY) 2006 and ending with $250 million for FY 2010. However, Congress has not appropriated these funds to date.

According to this legislation, renewable energy sources include energy derived from solar, geothermal, biomass, and wind for nonbusiness residential purposes. In addition, it includes any other form of renewable energy which the Secretary of Energy specifies by regulation for the purpose of heating or cooling a dwelling or providing hot water or electricity for use within a dwelling.

According to the analysis discussed below in this article, Section 206 rebates would increase 2006 renewable residential energy consumption between 1 and 3 trillion British thermal units (Btu) above Energy Information Agency (EIA) Reference Case levels. By 2010, the estimated increase ranges from 7 to 14 trillion Btu. By comparison, EIA estimates total delivered residential energy consumption in its Annual Energy Outlook 2006 Reference Case to be about 12 thousand trillion Btu from 2006 through 2010.

Geothermal heat pumps (GHPs) account for the largest share of the increase in renewable energy consumption. Annual sales in 2006 are expected to increase between two- and five-fold over Reference Case levels due to Section 206 rebates. By 2010, GHP annual sales are projected at three to four times Reference Case levels.

Residential wood stoves are estimated to be a distant second to GHPs in providing additional renewable energy as a result of the Section 206 rebate program. Solar technologies provide only minimal additional energy. Residential wind turbines, geothermal direct use, and other forms of biomass (notably pellet fuel stoves) are not examined due to insufficient data.

Methodology

To analyze the impact of the Section 206 rebate program, the Energy Information Administration (EIA) used the National Energy Modeling System (NEMS), which is the basis for the forecasts published each year in the Annual Energy Outlook (AEO). While NEMS is a very flexible and comprehensive model, it does have some characteristics that limit this analysis.

First, the only renewable energy sources modeled in the residential sector are wood-burning stoves, geothermal heat pumps (GHPs), solar thermal hot water heaters, and solar photovoltaic (PV) installations for electricity. This excludes several energy sources, notably residential wind turbines and pellet fuel stoves. While EIA does not collect data on or forecast these energy sources, some reliable anecdotal information is provided for them. Failing to account for residential wind turbines is unlikely to affect the results, since the installed cost of residential wind turbines is so high that the Section 206 rebate would likely not cause many additional units to be purchased.

The second limit to this analysis is that no energy data (historical or projected) exist specific to small businesses, so potential benefits to them, largely in the commercial sector, were not examined. It should also be noted that this analysis does not consider possible synergies with State initiatives, particularly the new solar incentive recently adopted in California. The final limit to the analysis is that the rebate case projections assume authorized funds are structured by calendar year, whereas Section 206 prescribes limits by fiscal year.

EIA modeled the impact of Section 206 rebates by examining two separate cases. In the first case, prescribed unit rebates were considered, without regard to the overall budget impact they would have. For the second case, the total rebate limits were adhered to by assuming that there would be a smaller rebate for GHPs, the technology that analysis indicates would receive the largest benefit from the program. …