Oregon’s Renewable Energy Development Grant Program: Using Tax Credits to Leverage Private Investment
The Oregon Department of Energy’s (ODOE) Renewable Energy Development (RED) Grant Program uses a unique financing mechanism to promote investment in, and development of, renewable energy projects. By using a tax credit auction to fund the program, ODOE has provided competitive grants up to $250,000 for businesses, public bodies, schools, nonprofits, and tribes that install and operate a renewable energy system that produces electricity. Since 2012, ODOE has awarded nearly $5 million for 55 renewable projects statewide, including solar, hydropower, biogas, biomass, and geothermal installations. This innovative funding source – an independently administered auction of tax credits – has enabled the agency serve Oregonians without using scarce general fund dollars.
Oregon’s RED Grant Program, which started in 2011, is funded by the first-ever use of a state tax credit auction. This innovative financing mechanism combines the benefits of a direct grant program, where everyone can participate, with the benefits of the auction format, which encourages private investment in renewable energy. Other benefits of the tax credit auction are that it allows more revenue to be generated than the actual value of the tax credits, and the resulting proceeds from the tax credit auction can earn interest once deposited in the RED Grant Program subaccount.
During each round of auctions, Oregonians can bid on tax credit certificates in increments of $500; the minimum bid being $475. Buyers use the tax credits to reduce the amount they owe in state taxes. Additionally, buyers may be able to consider the tax credit purchase a charitable donation that they can deduct from their federal taxes, leading to bids in excess of the face value of the credit. The average bid from the most recent auction was $551.70 Besides the financial incentives to participate in the auction, many bidders are motivated by the opportunity to support renewable energy development in Oregon. Most of ODOE’s incentive programs have historically been in the form of tax credits.
Program Guidelines Support High-Quality Projects
The RED Grant Program supports renewable energy installations across the state – many of which would not be completed without the RED Grant Program funding. Through its intensive application requirements and review process, the program guidelines ensure variance among applicants so that a wide-range of projects can be funded.
To apply for a grant, project owners submit an application in response to an open opportunity announcement. Once submitted, the ODOE uses a two-tier system to ensure projects of the same size are compared against one another. Approximately $500,000 of the grant money will go to projects of up to 300 kilowatts. The remainder will go toward projects greater than 300 kilowatts.
The selected projects must start construction within 12 months of the execution of the performance agreement. During construction, the applicant makes periodic progress reports to ODOE. Each project’s performance agreement provides the timeframe to complete the project, usually two to three years. Once projects are constructed and operating, project owners submit a final report documenting that the performance agreement has been satisfied. ODOE reviews the submitted material and conducts a site visit before dispersing grant funds. All projects issued a grant must remain in operation for at least five years to ensure that scarce funds are spent on long-sustaining projects. ODOE may inspect a project throughout the required five-year period of operation.
Projects are scored using several criteria, including amount of energy generated, resource diversity to support a variety of renewable types, and community benefits. Additional points are awarded for projects that achieve special public benefits, including: installations in rural communities and those with high unemployment rates; community-owned systems that benefit the larger community rather than just the building’s owner; and the number of jobs created and sustained by the project.
Since the RED Grant Program began, 35 projects – all solar installations – have been completed, totaling $2.2 million in grants. Twenty more projects totaling $2.8 million have been awarded tentative grants but have not yet been completed. Most of these projects are also for solar, but biogas, hydroelectric, and geothermal projects are also in progress. The $5 million in grant funding for the 55 projects is supporting nearly $75 million in total costs for the projects. In total, the RED Grant Program’s awarded projects – both small-scale and large-scale – are expected to generate approximately 103 million renewable kilowatt hours (kWh) each year, reducing carbon dioxide emissions by an estimated 156 million pounds annually.
In many cases, RED Grant Program-funded projects have helped awardees reduce electricity bills to zero and have influenced additional sustainability projects. For one project, at Coyote Trails School of Nature in Medford, the installed solar array has become part of the school’s teaching curriculum. ODOE has highlighted several RED projects and their benefits on ODOE’s blog and podcast: energyinfo.oregon.gov.
In addition to providing funding, ODOE offers technical assistance and resources to entities exploring how to integrate renewable energy generation into their processes and/or footprint. These same resources are available to entities not seeking RED funding.
A Model for Other States
The RED Grant Program’s innovative funding mechanism can be replicated by other states and/or jurisdictions by those who allow the sale of tax credits. For states or jurisdictions that want to start slow, the RED Grant Program’s lower tier for smaller renewable energy generating projects is an intuitive start to supporting renewable energy generation, without having to commit large amounts of funding.
The Oregon Department of Energy was awarded a 2018 State Leadership in Clean Energy Award for the RED Grant Program.
The Clean Energy States Alliance hosted a webinar highlighting Oregon’s RED Grant Program on July 11, 2018.
PHOTO: Solar array at Bend Area Habitat for Humanity ReStore. This project was awarded $36,120 in RED Grant funds by the Oregon Department of Energy. Photo by Jennifer Kalez, Oregon Department of Energy.