What Is Renewable Energy?

Renewable power sources deliver clean energy via solar PV, wind turbines, hydroelectric, geothermal, and biomass, enabling grid integration, power electronics, smart inverters, and energy storage for efficient, low-carbon electricity generation and resilient distribution.

What Are Renewable Power Sources?

Systems that convert solar, wind, hydro, and biomass into electricity via inverters, power electronics, and grid ties.

✅ Power electronics: MPPT, converters, and smart inverters for PV and wind.

✅ Grid integration: protection, frequency/voltage control, and stability.

✅ Energy storage: batteries, supercapacitors, and power quality management.

Renewable Power Sources involve a wide range of modern technologies that do not rely on fossil fuels or non-renewable energy sources to generate electricity

For a broader overview of policies, technologies, and market adoption, the field of renewable power continues to evolve rapidly worldwide.

The following technology risks have been identified for various renewable power sources. The descriptions are based on the outputs from the Needs Assessment, and the results of the Technology, Market and Sustainability analyses.

Understanding these risks also requires situating each technology within the wider ecosystem of renewable energy sources that shape supply, demand, and policy trajectories.

• Wind Power: Wind turbine power generation is a well-developed technology, especially in the medium/large-sized range. Small units of less than 100 kW to very large units of more than 2MW require further technological research and development. Wind turbine technology is generally finding its most effective application in large scale wind farms with turbines greater than 2MW and whcih are grid-connected.

Grid integration and ancillary services markets are central to scaling wind, as demonstrated by best practices in delivering reliable renewable electricity across diverse regions.

As wind technologies near full market commercialization,the financial and market risks become more important. Specifically,the price point for the produced power, as well as the regulatory acceptance (through appropriate codes and standards) is the key issue. Capital costs are high ($1200-$1500/kW) relative to conventional electricity generation,which are <$1000/kW. Those technologies which help address the cost-competitiveness will be of interest. Comparative analyses of learning curves and procurement models show how renewable power generation can achieve competitive levelized costs under supportive frameworks.

In general, wind power is considered a medium-to-low risk proposition, compared to the other technologies being considered. Given the substantial amount of Canada's energy needs that can be met by wind on our current electrical grid without a major technical challenge, SDTC's wind investment efforts are likely to be weighted towards large-scale technologies. This does not preclude investments in small-scale, non-grid-connected systems, but the net environmental and economic impact would need to be considered.

These considerations also inform deployment pathways alongside microgrids and storage in remote provinces, where flexible alternative energy power solutions can complement existing infrastructure.

• Solar PV Power: Solar panel development has become quite refined, so the current challenge is to improve the production techniques of the panels in order to reduce overall costs,and the environmental impacts of production. Investments in improved production technologies may still be considered a high risk proposition because few such technologies have so far been identified. In terms of the market, there is fairly wide acceptance of solar technologies, but application is fragmented (residential and remote users), and there is little acceptance and integration on a grid scale. Solar systems are harder to justify economically as major generation sources, so many are being used in individual residential and small commercial applications. Consequently,there are growing aesthetic issues (solar panels on roofs and lawns are facing the same issues that large satellite dishes once had).

Manufacturing innovation and policy incentives continue to shape alternative energy development for PV, influencing supply chains, permitting, and workforce training.

Solar power is not a stand-alone solution for large-scale electricity generation:it requires a form of energy storage or baseload generation. However, in certain niche applications, solar power is quite acceptable. Such solar power applications are likely to have the greatest environmental and economic benefits in the short term. Over the longer term, when time-of-day rates are implemented, peak-shaving applications will become more attractive. Canada should be seeding early applications that demonstrate the benefits of peak-shaving in various classes and installation locations.

On balance, the high financial and market risks result in an overall high risk rating for solar PV for the generation of grid-scale power.

• Bio-electricity Power: Bio oil and Bio gas technologies are well into the development cycle,but there are only a few major players at this point.Financially,the technology has not yet been proven as a primary power generation source. However,the value proposition shows good potential if the co-products of the technology (heat and downstream bio products) are factored into the financial equation. While there is no evidence of an integrated market infrastructure at this point,the costs and complexities of creating such infrastructure are not considered to be as high as for other forms of renewable energy. This is largely because such systems could be considered as a means to improve efficiency in the agricultural and waste management areas (bio gas) and offer an attractive alternative for power generation in remote communities.

When aligned with waste valorization and district heating, integrated projects contribute meaningfully to renewable alternative energy outcomes that strengthen both resilience and community benefits.

• Stationary Fuel Cell Power (Hydrogen): Fuels cells still face very high developmental risk as a source of electricity generation (the world's largest installed pilot project of 250 MW is experiencing ongoing technical problems. Material costs are still very high (owing largely to the rare earth materials-mainly platinum-required to make them work), and the market infrastructure is still considered to be in its infancy. This results in an overall high risk rating for power stationary fuel cells that are going to be connected to the power grid. Less expensive hydrogen fuel supply and greater market availability are expected in the future.

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Renewable power drives grid decarbonization via solar PV, wind turbines, hydropower, energy storage, power electronics, and smart grid integration, optimizing reliability, efficiency, and demand response in modern electric power systems.

What Is Renewable Power?

Renewable power is electricity from sustainable sources, using power electronics and storage for grid integration.

✅ Power electronics: inverters, converters, MPPT control

✅ Grid integration: protection, stability, frequency regulation

✅ Energy storage: batteries, BMS, dispatch for peak shaving

Renewable power technology is developing rapidly around the world aided by range of economic support mechanisms. This paper reviews the various mechanisms, and explores the relative merits of technology push and market pull approaches. It compares the approaches adopted in the UK with those used elsewhere. For readers new to the topic, a clear overview of what is renewable energy helps frame the policy context being discussed here.

THE RENEWABLE CHALLENGE
Renewable power technologies are new entrants into the world's electricity generation systems. However, they face an uphill struggle against the well established dominant electricity generation power technologies coal and gas, plus nuclear. Given increasing concerns about climate change, governments around the world have tried to simulate the expansion of renewable power generation via a range of subsidies and other financial support systems. As policymakers weigh options, comparative lists of renewable energy sources illustrate how technology maturity and costs vary across the sector.

Underlying the approaches to the development of renewable power technologies that have been adopted around the world is a basic distinction between supply side "technology push" approaches and demand side "market pull" approaches. It was perhaps inevitable that technology push dominated initially, in the mid 1970s, as new technologies needed research and development (R&D) effort, with much of the funding coming from government in the form of grants to research teams. However, by the early 1980s, the emphasis shifted in most countries to a market pull approach. Evidence from markets that track renewable power sources shows how pull mechanisms can accelerate deployment once early R&D has de-risked the technologies.

MARKETS OR SUBSIDIES?
Renewable power technologies need subsidies to get established, but at some point they should be able to compete with traditional methods of generating electricity, without subsidy. Wind power has nearly reached that point, and some waste or biofuel combustion options have already passed it. So, for these attractive renewable power technologies, the energy market has achieved its primary goal, even though it has maybe not led to much overall installed capacity. In practice, sustained cost declines have followed broader adoption of clean renewable energy solutions in competitive procurement schemes.

However, there are new renewable power options which need continued support, such as wave and tidal power. With the large scale wave and tidal programs abandoned, and in the new liberalized electricity market, the emphasis being on smaller scale plants, the focus amongst the surviving research teams had been on smaller scale inshore and onshore wave system and on the more recent idea of extracting renewable power from tidal flows.>/p>

For emerging marine concepts, insights into alternative energy power provide useful parallels for scaling prototypes to commercial arrays.

Projects like this, which were at best at the demonstration stage and more usually at the R&D stage, are not suited to support under the NFFO or the RO, which are meant for 'near market' technologies. By contrast the REFIT approach has provided support for technologies such as photovoltaic solar which are still very expensive on the assumption that costs will come down later as the market for the technology was expanded by subsidised lift off. So far, as we have seen, the UK approach does not seem to have done enough to help much near market technology take off. It is even less suited to less developed technologies. This may be one reason why, despite having a very large renewable power potential, so much of the world lags behind North America in terms both of developing capacity now, and in terms of meeting targets for the future. International case studies of alternative energy solutions underline the importance of stable, long-term policy design for investor confidence.

The challenge facing the United States is particularly striking. Whereas Germany already gets 14 per cent of its electricity from renewable power sources, the United States gets only about 1 per cent of its electricity from wind, solar, and geothermal combined. But more than half the states have set ambitious goals for increasing the use of renewable power, and president-elect Barack Obama wants 10 per cent of the nation's electricity to come from renewable power sources by the end of his first term, rising to 25 per cent by 2025. Yet unlike Germany, which has begun planning for new transmission lines and passing new laws meant to accelerate their construction, the United States has no national effort under way to modernize its system. A failure to improve the nation's grid will be a significant burden for the development of new renewable power technologies. Grid modernization discussions often reference foundational definitions and metrics outlined in learn the facts guides that connect resource potential with transmission needs.

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What Is Renewable Energy Learn the Facts? Explore clean energy sources—solar, wind, hydro, geothermal—grid integration, power electronics, inverters, energy storage, smart grids, decarbonization, reliability, and efficiency in electrical systems operation.

What Is Renewable Energy Learn the Facts?

Electricity from solar, wind, and hydro, converted by power electronics and integrated to grid for low-carbon supply.

✅ Power conversion: MPPT, inverters, and grid-tied converters

✅ Grid integration: protection, synchronization, and power quality

✅ Storage and control: BESS, EMS, frequency and voltage support

What Is Renewable Energy? Renewable Energy is popularly considered as any source of sustainable energy that has as its source the renewable, natural environment. Most souces of renewable energy include wind energy, solar energy, water energy and biomass energy, as well as geothermal energy. In most cases, renewable energies are replenished by the natural environment. Non renewable energy resources, such as fossil fuels, cannot be replenished. After all, it took eons of time to create deposits of fossil fuels sources and these deposits are in very limited supply and cannot be replaced. For a deeper primer on definitions and categories, see this overview from the Electricity Forum at what is renewable energy which clarifies common terms.

Wind energy, solar energy, water energy and biomass and geothermal energies comprise most of the plantet's renewable energy sources. Solar energy can be turned into electric power through the use of photovoltaic panels. This electric power can be consumed by many electrical appliances. You can explore how wind, solar, hydro, biomass, and geothermal compare in this guide to renewable energy sources for further context.

What Is Renewable Energy? These are systems that are a key part of the portfolio of electricity solutions. For example, today, traditional biomass represents the most important source of power in the developing world, with a 36 per cent share of total electricity consumption. Used in a sustainable way, biomass and other RE sources do not generate additional greenhouse gas emissions. Understanding how these options contribute to grids is outlined in an introduction to renewable electricity and its role in modern power mixes.

RE solutions offer many advantages. Since they use indigenous energy sources like wind, the sun, and rivers of water, they contribute to supply security by reducing reliance on electricity imports. There are a variety of national situations in terms of needs and resources, but renewable ernergy resources are largely available in most developing and developed countries. Creating an enabling environment which contributes directly to local economic development. Renewable energy installations bring jobs, capital, and sources of revenue to local communities, often to rural areas where these benefits are needed most. Policy makers often group these technologies under renewable alternative energy when designing incentives and community programs.

In certain remote locations, where electricity and/or fossil fuel infrastructure does not reach, RE systems can be the only cost effective option. In addition, modern renewable energy systems generate far less air pollution and greenhouse gas emissions than fossil energy systems thus reducing the threat of climate change and health risks. Depending on the installation, renewable ener gy projects may be smaller in scale and not as technically complex to operate and maintain as conventional energy projects. For all of these reasons, renewable energy is a valuable resource in addressing the world’s growing electricity needs. These lower-emission options are commonly described as clean renewable energy that supports public health goals.

RE form a relatively small part of the commercial energy portfolio today, but the costs of developing, installing, and delivering renewable energy to consumers have been falling, due largely to improvements in system designs and manufacturing techniques. In many applications, particularly in those instances where gaining access to conventional energy systems is difficult or costly, the market share of RE has been growing steadily in recent years. As learning and scale improve, the affordability of renewable power continues to improve across diverse applications.

What Is Renewable Energy? Characterising the impact of cost reductions and market share increases is the “learning curve.” Simply speaking, RE manufacturers and developers gain valuable experience with each new installation. The level of industrial experience with conventional energy systems is many decades longer than that for renewable energy systems. With modern research, development, and technology transfer techniques at their disposal, the RE industries have achieved progress. But because of this relative immaturity of some ernergy sources, many industry analysts expect cost reductions and performance improvements to continue at a faster pace in the RE sector, thus gaining greater competitiveness and increasing the likelihood that RE uptake will expand in the future. Case studies of maturing technologies highlight how integrated renewable energy systems can accelerate these learning effects.

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Distributed generation refers to the local production of electricity using renewable energy, microgrids, and small-scale systems. It enhances efficiency, minimizes transmission losses, and facilitates reliable and sustainable power distribution in modern electrical networks.

What is Distributed Generation? 

It involves the decentralized production of electricity near consumers, utilizing renewable energy sources, combined heat and power systems, and microgrid technologies.

✅ Provides local electricity generation near demand points

✅ Improves grid reliability, energy efficiency, and sustainability

✅ Reduces transmission losses and supports renewable integration

What is distributed generation? Distributed generation systems are transforming how communities generate electricity by shifting away from exclusive reliance on traditional centralized power plants. These systems often combine renewable sources with local energy solutions, and in some cases use natural gas for backup or combined heat and power applications. By operating closer to the point of use, distributed generation reduces transmission losses, supports energy efficiency, and decreases dependence on fossil fuels, helping to build a more sustainable and resilient power network.

Distributed Generation Training

How Distributed Generation Works

Distributed generation functions through on-site or near-site production of power. While centralized generation transmits electricity across hundreds of miles, DG creates it close to consumption, reducing energy losses and infrastructure needs. The process begins with various small-scale technologies, each designed to serve specific needs. Some systems connect directly to the larger utility grid, while others operate independently within microgrids. Energy storage plays a vital role, allowing surplus power to be stored and released during periods of peak demand, thereby improving energy resilience and grid balance.

Key technologies include:

• Solar photovoltaic (PV) panels, widely deployed in residential rooftops and utility microgrids, convert sunlight into electricity.

• Wind turbines, both small-scale and community-based, deliver renewable power directly to local users.

• Fuel cells generate clean, reliable electricity through chemical reactions, making them ideal for critical infrastructure.

• Combined heat and power (CHP) systems capture waste heat during electricity generation to improve total efficiency.

• Microgrids integrate multiple DERs and can disconnect (“island”) from the main grid during outages to supply continuous power.

• Energy storage systems, such as batteries, provide flexibility, backup supply, and peak demand management capabilities.

Benefits of Distributed Generation

The benefits of DG extend well beyond simple power supply. At its core, DG enhances the overall performance of electrical systems by placing power sources closer to demand, thereby reducing reliance on long-distance transmission and minimizing losses. It supports the transition to cleaner energy by enabling the integration of renewable sources, strengthens resilience by diversifying power sources, and reduces stress on centralized grids during peak demand. Communities, businesses, and utilities alike benefit from increased security, sustainability, and cost savings when they adopt DG.

DG delivers multiple advantages:

• Higher energy efficiency, as CHP systems and other technologies recover waste heat for practical use.

• Reduced transmission losses, since electricity does not need to travel across extensive networks.

• Grid reliability and resilience, with local systems ensuring power supply even when centralized networks fail.

• Renewable integration provides a pathway for solar, wind, and other sustainable technologies.

• Peak demand management helps balance the electricity supply during periods of high consumption.

• Energy independence is particularly important for remote or underserved communities that cannot rely on centralized grids.

Regulatory Standards and Policies

The adoption of DG depends heavily on regulatory frameworks that govern safety, interconnection, and compensation. Technical standards, such as IEEE 1547, define the rules for how distributed energy resources connect to the grid, addressing voltage regulation, protection coordination, and power quality. Without clear standards, widespread deployment would risk instability and safety issues.

Government policies also provide critical support. Net metering programs enable households and businesses to sell excess electricity back to the grid, making the adoption of renewable energy more affordable. Feed-in tariffs create financial incentives for producers by guaranteeing payment for electricity generated from renewable sources. Grid interconnection standards ensure that systems connect seamlessly without harming existing infrastructure. Together, these regulations provide structure, encourage investment, and shape the growth of distributed generation worldwide.

Challenges of Distributed Generation

While DG offers many advantages, it also introduces challenges that must be addressed for long-term success. The most obvious barrier is financial: new systems require significant investment in generation capacity, storage, and interconnection. Technical issues, such as managing voltage fluctuations, maintaining power quality, and integrating many small systems into a stable grid, also create complexity. As adoption grows, utilities must develop smarter monitoring and control systems to coordinate multiple inputs. Ultimately, regulatory uncertainty in certain regions can deter investment.

Key challenges include:

• High initial investment costs limit adoption, despite the potential for long-term savings.

• Grid management issues arise with the increasing number of decentralized resources, complicating system operations.

• Power quality and control concerns require advanced technologies to maintain stability.

• Regulatory hurdles, as inconsistent policies, can slow or prevent project development.

Real-World Examples

Distributed generation is already reshaping global energy systems:

• United States: California leads the way with extensive rooftop solar adoption, supported by net metering policies and community microgrids that supply critical facilities during power outages.

• Germany: Its feed-in tariff system has transformed the energy landscape by encouraging the integration of distributed solar PV and wind, making it a world leader in renewable energy adoption.

• Canada: Remote northern and Indigenous communities are turning to DG solutions, which combine solar panels, battery storage, and backup generators, to reduce their reliance on diesel and improve reliability.

• India: Solar microgrids are expanding electricity access to rural villages, providing sustainable power where centralized infrastructure is impractical.

These examples illustrate how DG provides environmental benefits, cost savings, and enhanced energy resilience across diverse regions.

Future Trends in Distributed Generation

The future of Distributed Generation lies in smarter, more integrated energy systems. As renewable energy continues to grow, distributed generation will play a central role in balancing demand and supply at the local level. New technologies, such as battery storage systems and smart inverters, are making grids more adaptable. Peer-to-peer energy trading platforms are emerging, allowing consumers to buy and sell electricity within communities. Virtual power plants (VPPs), which aggregate thousands of small resources into coordinated grid assets, will enhance efficiency and resilience. Looking further ahead, hydrogen fuel cells and hybrid renewable systems will expand the reach of DG into industrial and transportation sectors.

Emerging trends include:

• Battery storage for greater flexibility and backup.

• Smart inverters that maintain stability during variable renewable generation.

• Peer-to-peer trading, enabling community-level energy exchange.

• Virtual power plants (VPPs) that combine DERs into large, coordinated resources.

• Hydrogen technologies offer clean and scalable options for generating energy.

Frequently Asked Questions

What is the difference between distributed generation and dispersed generation?

Although often used interchangeably, dispersed generation usually refers to small-scale power produced in isolated locations away from the grid, while distributed generation emphasizes systems located close to consumers, often integrated with microgrids.

What is distributed generation, and what are the pros and cons?

Pros include increased efficiency, renewable energy integration, improved grid resilience, and reduced transmission losses. Cons involve high infrastructure costs, regulatory complexity, and grid management challenges.

What is the difference between distributed generation and a microgrid?

A microgrid is a self-contained energy network that can operate independently. Distributed generation refers to the small-scale power sources—such as solar panels or CHP systems—that may be part of a microgrid.

What are examples of distributed generation technologies?

Examples include solar PV, wind turbines, CHP systems, fuel cells, energy storage, and integrated microgrids.

What role do regulations play in distributed generation?

Standards like IEEE 1547, along with policies such as net metering and feed-in tariffs, govern the safe interconnection of Distributed Generation and provide financial incentives that support its wider adoption.

How can distributed generation improve grid resiliency?

By diversifying energy sources and enabling localized supply, DG ensures backup power for critical facilities during outages and reduces the impact of large-scale disruptions.

What is Distributed Generation? Distributed generation represents a shift from traditional centralized power plants to localized, flexible energy solutions. By integrating renewable resources, natural gas, and advanced technologies like microgrids and storage, DG improves efficiency, reduces reliance on fossil fuels, and enhances grid resilience. As policies, standards, and innovations continue to evolve, distributed generation will play an increasingly vital role in building a sustainable, reliable, and future-ready energy system.

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What is renewable energy? Electricity from solar, wind, hydro, and geothermal converted via generators and power electronics, integrated with grid infrastructure, energy storage, and smart controls to deliver sustainable, low-carbon power with reliability and efficiency.

What Is Renewable Energy?

Renewable energy is electricity from renewable sources using electronics, storage and controls for low-carbon power.

✅ Sources: solar PV, wind turbines, hydro, geothermal generation

✅ Integration: grid codes, inverter control, frequency and voltage support

✅ Enablers: power electronics, energy storage, microgrids, SCADA

What Is Renewable Energy? Renewable Energy is popularly considered as any source of sustainable energy that has as its source the renewable, natural environment. Most souces of renewable energy include wind energy, solar energy, water energy and biomass energy, as well as geothermal energy. In most cases, renewable energies are replenished by the natural environment. Non renewable energy resources, such as fossil fuels, cannot be replenished. After all, it took eons of time to create deposits of fossil fuels sources and these deposits are in very limited supply and cannot be replaced. For a deeper overview of definitions and key concepts, see this guide on what renewable energy is and why it matters today.

Wind energy, solar energy, water energy and biomass and geothermal energies comprise most of the plantet's renewable energy sources. Solar energy can be turned into electric power through the use of photovoltaic panels. This electric power can be consumed by many electrical appliances. To explore the main types and how they work, review these detailed summaries of renewable energy sources across different technologies.

What Is Renewable Energy? These are systems that are a key part of the portfolio of electricity solutions. For example, today, traditional biomass represents the most important source of power in the developing world, with a 36 per cent share of total electricity consumption. Used in a sustainable way, biomass and other RE sources do not generate additional greenhouse gas emissions. For context on how clean generation is integrated into modern grids, learn more about renewable electricity and its role in power systems.

RE solutions offer many advantages. Since they use indigenous energy sources like wind, the sun, and rivers of water, they contribute to supply security by reducing reliance on electricity imports. There are a variety of national situations in terms of needs and resources, but renewable ernergy resources are largely available in most developing and developed countries. Creating an enabling environment which contributes directly to local economic development. Renewable energy installations bring jobs, capital, and sources of revenue to local communities, often to rural areas where these benefits are needed most. If you are comparing options beyond conventional fuels, this overview of renewable alternative energy explains pathways for communities and planners.

In certain remote locations, where electricity and/or fossil fuel infrastructure does not reach, RE systems can be the only cost effective option. In addition, modern renewable energy systems generate far less air pollution and greenhouse gas emissions than fossil energy systems thus reducing the threat of climate change and health risks. Depending on the installation, renewable ener gy projects may be smaller in scale and not as technically complex to operate and maintain as conventional energy projects. For all of these reasons, renewable energy is a valuable resource in addressing the world’s growing electricity needs. These benefits are central to the case for clean renewable energy as a public health and climate solution.

RE form a relatively small part of the commercial energy portfolio today, but the costs of developing, installing, and delivering renewable energy to consumers have been falling, due largely to improvements in system designs and manufacturing techniques. In many applications, particularly in those instances where gaining access to conventional energy systems is difficult or costly, the market share of RE has been growing steadily in recent years. As deployment scales, modern renewable energy systems are becoming more efficient and accessible for diverse users.

What Is Renewable Energy? Characterising the impact of cost reductions and market share increases is the “learning curve.” Simply speaking, RE manufacturers and developers gain valuable experience with each new installation. The level of industrial experience with conventional energy systems is many decades longer than that for renewable energy systems. With modern research, development, and technology transfer techniques at their disposal, the RE industries have achieved progress. But because of this relative immaturity of some ernergy sources, many industry analysts expect cost reductions and performance improvements to continue at a faster pace in the RE sector, thus gaining greater competitiveness and increasing the likelihood that RE uptake will expand in the future. This accelerating experience base is steadily improving renewable power performance, reliability, and competitiveness.

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Renewable Energy Tax Credits reduce project CAPEX via ITC/PTC incentives for solar, wind, battery storage, and EV charging, supporting grid modernization, power electronics, and IEEE-compliant interconnections while accelerating decarbonization and load flexibility.

What Are Renewable Energy Tax Credits?

ITC/PTC credits cut capex for electrical systems—solar PV, wind, storage, EV chargers—boosting ROI and grid reliability.

✅ Offsets inverter, transformer, and protection system costs

✅ Applies to solar, wind, storage, microgrids, and EVSE

✅ Encourages IEEE 1547 interconnects and smart inverters

The Government of Canada wants Canadians to invest in a healthier environment, a more stable energy future and a more competitive economy, so it offers innovative Renewable Energy Tax Credits. For an overview of complementary programs, the resource at alternative energy incentives outlines how federal and provincial measures align with investment goals today.

In order to achieve these goals, two specific Renewable Energy Tax Credit measures are available to encourage investments in energy efficiency and renewable energy projects:

• Class 43.1 in Schedule II of the Income Tax Act allows taxpayers an accelerated Renewable Energy Tax Credit write-off of certain equipment that is designed to produce energy in a more efficient way or to produce energy from alternative renewable energy sources.

• Canadian Renewable and Conservation Expenses (CRCE) is a category of fully deductible expenditures associated with the start-up of renewable energy and energy conservation projects for which at least 50 per cent of the capital costs of the property would be described in Class 43.1.

Investors can also consult alternative energy tax credits to understand how project structures interact with other deductions and incentives available in Canada.

Investments in energy efficiency and renewable energy are helping to reduce Canada’s consumption of fossil fuels and minimize the production of greenhouse gases that contribute to climate change and other environmental problems. These investments also contribute to the development of new technologies1 and lead to export opportunities. It’s all part of the government’s ongoing efforts to promote sustainable development by integrating economic and environmental goals. Further context on market benefits is provided in clean renewable energy discussions that track growth trends and policy impacts across sectors worldwide.

Sustainable development will ensure the continued prosperity of Canadians while safeguarding our natural heritage for future generations. As deployment expands, insights into renewable power generation can help stakeholders benchmark performance and grid integration approaches in comparable jurisdictions.

Canadian Renewable Energy Tax Credits and Conservation Expenses

The early development phase of renewable energy and energy conservation projects typically involves certain intangible costs, such as feasibility and resource assessment studies. The CRCE category of expenditures was introduced in the 1996 Budget to allow investors Renewable Energy Tax Credits to fully write-off certain intangible costs associated with investments in renewable energy and energy conservation projects. CRCE is intended to promote the development of conservation and renewable energy projects in the same way that is currently done for investments in other types of resource activities.

Under CRCE, Renewable Energy Tax Credits allow eligible expenditures are 100 per cent deductible in the year they are incurred or can be carried forward indefinitely for deduction in later years. These expenditures can also be renounced to shareholders through a flow-through share agreement, providing the agreement was entered into before the expense was incurred. To be eligible, costs must be incurred after December 5, 1996. For the legislative basis of flow-through shares and CRCE expenditures, please refer to Sections 66 and 66.1 of the Income Tax Act and to Section 1219 of the Income Tax Regulations.

In parallel, understanding how markets value renewable energy credits can enhance financial models where environmental attributes are monetized alongside tax deductions.

Class 43.1 Accelerated Capital Cost Allowance

Class 43.1 provides an accelerated rate of write-off for certain capital expenditures on equipment that is designed to produce energy in a more efficient way or to produce energy from alternative renewable sources.

Class 43.1 allows taxpayers to deduct the cost of eligible equipment at up to 30 per cent per year, on a declining balance basis. Without this accelerated Renewable Energy Tax Credit write-off, many of these assets would be depreciated at annual rates of 4, or 20 percent (with the exception of expenses eligible for the pre-existing Class 34, which were deductible at an annual rate of up to 50 percent). In planning capital acquisitions, awareness of broader trends in alternative energy development can inform equipment selection and timing for making claims under this class.

What Types of Systems Qualify?

In general, the following types of systems qualify for CRCE Renewable Energy Tax Credit or Class 43.1 write-off:

Electricity Generation Systems

• certain cogeneration and specified-waste fuelled2 electrical generation systems
• small-scale hydro-electric installations (not exceeding 15 megawatts of average annual capacity)
• wind energy electrical generation systems
• enhanced combined cycle systems
• expansion engines
• photovoltaic electrical generation systems (three kilowatts capacity or larger)

Specified-waste fuels, both for electricity generation and heat production, are defined as municipal waste, wood waste, landfill gas or digester gas.

• geo-thermal electrical generation systems
• electrical generating systems using solution gas that would otherwise be flared during the production of crude oil

Thermal Energy Systems

• active solar systems (including groundsource heat pumps)
• heat recovery systems
• specified-waste fuelled heat production equipment

Note: Thermal energy systems qualify only if their primary purpose is to produce thermal energy for use directly in an industrial process.

Eligible Expenses
Intangible expenses eligible under CRCE Renewable Energy Tax Credits include:

• the cost of pre-feasibility and feasibility studies of suitable sites and potential markets for projects that will have equipment included in Class 43.1
• costs related to determining the extent, location and quality of energy resources
• negotiation and site approval costs
• certain site preparation costs that are not directly related to the installation of equipment
• service connection costs incurred to transmit power from the project to the electric utility

Test Wind Turbines

Costs related to the acquisition and installation of a test wind turbine – defined as “the first wind turbine installed at the site of a proposed wind farm, whose primary purpose is to test the energy production at the site” – are included in the CRCE category of expenses. In order to be eligible, a favourable prior opinion must be issued by the Minister of Natural Resources Canada for each installation.

Tax Incentives
The following types of costs are eligible for an accelerated rate under Class 43.1:

• machinery and equipment
• related soft costs for design, engineering and commissioning
• other services required to make the system operational

Many proponents also leverage alternative energy grants to complement accelerated allowances and reduce upfront cash requirements for project execution.

Depending on all the facts of a particular situation, the cost of modifications and improvements to existing qualifying equipment may also be eligible, provided that:

• the costs increase the capacity or performance of the equipment
• the resulting system continues to meet the conditions for qualification

The following are generally ineligible under Class 43.1:

• operating costs
• spare parts inventories
• foundations and structures, except those associated with qualifying small-scale hydro-electric, photovoltaic and wind energy conversion systems
• electrical distribution systems
• electrical transmission systems, except those associated with qualifying small-scale hydro-electric, photovoltaic and wind energy conversion systems
• used equipment, except if the equipment was included in Class 34 or 43.1 of the vendor, remains at the same site in Canada and is not more than five years old Generally, to be eligible for Class 43.1, an asset must be acquired after February 21, 1994, by a Canadian taxpayer for use in a business in Canada.

For more information on CRCE or Class 43.1, please order the guide entitled Class 43.1 Technical Guide and Technical Guide to Canadian Renewable and Conservation Expenses (CRCE) at a cost of $100 plus applicable taxes, available from the following address. A written prior opinion can be obtained by writing to:

Class 34/43.1 Secretariat
CANMET Energy Technology Centre
Natural Resources Canada
1 Haanel Drive, Bldg. 3
Nepean, ON K1A 1M1
Tel.: (613) 996-0890
Fax: (613) 995-7868

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