What is Alternative Energy?

Alternative energy incentives accelerate grid decarbonization via tax credits, rebates, net metering, and grants for solar, wind, storage, power electronics, microgrids, and smart grid upgrades, reducing LCOE and supporting EV charging infrastructure.

What Are Alternative Energy Incentives?

Incentives—tax credits, rebates, net metering—finance clean electrification, grid upgrades, and storage to cut costs.

✅ Lowers LCOE for solar PV, wind, and battery storage projects

✅ Supports grid modernization, smart inverters, and microgrid controls

✅ Enables EV charging, demand response, and power electronics R&D

Alternative energy incentives encourage companies to pursue non-fossil-fuel energy as a way to consume power. Different countries have different alternative energy incentive programs available for businesses and residences through country, state/province, or municipality levels. However, in this article, alternative energy incentives for business take the center focus. For background on definitions and technologies, see this overview of what constitutes alternative energy and typical market drivers.

In the U.S., two alternative energy incentives available are the investment tax credit and the production tax credit (both can be claimed on a taxpayer’s federal income tax return). A third incentive is a grant program that gives businesses opportunities to receive cash payments from the government for purchasing alternative energy property. Detailed federal and state guidance on credits is summarized in this resource on renewable energy tax credits for common project types.

The investment tax credit, the energy production tax credit or the federal energy grant cannot be claimed in tandem, meaning that a taxpayer can only choose one of these alternative energy incentives. Obviously care will need to be taken in deciding which alternative energy incentive will be best for a specific taxpayer.

Many businesses model total installed cost and depreciation using these alternative energy cost references before selecting an incentive.

While incentives are available They are available for both businesses and individuals; and they can be found at the federal, state and local levels, as well as with utility companies and product manufacturers. A concise primer on renewable alternative energy helps stakeholders align technologies with applicable programs.

1. Alternative Energy Incentives - Investment Tax Credit

A taxpayer can claim a tax credit equal to thirty percent of the cost of qualified eligible energy property placed in service. For credit calculations and eligibility nuances, consult this guide to alternative energy tax credits and common compliance pitfalls.

Property eligible for this alternative energy incentive are:

• Solar property,
• Geothermal property,
• Qualified fuel cell property,
• Stationary micro turbine property,
• Combined heat and power system property,
• Qualified small wind energy property, and
• Geothermal heat pump property

  The federal tax credit is not considered to be taxable income; however, the cost basis of the energy property will need to be reduced by one-half of energy credit claimed. The investment tax credit is also subject to an alternative minimum tax limitation. The credit cannot reduce a taxpayer’s regular tax below the taxpayer’s alternative minimum tax. Any unused credit can be carried back one year and forward twenty years. Case studies of successful deployments in solar, CHP, and wind are profiled among these alternative energy projects to illustrate basis and credit interactions.

  A percentage of the investment tax credit will have to be recaptured if the energy property is disposed of within five years of being placed in service.

2. Alternative Energy Incentives - Production Tax Credit

A taxpayer can claim a tax credit equal to a percentage (between .0075 cents and 2.1 cents per kilowatt hour) of energy generated from qualified energy resource property placed in service. The credit can be claimed for a ten year period starting with the date that the energy resource property is placed in service.

Eligible energy resources for this alternative energy incentive include:

• Geothermal or solar energy,
• Wind,
• Open-loop biomass,
• Closed-loop biomass,
• Marine and hydrokinetic renewable energy

   

• Small irrigation power,
• Qualified hydropower production, and,
• Municipal solid waste

  Unlike the investment tax credit, the cost basis of energy property does not have to be reduced by the production tax credit claimed. In addition, for facilities that generate electricity, there is no alternative minimum tax credit limitation for the first four years that a facility is placed in service.

  Similar to the investment tax credit, an unused energy credit can be carried back one year and forward twenty years.

3. Alternative Energy Incentives - Grant For Specific Energy Project Investments

This grant program offers cash payments to eligible taxpayers who place in service specific energy properties. Only taxpayers that are in a trade or business can qualify for this grant, which means that a residential energy-efficient property does not qualify. Application procedures and deadlines are outlined in these alternative energy grant resources for business applicants.

The grant is in lieu of the aforementioned alternative energy incentives, meaning that a taxpayer can apply for the grant or claim one of the business tax credits, but not both.

The following persons are not eligible to receive payment:

• Federal, state or local governments,
• Non-profit organizations,
• Cooperative electric companies.

   

  Property eligible for this alternative energy incentive are:

• Solar property,
• Geothermal property,
• Qualified fuel cell property,
• Stationary micro turbine property,
• Combined heat and power system property,
• Qualified small wind energy property, and
• Geothermal heat pump property

   

The cost basis on which the payment is based upon is its original cost and, which includes all costs. These costs, such as installation and cost of freight, are part of property’s depreciable basis.

The investment tax credit, which is similar to the above alternative energy incentive, the cost basis of the energy property has to be reduced by fifty percent of the grant received. In addition, to the extent that specified energy property is disposed of within five years of being placed in service a percentage of the grant will need to be recaptured.

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• Alternative Energy Channel

Alternative energy fuels drive renewable power systems, integrating hydrogen, biofuels, and electricity with power electronics, smart grids, and energy storage for efficient conversion, decarbonization, and resilient distribution across modern electrical networks.

What Are Alternative Energy Fuels?

Alternative energy fuels are renewables—hydrogen, biofuels, electricity—supporting conversion and smart grid integration

✅ Power electronics convert DC/AC and manage grid-tied renewables.

✅ Fuel cells and hydrogen storage integrate with microgrids.

✅ Battery systems and EMS stabilize variable solar and wind.

Alternative energy fuels can help reduce harmful greenhouse gas emissions produced from traditional gasoline or diesel fuels. Using alternative energy fuels means that you might have to change your conventional vehicle in for a more environmentally-friendly ride. Is this true? Let's find out. To start, a quick primer on what alternative energy is can clarify terms and set expectations in practical terms.

Alternative Energy Fuels - Battery-electric Vehicles

Your first option is battery-electric vehicles (BEVs), which powered by motors that draw electricity from on-board storage batteries. These batteries act as an engine to propel the motor. Using electric vehicles presents a great potential to reduce greenhouse gas (GHG) emissions and smog-forming pollutants because pollution isn't produced from the tailpipe or through fuel evaporation. The vehicles can also have low overall (life-cycle) GHG emissions depending on the electricity source used to recharge the batteries. This option would require you to say goodbye to your conventional vehicle. When charged from renewable energy sources, BEVs can further minimize lifecycle emissions and operating costs.

Alternative Energy Fuels - Hybrid-electric Vehicles

If you don't necessarily want to give up your conventional vehicle, but still want the environmental and energy benefits of electric vehicles, then hybrid electric vehicles (HEVs) are your best option. HEVs are made up of a battery powered electric motor with combined with a conventional internal combustion engine. Instead of paying outrageous gas prices every time your gas tank nears the empty mark, a rapid refueling option recharges your conventional vehicle. If this alternative energy fuel option appeals to you then you'll be glad to know that many hybrid vehicle models are already widely available on the market, with many more manufacturers planning on introducing new hybrid electric/gasoline vehicles in the next few years. Many buyers also view HEVs as pragmatic alternative energy solutions that ease the transition away from full reliance on gasoline.

Alternative Energy Fuels - Fuel Cells and Hydrogen

If you are using a portable or a stationary power device, then fuel cells might be the ideal option for you. Electricity is generated in fuel cells electrochemically when hydrogen and oxygen are combined. Fuel Cells can produce zero or very low emissions depending on the source of the hydrogen. These energy-conversion devices can also utilize hydrogen and other fuels and, in the future, might be used for transportation applications. This alternative energy fuel source is also an option for vehicles and prototypes for hydrogen fuel cell vehicles that are currently in the works. But, unfortunately, barriers exist. A lack of a hydrogen distribution infrastructure has made it difficult for this alternative energy fuel source to move ahead. Also, costs are high for fuel cells and hydrogen-production technologies and there are challenges related to hydrogen storage. However, fuel cells are a viable energy technology that can offer significant environmental, supply, economic and energy efficiency benefits because of the variety of fuels available for conversion to hydrogen. This pathway fits within the spectrum of alternative energy sources, each with distinct infrastructure and cost considerations.

For a broader perspective on where hydrogen, electricity, and fuels like bioenergy fit, explore the major forms of alternative energy and how they complement one another across sectors.

Alternative Energy Fuels - Ethanol

When scientist Dr. Emmett "Doc" Brown used food to add fuel to his gas tank in the famous ‘80s flick, Back To The Future 2, he must have been thinking of ethanol, a liquid alcohol made of oxygen, hydrogen and carbon obtained from the fermentation of sugar or converted starch contained in grains and other agricultural or agri-forest feedstocks. Using fuel ethanol (or gasohol, which means that the alternative energy fuel source is distilled and dehydrated to create a high-octane, water-free alcohol) might one day be a viable alternative energy fuel source. However, oral consumption is unadvised because this alternative energy fuel is made unfit for drinking when a small amount of a noxious substance such as gasoline is added. In order for fuel ethanol to work as an effective alternative energy fuel source, all traces of water must be removed because water and alcohol combined cannot dissolve in gasoline. Further research into technology to produce ethanol from non-food sources is quickly moving this alternative energy fuel source toward commercialization. Because many feedstocks derive from crops and residues, ethanol often intersects with biomass energy pathways and agricultural policy.

Alternative Energy Fuels - Biodiesel

Conventional diesel combustion harms the environment, but biodiesel combusts better with a higher cetane rating that produces fewer life cycle greenhouse gas emissions (GHG). This alternative energy fuel source is a non-toxic and biodegradable fuel that comes from vegetable oils, animal fats, waste cooking oil, or tall oil (a by-product from pulp and paper processing). Biodiesel is made from these feedstocks through transesterification, a process that reacts the oil with an alcohol (methanol is usually used, but so can ethanol) and a catalyst (eg. sodium hydroxide). Glycerine, an ester called biodiesel, is produced from this chemical reaction. Most biodiesel is generated using this method. In practice, successful biodiesel programs are often part of broader renewable alternative energy strategies that leverage regional feedstocks and local distribution.

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Alternative energy geothermal delivers baseload renewable electricity via hydrothermal reservoirs, binary-cycle ORC turbines, and EGS, using heat exchangers, generators, and power electronics for efficient grid integration, low emissions, and stable capacity.

What Is Alternative Energy Geothermal?

It converts subsurface heat to electricity via steam or ORC cycles, generators, and grid-tied power electronics.

✅ ORC and flash steam cycles drive turbines and synchronous generators

✅ Power electronics, inverters, and transformers enable grid integration

✅ EGS, drilling, and heat exchangers expand capacity with low emissions

Geothermal energy comes from heat stored beneath the Earth's surface. Also known as thermal energy, geothermal is considered to be an alternative energy because it produces very little greenhouse gas emissions (GHG), which harm the Earth once it's generated into electricity. Geothermal wells release these greenhouse gases, but not nearly as much as its fossil fuel counterparts oil and coal. For context on how this resource fits within energy policy, see our overview of what is alternative energy to understand key definitions.

Alternative energy geothermal is a product from Earth's original formation: radioactive decay of minerals thanks to volcanic eruptions and solar energy digested and stored from the Earth's surface. Thermal energy is produced from the continuous conduction of heat that emanates from the Earth's core that moves upward to the surface. This process is known as the geothermal gradient. If you've ever had the opportunity to bathe in hot springs, you'll be glad to know that the thermal heat comes from beneath the Earth. When comparing technologies, placing geothermal alongside other alternative energy sources highlights its base-load role and unique subsurface dependence.

Alternative Energy Geothermal - How can we use it?

In practice, many integrated alternative energy systems combine geothermal with insulation and smart controls to maximize year-round efficiency.

Energy producers have been able to convert alternative energy geothermal into electricity. These same producers have high hopes for geothermal energy because power can be generated 24 hours a day, unlike other intermittent renewable energies, like wind energy and solar energy. This contrasts with the variability seen in resources such as solar power during cloudy periods or at night.

Geothermal energy can also be used to heat pumps or for other direct uses such as cooling and heating buildings. The Earth's crust temperature a few feet below is buffered to a constant seven to 14 °C (45 to 58 °F), so a liquid can be pre-heated or pre-cooled in underground pipelines, providing no-cost cooling during the summer, and with a heat pump, heating during the winter months. Other direct uses include aquaculture, agriculture (greenhouses), and industry. Project planners often consult practical alternative energy solutions to evaluate lifecycle costs and integration pathways.

Alternative Energy Geothermal - How is geothermal electricity produced?

Within the broader family of forms of alternative energy, geothermal distinguishes itself through high capacity factors and minimal fuel risk.

Geothermal energy uses Earth's natural heat to generate electricity. Geothermal plants are built on or near reservoirs that contain Earth's hydrothermal resources (underground steam and heated water). The heat mining process begins when drills penetrate these reservoirs to obtain the steam and water to power electricity-generating turbines.

There are different ways to produce alternative energy geothermal. Two popular processes include:

• Flash Steam Geothermal water with temperatures exceeding 350°F is extracted under extremely high pressure by flash steam plants. When the heated water surfaces, a sudden pressure reduction causes some of the hot water to flash off as steam. This flashed steam operates a generator, at which time, the extracted steam and water are reintroduced into the geothermal reservoir.
• Dry Steam Dry steam is extracted directly from under the earth’s surface by dry steam plants to operate a generator. When the steam condenses into water, it is then reintroduced into the alternative energy geothermal reservoir.

   

  Alternative Energy Geothermal - Is Geothermal Energy a Sustainable Energy Source?

  Alternative Energy Geothermal is considered to be sustainable, cost-effective, great for the environment and reliable. Recent advances in technology have expanded alternative energy geothermal applicable uses (such as home heating), which could lead to global exploitation. However, advances in technology, cost, government incentives and implementation of geothermal power projects will determine if alternative energy geothermal will become a viable global competitor.

  Alternative Energy Geothermal - Is Geothermal Energy a Renewable Energy Source?

  Scientific evidence shows that geothermal sites can provide heat for many decades, but eventually these specific locations cool down, which brings into question if alternative energy geothermal truly is a renewable energy source, since renewables are defined as green energy sources that never deplete. Understanding how geothermal fits into renewable alternative energy frameworks can help policymakers set realistic targets.

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• Alternative Energy Channel

Alternative Energy Solar Power converts sunlight via photovoltaics into electricity using PV modules, inverters, MPPT, and battery storage for grid-tied systems, microgrids, and off-grid resilience, improving efficiency, reliability, and decarbonization.

What Is Alternative Energy Solar Power?

A renewable electrical system converting solar irradiance to AC via PV modules, MPPT inverters, and optional storage.

✅ PV arrays generate DC; power electronics regulate voltage and current.

✅ Inverters with MPPT perform DC–AC conversion, grid sync, and protection.

✅ Battery storage and EMS enable peak shaving, backup, and microgrid control.

Alternative energy solar power is, perhaps, the first energy source that comes to mind when most people think of alternative energy sources, but — unlike wind — alternative energy solar power is still a long way from being considered a mainstream source of electricity generation. In fact, it accounts for less than one per cent of the world’s electricity production. For readers new to the topic, what is alternative energy clarifies key definitions and the role solar plays among emerging options.

Two main ways to harness the sun's energy to generate alternative energy solar power include: photovoltaic (PV), where solar cells directly convert sunlight into electricity, and solar-thermal power. PV is a proven alternative energy solar power technology that is most appropriate for small-scale applications to provide heat and power to individual houses and businesses. Sunlight falls on a layer of semiconductors, which excites electrons. This, in turn, creates an electrical current that can be transmitted via electrical cables to serve useful applications. Alternative energy solar power solar PV cells are already cost effective for powering houses and businesses in some regions. As with alternative energy wind power, costs have reduced in the past few years thanks to technological developments. But, unlike alternative energy wind power, however, large scale electricity production using alternative energy solar power costs about 22 cents per kilowatt-hour, significantly more expensive than its fossil fuel generation competitors and nuclear power. Comparative cost and performance data across technologies are summarized in alternative energy power, which details where PV is most competitive.

Solar-thermal energy is a completely different technology. It collects and concentrates the sun's rays to heat up fuel such glycol or any other liquid that heats up easily. The heat trapped within this medium is then used transferred through a heat exchanger so that heated water can be used for regular hot water applications like bathing and space heating and heating swimming pools, etc. Fossil fuels are sometimes used as a back-up to heat the water in the boiler if the sun is not shining and cannot heat the system. There are three different methods for concentrating the sun’s rays:

• Parabolic Trough — This method uses long, parallel rows of glass mirrors in the shape of a trough to concentrate the sun’s rays directly at the “absorber tube," which is often filled with oil, to achieve maximum effect.
• Power Tower — Similar in principle to parabolic-trough technology, the mirrors are placed in a circular pattern. At the center of the circle is a tower, at the top of which is a receiver filled with water, air, liquid metal or molten salt that moves to a power block and is used to power a steam turbine.
• Parabolic Disk System — In this system, dishes rather than troughs are used to concentrate the power of the sun.

To see how these concentrating approaches integrate with storage, controls, and grid interconnection, alternative energy systems offers design-level guidance for practitioners.

Advantages of Alternative Energy Solar Power

In spite of its cost versus other sources of energy, alternative energy solar power is attracting interest due to the following:

• Alternative energy solar power makes use of a renewable natural resource that is readily available in many parts of the world.
• The process used to generate alternative energy solar power is emission-free.
• Costs have greatly reduced thanks to technological advances in solar power technlogy to a point that it can compete with fossil fuel alternatives in specific circumstances.
• The technology is scalable in that it can be used for domestic heating purposes or on a larger scale for commercial electricity generation, as solar water heaters are an established technology, widely available and simple to install and maintain.

For a deeper dive into real-world performance benefits, case studies in advantages of solar power highlight emissions reductions and lifecycle savings.

Disadvantages of Alternative Energy Solar Power

The biggest barriers to increasing alternative energy solar power generation are the cost, the amount of land required for large-scale electricity production, and the intermittent nature of the energy source. In terms of the latter, thermal systems do not work at night or in inclement weather. Storage of hot water for commercial or domestic use is simple because only insulated tanks are needed, but further technology advancements are required to improve storage for the higher-temperature liquids required to generate electricity on a large scale and storage of the electricity itself. Emerging roadmaps in alternative energy solutions discuss thermal storage media and hybrid configurations that mitigate intermittency challenges.

Outlook for Alternative Energy Solar Power

Although alternative energy wind power is more economical and has been more widely adopted for large-scale power production than solar energy, solar energy is the most flexible in scale and application. It also is widely available and an environmentally benign source of alternative energy. Broader market drivers and renewable policy trends are tracked under renewable alternative energy, providing useful context for long-term solar adoption.

It is currently a $7 billion per year business that is growing at 40 per cent per annum. As part of the wider clean-energy portfolio, the taxonomy in forms of alternative energy situates solar alongside complementary technologies.

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Alternative energy projects integrate solar PV, wind turbines, battery storage, and smart grid controls, using power electronics, inverters, and HVDC to optimize grid integration, reliability, and decarbonization in electrical engineering applications.

What Are Alternative Energy Projects?

Projects deploying renewables and storage with power electronics to ensure efficient, reliable grid integration.

✅ Solar PV, wind, and storage integrated via power converters

✅ Smart inverters, MPPT, and grid-forming control strategies

✅ HVDC links, microgrids, and protection coordination

Alternative energy projects are technologies that use alternative energy sources (wind energy, solar energy, among others) instead of conventional fossil fuels that damage the environment with toxic greenhouse (GHG) emissions. Natural Resources Canada (NRCAN) and the Department of Energy (DOE) are among some of the North American governmental organizations looking for ways to use alternative energy sources. While using the alternative energy source is important, so is educating the public about ways that they can someday use future alternative energy projects. Here are some energy systems the government is working on for your home: For a concise primer on definitions and policy context, see what alternative energy means to better frame the technologies discussed below.

Alternative Energy Projects - Home Solar Photovoltaic (PV) Systems

As one of several major categories, the forms of alternative energy place solar alongside wind, geothermal, and hydrogen options for residential planning.

This alternative energy project is a great way to preserve Earth's fossil-fuel resources and an efficient way to reduce air pollution. Another benefit of home PV systems is that it reduces the amount of power bought from local utilities thus making the residence less vulnerable to fluctuating price increases. A drawback to a home PV system are the extremely high installation costs, however, funding could be available from governments as an incentive to invest in alternative power. Unobstructed and clear access to the sun’s rays for most or all of the day is required throughout the year for well-designed PV systems. Location affects performance meaning that the roof of a house must be facing south (best option), east or west. Flat roofs are great options for solar electric systems because the PV modules are flat on the roof facing the sky or mounted on frames on an optimal angle facing south. One option for commercial application includes building structures that can create provide shade (such as window awnings) or covered parking. For homeowners evaluating PV feasibility, a detailed guide to solar power clarifies system sizing, orientation, and incentive considerations.

Alternative Energy Projects - Solar Concentrator System

Solar concentrators are alternative energy projects that track and focus the sun's energy; the sun's energy is then converted to hot water and space heat for day-to-day consumption. These alternative energy projects also have thermal storage, so it can distribute the sun's energy during the night or during a cloudy day. In addition to thermal applications, alternative energy power resources explain how concentrators integrate with broader energy management strategies.

Alternative Energy Projects - Hydrogen Electrolyzer

Hydrogen could be a valuable energy source in the future, so alternative energy projects are being funded by governments to heat residential homes. One such project, the hybrid hydrogen electrolyzer/high efficiency furnace system works by generating hydrogen from water using electricity. The generated hydrogen is then used to replace the natural gas that is conventionally used in furnaces. These hybrid energy systems can be installed in a variety of houses, including single detached houses. For system comparisons and component basics, an overview of alternative energy systems outlines how electrolyzers interface with storage and heating equipment.

Alternative Energy Projects - Geo Power

Geothermal Energy is also being used to provide heat to residential homes. One such alternative energy project, known as the Geo Power System, takes heat from the ground and sends it into the house. This tube-in-tube ground heat exchanger, made from polyethylene and aluminum is inserted vertically into a bore-hole in the ground either in the basement or crawlspace of a house. The alternative energy project is supposed to contribute energy during the winter months and absorb energy during the summer months in the ground. For site assessment and retrofit pathways, these alternative energy solutions highlight best practices for efficient geothermal installations.

Alternative Energy Projects - Solid-Oxide Fuel Cells

Fuel-cell combined heat and power (CHP) systems are alternative energy projects that can heat houses and provide hot water while electricity is sent to and from the electricity grid. The continued issues this residential alternative energy project faces include grid connection, thermal storage and proper fuel-cell size. To see how residential CHP fits within the wider clean energy mix, a primer on renewable and alternative energy offers context on adoption trends and grid impacts.

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Alternative energy cost analyzes LCOE, CAPEX, OPEX, and grid parity across solar PV, wind turbines, and battery storage, considering efficiency, load factors, and grid integration to optimize system design and lifecycle economics.

What Is Alternative Energy Cost?

Alternative energy cost is LCOE-based pricing for solar, wind, and storage, reflecting CAPEX, OPEX, and grid impacts.

✅ Uses LCOE comparing PV, wind, and storage across duty cycles.

✅ Includes CAPEX, OPEX, maintenance, and financing assumptions.

✅ Evaluates grid integration, curtailment, and reliability metrics.

Alternative energy cost is determined by how utilities typically set their rates and account for the cost differential between alternative energy and conventional energy sources. Basically, cost recovery of a utility’s investments and operating expenses determine electricity rates. For background on definitions and resource types, see this overview of what is renewable energy to align terminology across programs.

These alternative energy costs include:

Understanding the breadth of technologies captured under renewable alternative energy helps clarify why cost components vary by resource.

• owning generation
• owning transmission and distribution assets
• a return on owned assets
• purchased power contracts
• recovery of various operating expenses, including fuel costs, maintenance, and administration.

  Costs for generating, transmitting, and distributing electricity are in a utility’s rate. Because utility costs are bundled together, all generation resources are combined to create a utility “system mix” of generation. In other words, utilities do not normally distinguish between individual generation sources for their customers. Therefore, an equivalent mix of the utility’s generation resources and purchased power is provided to each customer. In practice, product structures for alternative energy power are designed to work within this system mix paradigm.

  For alternative energy cost determination, utilities and regulators are interested in separating the specific alternative energy costs related to securing green power. In this way, green power products are unique, differentiated electricity products. Since customer participation is voluntary, only those customers that choose to sign up for these programs pay the incremental costs. Alternative energy power program participants typically pay the higher alternative energy cost in the form of a premium on their monthly bill. In some jurisdictions, available alternative energy incentives help offset premiums for early adopters.

  Four Main Components In Determinating Alternative Energy Cost

• 1. The cost of the alternative energy source. This includes the total cost of electricity and/or environmental attributes from all alternative energy resources used in the product, whether from wind, solar, geothermal, biomass, or another source, and whether owned by the utility or acquired through a power purchase contract. For example, cost trajectories for alternative energy solar power have declined sharply in recent years due to technology improvements.
• 2. Program implementation costs. Any additional alternative energy costs attributed to implementing the alternative energy program, including administration and marketing. Utilities sometimes leverage alternative energy grants to defray outreach and administration expenses.
• 3. Ancillary services costs. The additional costs incurred to integrate variable output resources, particularly wind, into a utility’s system.
• 4. Displaced utility generation (and capacity) resource costs. The renewable resource displaces electricity that the utility would otherwise have generated or purchased.

   

  In conclusion, alternative energy costs can be represented as: Alternative energy premium = (1) + (2) + (3) – (4)

  Alternative Energy Cost Determination

  Alternative energy costs are captured through the specific power purchase agreements for alternative energy (in this case, the term alternative energy is interchanged with renewable energy) or RECs (renewable energy contracts), or through the regulatory approval process for utility-owned renewable projects. As long as these are tracked separately from the rest of the generation mix, the appropriate alternative generation costs can be determined. However, generation costs are hard to determine because it's uncertain how many customers plan to enroll in the program and how long they plan to participate. In electric markets that have not gone through restructuring from the electric industry, contracts for generation are typically long-term (10 years or more), and investment in owned facilities is generally considered to be for the life of the facility (20 years or more). For readers new to key terms and market structures, this primer on renewable energy facts provides helpful context for interpreting contract and REC pricing.

  The long-term nature of the resource commitment severely contrasts with the program subscription commitment required of most customers. Most alternative energy programs do not require that customers enroll for a specific term, much less sign up for 10 or 20 years to match the facility or contract life of the renewable power supply source. Therefore, while the annual cost of renewable energy is straightforward to determine, the utility faces some level of risk that will likely be reflected in the product pricing.

  However, if the utility is also subject to a renewable portfolio standard and is therefore required to procure a certain fraction of renewable energy for its overall load, there may be less risk, because the utility has greater flexibility in managing its overall renewable portfolio between its compliance and voluntary program obligations.

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