Incentive-Based Energy Plans: What Are Your Options?

Incentive-based energy plans are becoming critically important as war, sanctions, and declining fossil fuel production cause nonrenewable energy prices to skyrocket.

Fortunately, private companies are busy developing energy-efficient technologies while all levels of government are offering substantial financial incentives for consumers to adopt renewable energy sources.

Let’s examine the many federal, Texas, and local energy incentive programs that provide options you may want to include in your incentive-based energy plans.

Table of Contents

Whats are incentive- Based Credit Energy Plans?

Incentive-Based Federal Tax Credit for Home Installations

Incentive-Based Credits for Private Sector

Incentive-Based Texas Solar Power Program

Choose the Right Energy Plan With Financial Incentives

What Are Incentive-Based Energy Plans?

Utilities and federal, state, and local governments offer various, often-changing energy efficiency financial incentives. These energy incentives make it more affordable for homeowners to attain energy efficiency by installing energy-efficient technology.

You may qualify for credits, rebates, tax deductions, or loans on energy-saving device purchases.

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Incentive-Based Federal Tax Credit for Home Installations

You can enjoy a federal tax credit for installing many home-energy-saving features using qualifying technology.

Energy efficiency financial incentives cover many renewable energy technology devices. Qualifying equipment includes:

• • Geothermal heat pumps

• • Fuel cells, microturbines, and small wind turbines

• • Solar water heating applications

• • Wood biomass fuel stoves

Equipment must meet the government’s Energy Star requirements to qualify for a tax credit. Manufacturers often use Energy Star labels on products and should be able to tell you if their product qualifies.

1. Geothermal Heat Pumps

The sun’s heat is stored in the ground, maintaining it at a near-constant temperature a few feet underground. Geothermal heat pumps (GHPs) use water in underground pipes to transfer the energy stored in the earth up into your home. You can cool your house in the summer and heat it in the winter. You can also use a GHP to reduce water heating costs.

GHPs have many financial and environmental benefits:

• • Electricity savings

• • Emissions reductions

• • Humidity control

According to the Environmental Protection Agency (EPA), GHPs can reduce energy consumption and emissions by up to 72% compared to electric resistance heating and 44% compared to air source heat pumps. GHPs are also highly effective in humid areas. They reduce humidity by up to 50%.

While consumers usually recoup installation costs in only a few years through reduced utility bills, underground pipes often have 25-year warranties, and heat pumps can last over 20 years. This difference translates to many years of savings.

2. Fuel Cells, Microturbines, and Small Wind Turbines

Renewable energy incentives are available as tax credits for fuel cells, microturbines, and small wind turbines.

Fuel cells produce electricity, water, and heat by combining oxygen and hydrogen in a chemical reaction that does not require combustion. They can power homes and vehicles.

A microturbine power system usually burns natural gas, propane, or biogas to produce electricity. Using recuperation to utilize waste heat increases fuel efficiency. An in-home microturbine is about the size of a refrigerator and is nearly silent.

Small wind turbines can power an entire house, but rooftop mounting usually degrades efficiency significantly. Mounting small wind turbines on elevated platforms without upwind obstacles yields the best results.

To qualify for a federal income tax credit, these devices must meet the following specifications:

• • Fuel cells must produce 0.5 kW or more

• • Microturbines must be smaller than 2 MW

• • Small wind turbines must be smaller than 100 kW

These devices can reduce or eliminate your dependence on public sector resources.

3. Solar Water Heating Applications

Solar water heaters can provide significant savings if you’ve got a sunny place for one. You can use a flat panel design or tubes containing a mix of water and glycol that circulates through a water tank inside of pipes to heat the water in the tank.

In summer, it’s possible to heat 90% of your hot water with a solar water heater, but this may drop to 25% in winter. So, you’ll need a system that can use both solar and conventional water heating methods.

Solar water heaters qualify for a federal income tax credit if they have North Star certification, but there are some restrictions:

• • Rentals don’t qualify.

• • Half the energy generated by the system must be solar.

• • You can only claim credit for the solar heating part of the water heating system.

• • The heated water must be used in the dwelling, not a hot tub or swimming pool.

4. Wood Biomass Fuel Stove

Advances in wood stove technology have resulted in stoves burning wood and biomass pellets made from compressed crop waste, sawdust, or wood chips.

Modern stoves and fireplaces can now have double-burning inserts. The stove burns the fuel twice — once like an ordinary stove and a second time to burn particles in the smoke.

The result is energy efficiency increases of up to 87% with significantly reduced emissions.

Biomass stoves and fireplaces burn renewable energies, making them a sustainable heating option that qualifies for a tax credit.

Incentive-Based Credits for Private Sector

There are a multitude of incentive-based financial aid programs for the private sector. They span many government departments and agencies, but tax credits are of particular interest.

The incentive-based federal tax credit for home installations program began in 2006 with credit for 30% of the system cost. For installations in 2022, the government reduced credit to 26%. In 2023, it will be 22%. The program is scheduled to end after 2023, but the government has a history of extending it.

Also of interest are banks and lending institutions that often allow consumers to include installation costs in home mortgages. Using tax credits and mortgages makes creating viable, incentive-based energy plans worthwhile without even investigating other options like electric vehicle rebates and utility bill credits.

1. Rebates for Owning an Electric Vehicle

There are federal tax credits for buying an electric vehicle still available for all manufacturers’ vehicles except Tesla and GM, which have reached their allotment ceiling.

You can get up to $7,500 credit towards your tax bill. If you owe less than $7,500 in income tax, the IRS will only credit you for the amount of tax due. You will not receive a cash rebate for any credit amount above due taxes. Also, some hybrid vehicles are only eligible for a portion of $7,500, depending on vehicle specifications.

2. Bill Credits for Lowering Energy Consumption

Texas energy consumers can receive utility bill credits if they reduce consumption during peak demand periods.

You can also get credits for staying within a specific range of power consumption, but these programs are often teasers that conceal higher rates if you exceed limits.

Incentive-Based Texas Solar Power Program

While Texas doesn’t have a statewide, incentive-based solar power program, there are federal and utility-based programs and property tax guarantees. The federal tax credit of 26% applies to solar power, and Texas law exempts the value of energy-saving installations from property taxes.

Many local governments and utility companies support renewable energy buyback credit programs. Homeowners who participate can receive credit for the electricity they produce over what they use. They can then use the credits when consuming more than they produce.

Choose the Right Energy Plan With Financial Incentives

You can enjoy significant savings by choosing the right incentive-based energy plan, but all the options can be confusing. Government programs and utility company billing structures change constantly.

For a deeper understanding of how Texas electric utilities use billing gimmicks, please read How to Shop for Electricity in Texas.