Analyzing Tax Incentives for Producing Renewable Energy by Biomass Cofiring

This paper examines the impacts of governmental incentives for coal-fired power plants to generate renewable energy via biomass cofiring technology. The most common incentive is the production tax credit (PTC), a flat rate reimbursement for each unit of renewable energy generated. The work presented here proposes PTC alternatives, incentives that are functions of plant capacity and the biomass cofiring ratio. The capacity-based incentives favor plants of small capacity, while the ratio-based incentives favor plants that cofire larger amounts of biomass. Following a resource allocation perspective, this paper evaluates the impacts of alternative PTC schemes on biomass utilization and power plants’ profit-earning potentials. The efficiency of these incentive schemes are evaluated by comparing with the results of utilitarian solution, an approach that finds a distribution of credits which maximizes the total profits in the system. To evaluate the fairness of the proposed schemes, the results of the max-min fairness solution is used as a basis. A realistic case study, developed with data pertaining to the southeastern U.S., suggests how total system costs and efforts to generate renewable energy are impacted both by the existing and the proposed incentives. The observations presented in this study provide helpful insights to policymakers in designing effective incentive schemes that promote biomass cofiring.