Financing Clean Energy Projects
Recognizing the advantages of clean energy, both the Massachusetts and U.S. governments support financial incentives designed to increase the development and use of clean energy technologies. These support mechanisms generally come in the form of tax incentives, production incentives, or grants.
• Commonwealth Solar
• Massachusetts Tax Incentives
• Massachusetts Renewable Energy Certificate Purchase Programs
• Massachusetts Grant and Rebate Programs
• Federal Incentives
NOTE: Consultations with state and federal agencies, attorneys, accountants, and other experts are required to determine whether a residential installation or other clean energy project is eligible a specific incentive.
Massachusetts Tax Incentives
Detailed information on state tax incentives and their applicability to individual situations is available from the Massachusetts Department of Revenue and the Massachusetts Division of Energy Resources:
Department of Revenue |
Division of Energy Resources |
State Personal Income Tax Credit for
Residential Solar and Wind Energy Installations
Massachusetts provides a personal income tax credit for individuals who install solar photovoltaic (PV), wind, and solar thermal systems in their residences. The system must be new, in compliance with all applicable performance and safety standards, and expected to remain in operation for at least 5 years. The credit is 15% of the net expenditure for the system including installation, or $1,000, whichever is less. The credit can be carried over for a period of 3 years if it is greater than one's state income tax liability in individual years. M.G.L. c. 62, sec. 6(d)
State Sales Tax Exemption for
Purchases of Solar, Wind, and Geothermal Energy Systems and Equipment for Residential Installations
Purchases of equipment directly relating to PV, wind, solar thermal, or geothermal systems are exempted from the state sales tax if they are to be used as a primary or auxiliary source of energy for heating or otherwise supplying the needs of a person's principal residence in the state. M.G.L. c. 64H, sec. 6(dd)
Local Property Tax Exemption for
Residential, Commercial, and Industrial Installations
of Solar, Wind, and Hydroelectric Energy Systems
Solar and wind energy systems and devices installed for supplying the energy needs of a residence or business are eligible for an exemption from local property tax. This exemption, which is good for 20 years from the date of system installation, applies only to the value of the renewable energy equipment reflected on the property tax bill, not the full amount of the bill. Hydropower facilities, including all real property (land and buildings) and tangible property (turbines and other equipment) necessary for electricity production, are also covered under this exemption. To qualify, the owner of the hydro plant must enter into an agreement to pay the host community at least 5% of the plant's gross income for the preceding calendar year in lieu of applicable property taxes. M.G.L. c. 59, sec. 5, cl. 45
State Corporate Income Tax Deduction for Purchases of Solar and Wind Energy Systems and Equipment
Businesses that purchase a solar or wind energy system are allowed to deduct from net income, for state tax purposes, any costs incurred from buying, installing, and operating the unit, provided the installation is located in Massachusetts and is used exclusively in the trade or business of the corporation. The exemption is in effect for the length of the system's depreciation period. M.G.L. c. 63, sec. 38H(f)
State Corporate Excise Tax Exemption for
Purchases of Solar and Wind Energy
Systems and Equipment
Businesses that purchase a solar or wind energy system are allowed to deduct from net income, for state excise tax purposes, any costs incurred from buying, installing, and operating the unit, provided the installation is located in Massachusetts and is used exclusively in the trade or business of the corporation. The exemption is in effect for the length of the system's depreciation period. M.G.L. c. 63, sec. 38H
State Personal and Corporate Alternative Energyand Energy Conservation Patent Deduction
Massachusetts offers both personal income tax and corporate excise tax deductions for intellectual property, not just real property. Any individual who has applied for or holds a patent for solar, wind, hydro, biomass, geothermal, conservation, and other energy systems or devices may petition the Commissioner of Energy Resources for favorable treatment under this provision of the state tax code. M.G.L. c.62, sec. 2(a)(2)(G)
If the Commissioner determines that such a patent is "...of economic value, practicable, and necessary for the convenience and welfare of the Commonwealth and its citizens," any income received from the sale, lease, or other transfer of such patent, including royalty income, and any sale, lease or other transfer of property or materials manufactured in the Commonwealth subject to such patent, may be deducted from state personal income tax or corporate excise tax. The deduction is valid for a period no longer than 5 years from the date of issuance of the U.S. patent or from the date of approval by the Commissioner, whichever expires first.
Massachusetts Renewable Energy Certificate (REC)
Purchase Programs
State RPS requirements assign particular value to the RECs generated by facilities installed after 1998. Owners of clean energy facilities can sell their RECs under a variety of pricing and contract terms without compromising their ability to capitalize on the monetary benefits associated with on-site electricity generation, net metering, and power supply agreements.
REC purchase programs help all facility owners capture clean energy's added value to society, and they assist developers in securing favorable financing terms for larger-scale renewables installations. Licensed power suppliers and brokers, as well as the Massachusetts Technology Collaborative (MTC), compete in the REC market.
Power suppliers generally seek low-cost RECs to satisfy RPS requirements, while green power brokers and marketers offer differentiated products based on RECs purchased from RPS-eligible facilities and other renewable energy sources. To meet consumer demands, licensed brokers and marketers are actively seeking to buy RECs from owners and operators of new PV and wind installations sited within the state's borders. Visit the Clean Energy Choice program for information on some of these programs.
Owners and developers of clean energy facilities can also take advantage of MTC 's Green Power Partnership, which purchases RECs from and provides risk-hedging contracts to developers of RPS-qualified projects and to companies that purchase RECs from eligible facilities. The program encourages generators and brokers to enter into long-term contracts for RECs, either directly with MTC or with other market participants, in order to create a guaranteed revenue stream and improve prospects for project financing.
Massachusetts Grant and Rebate Programs
Using funds collected from all electricity ratepayers in the state, MTC offers grants and rebates to expand the role of renewables in meeting residential, commercial, industrial, institutional, and municipal energy needs.
Commonwealth Solar
Starting in 2008, Commonwealth Solar has $68 million available for funding over the next four years to support PV installations in Massachusetts. The effort combines $40 million from the Renewable Energy Trust (Trust) and $28 million from the Alternative Compliance Payment funds that the Massachusetts Division of Energy Resources has collected under the state’s Renewable Portfolio Standard program. The state estimates that Commonwealth Solar will result in 27 megawatts (MW) of PV projects over the next four years.
Rebates for Residential and Other Small Projects
(Under 10 kW)
The MTC offers rebates for both residential and non-residential installations of grid-connected PV, wind, and small hydro systems. The goal of the MTC 's Small Renewables Initiative is to support the deployment of 400 to 500 systems in the state over the next couple years, with installations on existing, renovated, and expanding buildings as well as new construction.
Rebates are available to homeowners, schools, and communities, as well as to commercial, industrial, and institutional consumers. They range from $2/W to above $6/kW, depending on technology and application, with a maximum incentive of $50,000 per project. To be eligible, facility owners must be pre-approved for a rebate before installation, and more than 90% of the system's power must be used to meet on-site needs. Rebates are awarded to owners without affecting their ability to sell RECs to suppliers, brokers, or the MTC.
Residential projects are capped below 3.5 kW, and other projects are capped below 10 kW. Differing base incentives are offered for PV, wind, and small hydro installations. These systems are also eligible for additional incentives, totaling from $0.10 to $2.00/W, if they:
Grants for Large, Onsite Projects• Employ systems or components made in Massachusetts, particularly building-integrated PV technology.
• Are deployed on public buildings, in low-income and affordable housing projects, as backup power systems for critical loads, or in economic target areas.
• Are integrated within new, high-performance construction projects and green buildings.
(Greater Than 10 kW)
The MTC 's Large Renewables Initiative offers grants for large-scale renewable energy installations on multi-family residential, commercial, industrial, school, institutional, and community buildings. Grid-connected PV, wind, bioenergy, hydro, and fuel cell systems are eligible for funding. The goal of these initiatives is to expand the role of distributed, on-site generation within the state's electricity enterprise by identifying where and how large consumers can best apply renewable energy to offset power purchases and reduce congestion pricing.
Technical Support for Communities
The MTC 's Community Wind Collaborative gives towns and cities the opportunity to secure large grants for pursuing land-based wind energy projects. It offers technical and business services, wind monitoring equipment, construction grants, and other provisions to help interested communities in systematically exploring wind resources and in developing wind energy projects. Local governments in wind-rich regions throughout the state are participating in this initiative, with MTC assistance ranging from informal conversations up to the recent award of $3.5 million to support the purchase and installation of two modern turbines in Orleans, a Cape Cod community.
Matching Grants for Green Power Purchases
The MTC 's Clean Energy Choice program provides matching funds to communities as a reward for green power purchases made by consumers within their borders. Communities can save up and apply these funds to procure renewable energy systems and components, educational materials, or energy efficiency services, or they can bank them for use in other clean energy technology initiatives.
Federal Incentives
The federal government offers a variety of financial incentives to promote the development and use of renewable energy resources.
Incentives for Homeowners
At present, federal policy offers no direct income tax incentives for homeowners who purchase clean energy systems. However, taxpayers who purchase certain green power products under the MTC 's Clean Energy Choice program are eligible for a federal tax deduction. Under the program's tax-deductible option, taxpayers can write off the portion of their green power purchases spent on RECs generated by RPS-eligible facilities.
Utility rebates to homeowners for "energy conservation measures" are exempt from federal taxation. The U.S. Internal Revenue Service has not issued a definitive ruling, but rebates granted for installations of PV and other clean energy systems may qualify as 100% exempt under this provision of the federal tax code.
Similarly, existing and new residential installations of PV and other technologies may be eligible for financing under energy-efficient mortgage programs offered by both government insured and conventional lenders. These financing programs increase the purchasing power of borrowers by an amount equal to the estimated cost savings associated with reduced energy use, and they may provide borrowers with additional incentives for adoption of specific efficiency measures and equipment. Information on these financing options is available from the U.S. Department of Energy.
Corporate Production Tax Credit (PTC)
The PTC, enacted as part of the Energy Policy Act of 1992 and recently extended through the end of 2005, provides businesses with a credit for each kilowatt-hour of electricity produced during the first 5 or 10 years of operation for wind, solar, bioenergy, and other installations of eligible clean energy technologies. This corporate tax credit-currently 1.9 cents/kWh for wind, solar, and closed-loop bioenergy systems and 0.9 cents/kWh for other technologies-applies to consumer-owned commercial and industrial installations, as well as to projects owned by power suppliers.
Renewable Energy Production Incentive (REPI)
The REPI, also enacted under the Energy Policy Act of 1992, provides incentive payments to publicly owned utilities, rural electric cooperates, and state and local agencies that own and operate qualifying clean energy facilities. Production incentives of up to 1.5 cents/kWh are awarded for electricity generated and sold by solar, wind, and other eligible facilities that commenced operation between October 1, 1993 and September 30, 2003. The REPI expired for new projects as of December 31, 2003.
Business Investment Tax Credit
Businesses that invest in solar or geothermal energy systems but elect not to claim the PTC are eligible for a tax credit of up to 10% of their investment. The maximum annual credit is $25,000, plus 25% of the total tax remaining after the credit is taken. Remaining credit may be carried back to the 3 preceding years and then carried forward for 15 years. Installations financed in whole or in part by the MTC or other tax-advantaged sources are eligible for credit on a pro-rated basis.
Energy Conservation Tax ExemptionUtility rebates to owners of multi-family housing for "energy conservation measures" are exempt from federal taxation. The U.S. Internal Revenue Service has not issued a definitive ruling, but rebates granted for installations of PV and other clean energy systems may qualify as 100% exempt under this provision of the federal tax code.
Modified Accelerated Cost Recovery System (MACRS)
The MACRS provisions of the federal tax code give businesses the opportunity to recover investments in solar, wind, and geothermal systems by taking depreciation deductions over an accelerated 5-year period.
Grants, Financing Provisions, Production
Incentives & Other Programs
Federal agencies such as the Department of Energy, Environmental Protection Agency, and Department of Agriculture periodically offer programs designed to encourage the research, development, and deployment of renewable energy technologies.