States of Innovation 2017: Clean & renewable energy policy

This week we begin a series on state legislation pertaining to the innovation economy that has been enacted this year around the country. This first installment of the States of Innovation 2017 series deals with clean and renewable energy.

States have passed more than 230 bills related to clean and renewable energy to date in 2017, according to the National Conference of State Legislatures (NCSL). Broadly, the legislation can be divided between policies directly supporting energy innovation — through R&D expenditures or targeted economic development initiatives — and policies implementing structural changes —through the regulatory environment, incentives for production facilities, renewable portfolio standards and other requirements. This breadth of activity clearly demonstrates that clean and renewable energy is of high interest throughout the country, but will be challenging to innovators and entrepreneurs planning development over time or across states.

Policies for energy innovation

While numerous policies can affect energy innovation, several states used this year’s legislative session to directly tackle R&D, investment and related economic development.

Three states launched or acted to continue or renew R&D and commercialization initiatives:

• Maryland – legislation created the Maryland Energy Innovation Institute at the University of Maryland and provided $7.5 million in funding;
• New York – continuing a long history of energy innovation investment, the state renewed its annual appropriations and special funding for NYSERDA for the current fiscal year and provided $872,333 for energy research centers of excellence at Syracuse and Stony Brook; and,
• Virginia – added “energy storage” to the existing Virginia Solar Energy Development Authority, providing a central coordinator for research and commercialization efforts in the state.

Three other states developed initiatives to help fund innovative clean energy technologies:

• Nevada – considered a large number of energy proposals and ultimately created two financing vehicles that could support innovation when implemented: a local improvement district specific to energy projects and a Clean Energy Fund to help finance installation projects throughout the state (currently unfunded);
• New Jersey – updated its angel investor tax credit to add “carbon footprint reduction” technologies to its list of qualified investments; and,
• Virginia – committed $3.1 million (6.9 percent increase) to the Commonwealth Growth Accelerator Program fund, which includes energy companies as investment targets and created a new “green technology zone” that can waive zoning, permitting and other ordinances as well as provide incentives for up to 10 years.

At least three states invested in energy-related education, workforce and cluster activities:

• Illinois – added a line of up to $2 million in funding within the state’s Renewable Energy Trust Fund that can be used to fund education and training for clean energy technology.
• Washington – continued its $700,000 investment in regional cluster development planning, and “clean tech and energy” is one of the three sectors eligible for matching grants through the program.
• West Virginia – the state’s advanced workforce initiative is funded at $200,000 for the current fiscal year and can be used by advanced manufacturing or energy companies for training programs.

Policies affecting energy industry structure

As an industry with fairly stringent regulation, the energy sector’s ability and inclination to innovate can be influenced by a wide array of policies.

Several states undertook potentially significant changes to the state’s structures for coordinating or overseeing clean energy development. Iowa moved a university-based research center to the state’s economic development authority and plans to sunset funding in 2022. Arkansas moved its energy office from economic development to the Department of Environmental Quality. Rhode Island Gov. Gina Raimondo has set clean energy as a state priority, and among several energy bills signed this session was the creation of a commission tasked with planning a path to climate change leadership for the state.

Incentives programs were also common targets for this year’s legislative sessions. Arizona and Louisiana were among several states tightening requirements for tax credits, and Maine failed to override a veto on a bill that would have reversed a phase-out of the state’s solar panel incentives.

In addition to tax credits, many renewable energy facilities are financed with support from renewable energy certificates, which are priced partially in accordance with increasing state renewable portfolio standards (RPS). Connecticut and New Hampshire were among the states increasing their RPS, which typically leads to additional project capital. Similarly, some states have implemented energy efficiency standards, and these also underwent significant changes in 2017. Indiana and Minnesota reversed their existing efficiency standards, but Colorado, Illinois and Ohio were among several states renewing or expanding state requirements. Maryland’s EmPOWER, one of the country’s highest profile efficiency standards and financing systems, was also expanded and renewed, claiming a possibility of $4 billion in energy savings.

Conclusions

Building a business model for a new technology or startup is challenging in any market, but the volume of regulatory and financial changes across states seem to indicate a particular challenge for innovators and entrepreneurs working in the energy sector. Despite — or perhaps, because of — a seemingly uncertain future for federal investments in renewable energy and energy efficiency, 2017 seems to have been an active year for state policies. To a certain extent, state-level variation has been the norm for clean energy companies, as regulations are often different across boundaries. Therefore, structural and regulatory changes may be part of a norm for these businesses.

Current policy is winding down federal tax credits while the administration’s budget proposals significantly trim appropriations-based initiatives. Should federal programs to support clean energy end, the financial playing field for energy development may shift from a standard set of national tools to a relatively diverse state-by-state landscape. Entrepreneurs looking to leverage clean energy installations as part of their business model may need to be particularly aware of the current status and direction of a wide array of state programs as their companies attempt to scale across state lines. Organizations looking to support energy-related technologies and startups may also need to increasingly invest in understanding this variation and discussing its repercussions in their state capitals.