Return to article

2005 Energy Act encourages efficiency and renewables

The energy bill President Bush signed on Aug. 8 contained many provisions to promote the use of renewable energy and reward energy efficiency measures in business and residential sectors.

"This historic bill strengthens our nation's electrical infrastructure, reduces our dependence on foreign oil, increases conservation and expands the use of clean renewable energy," said Energy Secretary Samuel Bodman.

The comprehensive, 1,700-page Act supports programs and incentives that will help Western customers improve operations, and cut costs for themselves and their consumers. "Our goal in writing this legislation was, very simply, to ease demand, increase supply and save consumers and businesses money spent on energy," said U.S. Rep. Joe Barton (R-Texas), chairman of the House Energy and Commerce Committee.

Provisions address federal agencies, utilities

Federal agencies will lead the way in adopting sustainable practices under the Energy Policy Act of 2005. The law requires federal buildings to cut energy consumption to 20 percent below their energy use in 2003, in energy use per square foot, by 2015. The act allows some exceptions for energy-intensive processes and matters of national security.

The act also allows Federal agencies to keep the funds resulting from energy savings, but requires agencies to reinvest the money in energy efficiency or renewable energy projects. To help agencies pay for energy improvements, the act extends the Energy Savings Performance Contract program. The program allows private companies to pay for the improvements and to be paid back with a portion of the energy savings.

Purchasing is covered in the act, as well. Federal agencies are required to buy either Energy Star products or products designated as energy efficient by the Federal Energy Management Program.

Utilities will benefit from provisions modernizing domestic energy infrastructure to help reduce the risk of large-scale blackouts and minimize transmission bottlenecks. The new law repealed outdated rules that discourage investment in new infrastructure. Tax incentives in the bill encourage new transmission construction and development of new technologies to make the power grid more efficient.

To encourage small, self-generation projects, the energy act amends the Public Utilities Regulatory Policies Act to require every public utility to offer interconnection to the power grid and net metering upon request.

The Renewable Energy Production Incentive received new life in the act. REPI encourages public power providers to develop and purchase electricity from renewable technologies. Qualifying facilities are eligible for annual payments of 1.5 cents per kWh for the first 10 years of operation, subject to the availability of annual funding. Nonprofit electrical co-ops, public utilities and tribal governments or Native corporations selling the project's electricity to someone else are among the agencies that can take advantage of REPI.

Incentives promote diversified energy supply

Increasing the use of renewable resources to generate electricity was a key component of the bill. The Solar Energy Industry Association, American Wind Energy Association, National Hydropower Association, Renewable Fuels Association and National Biodiesel Board all issued statements supporting the act.

The new law extends the production tax credit through 2007 for wind power, geothermal power, biomass, landfill gas, small irrigation power and trash combustion facilities. The credit would have expired at the end of this year. The extension also applies to hydropower generated from new facilities added to existing dams or conduits and additional generation gained from efficiency improvements at existing hydro plants.

Biodiesel and ethanol also fared well in the Energy Act. The new renewable fuels standard in the bill requires that gasoline sold in the United States contain a total of 4 billion gallons of biofuels in 2006, increasing to 7.5 billion gallons in 2012. The standard provides greater flexibility for refiners by allowing renewable fuel credits and by eliminating the reformulated gasoline oxygenate standard.

The bill set the stage for the first Federal tax credits for solar energy systems on homes in 20 years. For the first time since 1985, homeowners who install solar energy systems will receive a tax credit worth 30 percent of the system cost, capped at $2,000. Businesses that purchase solar equipment will also receive a credit worth 30 percent of the system cost.

The Database of State Incentives for Renewable Energy provides a comprehensive list of incentives and tax credits by state.

Efficiency measures benefit consumers

At the signing ceremony, President Bush observed that the bill takes the side of consumers who make the choice to conserve.

The energy-saving potential of the Energy Policy Act of 2005 is significant, according to the Alliance to Save Energy. The Alliance estimated that by the year 2020, the law’s energy-efficiency measures could reduce the anticipated growth in U.S. energy use by nearly 10 percent. Those measures focus on promoting residential efficiency and increasing appliance and commercial product efficiency, and are the ones most likely to yield savings for consumers.

Research promoting energy-efficient residential buildings—"zero-energy" homes—received funding in the bill. Homeowners installing insulation, energy-efficient doors and cool reflective roofs will be eligible for credits of 10 percent of the cost. New energy-efficient commercial buildings will also earn a tax deduction. The credits will be available in 2006 and 2007.

New minimum energy efficiency standards for appliances and other products will help consumers save energy. The bill requires DOE to set standards for industrial products including dehumidifiers, distribution transformers, ceiling fans, traffic signals, illuminated exit signs and torchieres. New standards will also be developed for a variety of equipment for commercial use, including clothes washers, icemakers, refrigerators, freezers and packaged air conditioning and heating equipment.