Energy Efficiency and Renewable Energy Set-Aside

July 12, 2005

Summary

Indiana's Energy Efficiency and Renewable Energy (EERE) Set-Aside is a joint effort of the Indiana Energy and Recycling Office (ERO) and the Indiana Office of Air Quality (OAQ) that offers potential financial incentives to large-scale energy-efficiency projects and renewable-energy projects that significantly reduce nitrogen-oxide (NOx) emissions. The program arose from a 1998 order by the U.S. Environmental Protection Agency (EPA) requiring Indiana and 21 other states to submit plans to reduce emissions of NOx, a contributor to ground-level ozone. ERO and OAQ jointly developed a program within the Indiana NOx plan to reward certain types of large-scale efficiency and renewables projects by setting aside a large number of NOx allowances each year for such projects. These allowances can be sold in the national NOx-trading system developed by the EPA. Indiana's new NOx rules took effect in May 2004. The following types of projects are eligible for NOx allowances under the EERE Set-Aside:

End-use energy-efficiency projects.

Highly efficient electricity generation for the predominant use of a single end-user (distributed generation) that meets specified efficiency levels.

Renewable-energy projects, including wind, solar-electric (photovoltaic), landfill and sewer methane, anaerobic digesters and certain hydropower projects.

Highly efficient electricity generation equipment for the sale of power where such equipment replaces or displaces retired electrical generating units and that meets certain energy efficiency levels. In general, because the EPA requires that awards of NOx allowances be made in one-ton increments, only projects that offset a very large volume of NOx emissions will be eligible for awards. Several smaller projects may also be aggregated to apply for NOx allowances. Allowances are awarded through a process of initial application and project verification. Through a variety of formulas, ERO and OAQ will award allowances to projects in proportion to the NOx emissions they offset, with projects that save the most energy or that generate the most renewable energy receiving more allowances. Applicants must specify the amount of renewable energy produced and/or energy saved as a result of the project. Project results will be verified through a combination of allowance recipient-reports and site visits by ERO and OAQ staff. The initial round of allowances was awarded to projects for the reduction of NOx emissions in the 2004 summer ozone season. Initial applications for allowances for the 2004 ozone season were due September 1, 2003, and will be due annually thereafter. Projects are eligible for allowances for up to five years, with annual reapplication required by September 1 of each year. The value of the NOx allowances that the EERE Set-Aside grants will determine the incentive provided under this program. NOx allowances are traded among energy and commodity brokers, utilities and others in an open market. Utilities and industries that are unable to meet the emission levels prescribed by statesâ€™ NOx rules may purchase allowances in this market in order to meet EPA requirements. The value of this allowance will be determined by the ability of utilities and industries to meet their emissions targets, the cost of meeting those targets through technical means, and the number of allowances available on the market for a given year. In recent years, NOx allowances have traded in a range between $2,500 and $6,000 per ton, depending upon the year they are available. See the program web site for links to (1) an overview of the current market for NOx allowances; (2) program forms, manuals and detailed explanations; (3) applications and reapplications; and (4) project-reporting forms.

Program Overview

Implementing Sector:	State
Category:	Financial Incentive
State:	Indiana
Incentive Type:	Grant Program
Web Site:	http://www.iedc.in.gov/Grants/uploads/NOxBudgetTrading.pdf
Administrator:	Indiana Office of Energy Development
Start Date:
Eligible Renewable/Other Technologies:	Solar Photovoltaics Wind (All) Biomass Hydroelectric Combined Heat & Power Fuel Cells using Non-Renewable Fuels Landfill Gas Yes; specific technologies not identified Wind (Small) Anaerobic Digestion Fuel Cells using Renewable Fuels Other Distributed Generation Technologies Microturbines
Incentive Amount:	Varies
Maximum Incentive:	None

Authorities

Name:

326 IAC 10-4-9

This information is sourced from DSIRE; the most comprehensive source of information on incentives and policies that support renewables and energy efficiency in the United States. Established in 1995, DSIRE is operated by the N.C. Clean Energy Technology Center at N.C. State University.