With dwindling traditional energy sources, the stress is on using renewable energy, like wind energy, solar energy, hydropower etc to meet the growing needs of residents. A “Renewable Portfolio Standard” has been passed by the Texas Legislature that requires REPs and electric utilities to produce and sell particular target levels of renewable power eventually. By 2025, 10,000 MW was set as a target to be achieved for the State’s renewable energy capacity.
What are the tax credits?
Renewable energy credits are tax credits, which refer to subtractions that are applied to the quantity of cash that a business or individual owes in taxes. A normal tax deduction is applied to a chargeable salary, whereas a tax credit is applied to a tax load directly. By presenting the tax credits for the usage and manufacture of renewable energy, the Texas government offers a financial incentive to encourage the construction, development, and operation of new renewable energy resources. Such credits are also aimed at protecting and enhancing the quality of Texas’s environment through increased usage of renewable resources.
Types of tax credits
Tax credits come in two types – production credits and purchase credits. The customers earn purchase credits while purchasing renewable energy. The majority of tax credits are offered either as a percentage of price of purchasing a renewable energy product, or at a flat price.
Companies that generate renewable energy meet the criteria for production credits. A company benefits from a particular credit for each unit of renewable energy that it generates. For instance, a company producing bio-fuels might get a credit for each gallon of biodiesel that it generates, whereas a company producing solar power may get a credit for each kilowatt hour of electrical energy that it generates.
Things to know
The Texas government started ‘Renewable Energy Credits Trading Program’ to ensure that the state achieves its renewable energy requirements in the most economical and efficient manner. Empowering customers with access to providers offering energy generated by renewable energy resources, and increasing the cumulative installed renewable capacity of the State were other objectives that led to the launch of RECs.
Though the business of selling RECs has grown rapidly, no national registry exists where details of the RECs issued are listed. Rather, the onus is on a voluntary program, which is similar to a third party audit, which ensures that the renewable energy certificates are accounted for and not counted twice.
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