Analyzing tax incentives for producing renewable energy by biomass cofiring

This article examines the impacts of governmental incentives for coal-fired power plants to generate renewable energy via biomass cofiring technology. The most common incentive is the Production Tax Credit (PTC), a flat-rate reimbursement for each unit of renewable energy generated. The work presented here proposes PTC alternatives, incentives that are functions of plant capacity and the biomass cofiring ratio. The capacity-based incentives favor plants of small capacity, whereas the ratio-based incentives favor plants that cofire larger percentages of biomass. Following a resource allocation perspective, this article evaluates the impacts of alternative PTC schemes on biomass utilization and power plants’ profit-earning potentials. The efficiency of these incentive schemes is evaluated by comparing with a reference profit optimization model that finds a distribution of credits that maximizes the total profits in the system. To evaluate the fairness of the proposed schemes, the results of the max–min fairness solution are used as a basis. A realistic case study, developed with data pertaining to the southeastern. United States, suggests how total system costs and efforts to generate renewable energy are impacted by both the existing and proposed incentives. The observations presented in this study provide helpful insights to policymakers in designing effective incentive schemes that promote biomass cofiring.