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State Clean Energy Funds 

An Effective Mechanism to Encourage Clean Energy Supply 

Aclean energy fund is one of several 

tools that states can use to accelerate 

the development of energy efficiency 

and clean distributed generation (DG), 

including renewable energy and combined 

heat and power (CHP). 

Clean energy funds provide a funding stream 

that can be customized in ways that best 

meet a state’s energy goals, natural 

resources, and industry presence. State clean 

energy funds often receive money from public 

benefit funds (PBFs). PBFs have been used to 

support energy efficiency, renewable energy, 

and clean DG programs in competitive 

markets. In most cases, states fund their 

PBFs through systems benefit charges (SBCs), 

which are small fees (typically in the range of 

0.001 – 0.01 cents/kilowatt-hour [kWh]) 

added to the electricity rates paid by 

customers. 

How Do Clean Energy Funds 

Encourage the Application of 

Clean Energy? 

Clean energy funds can be used to: 

•	 Provide funding to narrow any gaps 

between the market price of electricity and 

the generating costs of clean energy 

technologies. 

•	 Address technical, regulatory, and market 

barriers for emerging technologies. 

•	 Stimulate the development of companion 

industries and infrastructure that are 

crucial to the success of clean energy. 

•	 Promote consumers’ awareness of clean 

energy. 

What Is Clean DG and What Are Its Benefits? 

DG is the generation of electricity at or near the energy end-user. Clean energy 

technologies include renewable energy sources such as solar, wind, geothermal, biomass, 

biogas, and low-impact hydroelectric, as well as CHP (the simultaneous generation of 

electric and thermal energy from a single source). 

Clean DG projects yield numerous public benefits, including: 

•	 Bringing economic development to a state. 

• Reducing peak electrical demand on the grid. 

•	 Reducing electric grid constraints. 

•	 Reducing grid congestion in targeted load pockets, potentially deferring or displacing 

more expensive transmission and distribution infrastructure investments. 

•	 Reducing the environmental impact of power generation. 

•	 Reducing fuel price volatility. 
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Well-designed clean energy funds provide a state with 

strategic opportunities to: 

•	 Design a cohesive strategy. By combining a range of 

clean energy support programs and funding mechanisms 

"under one roof," states can develop a cohesive strategy 

to address a range of clean energy market issues. 

•	 Support long-term goals. While many clean energy 

policies are aimed at jump-starting markets for 

commercially ready technologies, clean energy funds can 

be designed to fund initiatives with longer-term benefits, 

such as research and development and technology 

demonstration. 

•	 Complement other clean energy policies. Because of 

their flexibility, clean energy funds can be used to 

complement and leverage other state and federal 

policies. For example, clean energy funds can be used 

to increase the effectiveness of other policies, such as 

federal tax incentives, Renewable Portfolio Standards 

(RPS), and net metering standards by reducing 

equipment costs, addressing market barriers, and 

providing consumer education and outreach. 

What Are the Key Elements 

of a Clean Energy Fund? 

Key elements of a clean energy fund include the funding 

source, the entity that administers the fund, and the 

model for allocating the funds. 

Funding source – In most cases, states use SBCs to fund 

their clean energy funds. SBCs are generally designated by 

a state’s legislature and administered by the state’s public 

utility commission (PUC). 

Administration – States have chosen several organizational 

models for administering their clean energy funds. These 

have included state energy offices (California), quasi-public 

agencies (Connecticut, Massachusetts), public regulatory 

agencies (New Jersey), non-profit organizations 

(Pennsylvania), and utilities (Arizona). 

Fund allocation – Three basics funding models are used to 

allocate funding: 

•	 The investment model uses state loans and equity to 

provide initial investment in clean energy companies 

and projects. 

•	 The project development model directly promotes clean 

energy project installation by providing production 

incentives and grants/rebates. 

•	 The industry development model uses business 

development grants, marketing support programs, 

research and development grants, resource assessments, 

technical assistance, consumer education, and 

demonstration projects to facilitate market transformation. 

Which States Have Established Clean 

Energy Funds? 

As of October 2008, 23 states and the District of Columbia
 

had established clean energy funds: Arizona, California,
 

Connecticut, Delaware, the District of Columbia, Hawaii,
 

Illinois, Maine, Massachusetts, Minnesota, Michigan,
 

Montana, Nevada, New Hampshire, New Jersey, New
 

Mexico, New York, Ohio, Oregon, Pennsylvania, Rhode
 

Island, Texas, Vermont and Wisconsin (see Figure 1). 

The size of these funds ranges from less than $1 million 

to more than $300 million a year.
 

Figure 1 

States with Clean Energy Funds 

PBF for renewable energy 

PBF for energy efficiency 

PBF for both renewables & efficiency 

Source: Navigant Consulting, Inc. 2005, and the Database of 

State Incentives for Renewable Energy (DSIRE). 

2 
Features of several state clean energy fund programs are 

highlighted below: 

New Jersey. New Jersey’s statewide clean energy 

initiative, the New Jersey Clean Energy ProgramTM 

(NJCEP), is administered by the New Jersey Board of 

Public Utilities (BPU). The NJCEP provides education, 

training, and financial incentives in three program areas: 

•	 Residential Programs, which include heating equipment 

rebates, home energy analyses, residential solar rebates, 

and the Comfort Partners program for income-eligible 

households. 

•	 Commercial & Industrial Programs, which offer 

incentives and technical assistance to commercial, 

industrial, and municipal customers. The program’s 

goals include increasing energy efficiency, reducing 

overall system peak demand, and encouraging the use 

of emerging technologies throughout the state. A 

Combined Heat and Power Program offers financial 

incentives for CHP installations. 

•	 Renewable Energy Programs, which offer support to 

customers interested in implementing renewable energy 

generation technologies and systems. NJCEP offers 

rebates towards the installation of renewable generation 

systems such as solar electric, wind, or sustainable 

biomass; low-interest loans for businesses, schools, and 

municipalities that want to combine energy efficient and 

renewable energy technologies; and grants for utilityscale projects and startup businesses. 

The NJCEP energy efficiency and renewable energy 

programs have been managed and implemented by the 

state’s seven investor-owned utilities and gas public 

utilities, but in April 2007, management was turned over 

to Honeywell Utility Solutions and TRC Energy Solutions. 

The BPU will continue as the administrator of the NJCEP. 

Contracted program managers must manage and 

implement these programs. 

To learn more about clean energy funding in New Jersey, 

visit www.njcleanenergy.com. 

New York. The New York State Energy Research and 

Development Authority (NYSERDA) administers the New 

York Energy $mart program, which provides energy 

efficiency, research and development, and environmental 

protection activities. Among other things, the Energy 

$mart program administers the New York Energy $mart 

Loan Program, which provides an interest rate reduction 

of up to 4 percent (400 basis points) off of a participating 

lender’s normal loan interest rate for a term of up to 10 

years on loans for certain energy efficiency improvements 

and/or renewable technologies. Con Edison customers 

may be eligible to receive an interest rate reduction of up 

to 6.5 percent (650 basis points). In addition, NYSERDA 

administers other programs to facilitate the development 

of clean energy in New York State. These include the 

DG/CHP Program, which as of 2006 has approved more 

than 100 DG/CHP systems for funding, representing 100 

megawatts (MW) of peak demand reduction. 

For more information about the Energy $mart Loan 

Program, visit http://www.nyserda.org/loanfund/.
 

For more information about NYSERDA’s current
 

opportunities, visit http://www.nyserda.org/Programs/
 

IABR/IndustryRD.asp#chp.
 

Connecticut. The Connecticut Clean Energy Fund is 

managed by Connecticut Innovations, Inc., a quasigovernmental investment organization. The program 

has three major components: 

•	 Installed Capacity Program, which supports long-term 

contracts for clean energy projects and incentive 

programs for host supply or onsite installations of clean 

DG projects. 

•	 Technology Demonstration Program, which supports the 

demonstration of new clean energy technologies and 

innovative applications, while also providing infrastructure 

support to the emerging clean energy industry. 

•	 Public Awareness and Education Programs, which 

support local clean energy campaigns to influence the 

buying behavior of electricity customers so that they 

voluntarily support clean energy. 

For more information, visit www.ctcleanenergy.com. 

Massachusetts. The Massachusetts Renewable Energy 

Trust is managed by the Massachusetts Technology 

Collaborative (MTC), an independent economic 

development agency focused on expanding the renewable 

energy sector and Massachusetts’s innovation economy. 

The State Division of Energy Resources provides oversight 

and planning assistance. MTC’s approach is to first identify 

barriers to renewable energy growth in Massachusetts, 

then leverage additional funds from other sources, 

including private companies and nonprofits. MTC’s goals 

include maximizing public benefit by creating new hightech jobs and producing clean energy. As of June 30, 

2007, 629 projects with 85.6 MW of clean energy capacity 

had been installed with funding from the MTC. 

To learn more, visit www.mtpc.org/renewableenergy/ 

index.htm. 

Elements of a Successful Policy 

Based on the experiences of states that have developed 

clean energy funds, a number of best practices have 

emerged for designing effective funds. States considering 

establishing clean energy funds can use the best 3 
practices that follow as models for developing their own EPA Assistance Available 

policies. The EPA CHP Partnership is a voluntary program that 

•	 Establish a working group of interested stakeholders 

(e.g., electric utilities, the state PUC, clean energy 

advocates, project developers, state energy offices, 

and state environmental agencies) to develop 

recommendations for design and administration of 

the funding mechanism (i.e., the SBC). 

•	 Develop draft legislation for consideration by the state 

legislature, if legislation is required to implement an SBC. 

•	 Based on the state’s specific clean energy goals, 

determine both the stage of technology development 

and the kind of incentives needed to support each 

technology. State clean energy funds often include a 

portfolio of program options to support both emerging 

and technically proven technologies. 

•	 Design funding sources to promote consistency in 

funding from year to year. The ability to carry forward 

excess annual contributions can be an important feature, 

especially during early years when activities are ramping 

up. Employ mechanisms, such as set percentage tariffs, 

that help ensure consistent funding levels and protect 

against the diversion of funding to other state needs. 

•	 Develop programs that will complement other state and 

federal clean energy initiatives, such as RPS, tax credits, 

and loan programs. This coordination can include policies 

that allow developers to leverage other funding sources 

without activating “double-dipping” clauses, which 

prevent developers from taking advantage of multiple 

federal or state incentives simultaneously. 

•	 Develop measurable targets (e.g., green power 

participation rates, infrastructure development measured 

in MW of new capacity, peek load reduction from clean 

DG) and monitor progress toward reaching these targets. 

•	 Be willing and able to shift fund priorities and develop 

new or modified programs in response to changes in 

markets or technologies as they develop. 

•	 Publicize success stories and goals that have been 

achieved. Make sure that state officials, office holders, 

and the public remain aware of the clean energy fund 

and know that it is achieving the desired results. 

seeks to reduce the environmental impact of power 

generation by promoting the use of cost-effective CHP. 

The Partnership assists state policy makers and regulators 

to evaluate opportunities to encourage CHP through the 

implementation of policies and programs. The Partnership 

has also assisted states in developing incentive programs. 

See www.epa.gov/chp. 

Additional Resources 

EPA has created The Clean Energy-Environment Guide to
 

Action. The Guide provides an overview of clean energy
 

supply technology options and, in addition to clean energy
 

funds, presents a range of policies that states have adopted
 

to encourage continued growth of clean energy technologies
 

and energy efficiency. The Guide is available at
 

www.epa.gov/cleanenergy/stateandlocal/guidetoaction.htm.
 

The Database of State Incentives for Renewable
 

Energy (DSIRE) is a comprehensive source of
 

information on state, local, utility, and selected federal
 

incentives that promote renewable energy.
 

See www.dsireusa.org.
 

The Clean Energy States Alliance (CESA) is a
 

nonprofit organization that provides information and
 

technical services to state clean energy funds and works
 

with them to build and expand clean energy markets in
 

the United States.
 

See www.cleanenergystates.org.
 

The American Council for an Energy Efficient
 

Economy (ACEEE) is a nonprofit organization that
 

conducts in-depth policy analyses in a number of subject
 

areas, several of which include utilities, transportation,
 

and federal energy policy. 

See http://www.aceee.org/.
 

The Pew Center on Global Climate Change has a 

summary of states with PBFs. 

See http://www.pewclimate.org/what_s_being_done/ 

in_the_states/public_benefit_funds.cfm. 

For more information, contact: 

Gary McNeil 

U.S. Environmental Protection Agency 

Combined Heat and Power Partnership 

Phone: 202-343-9173 

e-mail: mcneil.gary@epa.gov 

Last updated April 2009 4