This article first appeared in the March 2006 issue of Environmental Finance magazine.
New technologies “lead changes in social policies more often than they are led,” observes technology historian Andrew Hargadon, who has examined many past technology transitions in the energy sector with a critical eye for what drives innovation. If Hargadon is correct, then the recent spate of new policies promoting fuel cells at the US federal and state level may be early indicators of a fundamental shift in the marketplace for these emerging technologies.
When the Energy Policy Act of 2005 passed into law last summer, it was lambasted by environmentalists for the heavy subsidies and incentives provided to the fossil fuel and nuclear power industries. Still, while these criticisms may be merited, there are also provisions in the legislation that give fuel cells a new status in the suite of clean energy technologies.
One of these is a new investment tax credit (ITC) for fuel cell installations. As of 1 January 2006, new fuel cell owners will receive a tax credit of up to 30% of system cost (capped at $1,000 per kilowatt). The credit (applicable to systems of at least 500 watts and electrical efficiencies greater than 30%) is a potent incentive for new fuel cell projects, since cost is a primary hurdle for customer adoption. Large-scale fuel cell projects to date rely on federal and state incentives in the range of $1 million or more per installation. The tax credit could significantly reduce the amount required from state-level incentives.