State governments are moving aggressively toward distributed-energy (DE) projects. Whether it's for relief from the aging grid, economic benefits to the business environment, or the environmental benefits of green renewables, DE programs are growing fast. Which states have the best programs? Among those with the highest-performance track records, one is a surprise: a state that jump-started its DE program by committing more than $100 million to the development of a fuel cell-based economy.

California tops the list of best states for DE. Even with its budget struggles, the Golden State still has established a volume and momentum that offers a wide diversity of DE opportunities. From 1997 to 2003, the state collected $756 million from its utilities for the Renewable Resource Trust Fund. So far, the California Energy Commission has doled out $344.2 million for renewable projects that include 5,300 photovoltaic- and wind-energy systems for homes and businesses.

The state's policy-makers have made some smart moves to encourage DE. There are no exit fees for DE generators producing less than 10 MW and no standards for combined heat and power (CHP) projects that use output-based permitting, a method that avoids air-quality penalties for businesses that upgrade with CHP technologies.

The University of California at Irvine debuted the world's first fuel-cell/gas-turbine hybrid and began generating electricity on the campus in 2002. The university also is preparing fuel-cell manufacturing standards for state and federal safety agencies.

Also in southern California, the South Coast Air Quality Management District (SCAQMD) is a partner in the university's hybrid project and spearheads a number of other DE ventures involving microturbines and fuel cells. Despite the state's budget problems, SCAQMD's efforts are funded from vehicle-registration fees (it gets $1 per vehicle registered in southern California). In the car capital of the world, that amounts to quite a bit of funding.

Among SCAQMD's projects are four 250-kW fuel cells for cast-metal plants and two 250-kW fuel cells for Disney properties. ÒWhen we go forward with these clean-fuel projects, the partners contribute up to 50% of the cost, and we contribute the balance to get these things installed,Ó says Matt Miyasato, technology demonstration manager for SCAQMD. ÒWe are heavily into fuel cells and hydrogen infrastructure.Ó

Equally active in DE and fuel cells is the Los Angeles Department of Water and Power. The power agency has four 250-kW molten-carbonate fuel cells from FuelCell Energy and plans to purchase more. The latest addition went on-line in September 2003 and eventually will run on biogas from a sewage treatment facility.

The Interstate Renewable Energy Council (IREC) ranks California second in financial incentives for residential-customer-sited photovoltaic programs. Additionally the state has 43 DE-based projects managed by the United States Department of Energy (DOE).

New York started early in the DE field. In the late 1990s, the state's Public Service Commission (PSC) established a system-benefits charge that currently commits about $150 million/yr. toward programs to promote energy efficiency, renewable-resource development, and low-income energy-efficiency services. The state has committed about $614 million to programs that include the installation of renewable-generation systems capable of producing enough electricity for more than 166,000 homes and nearly 100 MW of onsite CHP systems.

Fuel-cell manufacturer Plug Power is based in New York and has been successful with the Long Island Power Authority (LIPA) in increasing residential and commercial energy needs. To date, Plug Power fuel-cell systems have delivered approximately 700 kW of generating capacity to residential and commercial customers throughout LIPA's service area. Many 5-kW units are connected to LIPA's electric grid at the West Babylon substation and five remote sites to provide both electricity and heat.

In February 2003, LIPA announcedÑat a McDonald's restaurant partially powered by a Plug Power fuel cellÑthat it would purchase an additional 45 systems for first-time installation in Long Island homes.

Twenty-five of the 5-kW fuel-cell systems will be installed at LIPA's West Babylon Fuel Cell Demonstration Site, where fuel-cell systems feed directly into the Long Island electrical grid. The remaining 20 systems will generate onsite heat and power for single-family or multifamily residential sites.

New York also is headquarters for UTC Fuel Cells, a unit of United Technologies Corporation. The company recently sold seven PC25 fuel-cell power plants to Verizon to provide primary power for a critical call-routing center on Long Island. The seven units (each producing 200 kW of electricity and 900,000 Btu of usable heat) will form the largest fuel-cell installation in the world, surpassing the PC25 installation at the Connecticut Juvenile Training School in Middletown, CT.

In the field of solar energy, the New York Energy $mart Program promotes photovoltaic technology and offers incentives of up to $300,000 per project for building-integrated photovoltaics. IREC ranks New York first in financial incentives for residential-customer-sited photovoltaic programs.

The state also established a $3 million distributed-generation pilot program for one of its gas utilities. The Partnership for Distributed Generation pilot program provides funding to customers to defray the cost of installing equipment. This program already supports about 6 MW of systems with nearly 20 additional customers expressing interest. The New York PSC is encouraging the state's remaining gas utilities to consider similar pilot programs.

Similar requirements were adopted for farms in the state. Utilities must provide net metering for farms that generate electricity from methane produced by animal waste. Essentially farmers will be paid in cash for any excess electricity they produce and provide to the grid using methane generated from animal waste in anaerobic digester equipment.

The state has 18 DE-based projects managed by DOE.

The Massachusetts Renewable Energy Trust (MRET) oversees a $150 million state fund for renewable development. The trust recently took a $17 million cut when the state withdrew money to help defray its 2003 budget shortfall, but, in a move that defines the state's energy philosophy, the legislature promised to buy $17 million of green electricity for government buildings.

Meanwhile the trust is establishing incentives to attract business startups and renewable-energy business transfers from other states, including funds of $15 million for equity and debt, a university consortium to provide research and development, a skilled workforce, marketing, and business-development grant availability.

The state also has a strong DE advocate in the Massachusetts Technology Collaborative (MTC). MTC recently announced $2 million in grant funding from MRET to four emerging-technology demonstration projects: $500,000 to construct a hydroelectric plant with a 20-kW capacity utilizing six Gorlov helical turbines in the Merrimack River; $496,976 to construct and demonstrate a CHP biomass gasification system at Heyes Forest Products, a sawmill and dry-kiln facility; $500,000 to install a 500-kW ocean-wave demonstration facility as part of a multistate effort with Connecticut, Massachusetts, and Rhode Island; and $499,886 to scale up, construct, and demonstrate a 10-dry-tpd biomass technology at the Hubbard Forest Industries sawmill.

Additionally MTC introduced a $3.5 million grant program from MRET. The funds are designated for 100 new solar-electric installations and 21 recipients to develop new and renovated energy-efficient buildings.

In the fuel-cell arena, Massachusetts has a $5 million Premium Power Installation Grant program that provides up to 25% of the total capital costs, with a maximum of $2 million per project for fuel cells. The state committed an additional $6 million to fuel-cell technology and has eight fuel-cell projects to show for its investment. The latest is a FuelCell Energy 250-kW molten-carbonate installation at a US Coast Guard facility.

The state has 18 DE-based projects managed by DOE. IREC ranks Massachusetts 16th in financial incentives for residential-customer-sited photovoltaic programs.

Ohio is focusing most of its efforts on the fuel-cell industry. The Ohio Fuel Cell Initiative, announced in May 2002, is a $103 million program designed to position Ohio as a national leader in the growing fuel-cell industry and to spur economic growth and jobs. The initiative and the Wright Capital Project Fund are key components of Governor Bob Taft's Third Frontier Project, a $1.6 billion plan to create high-paying jobs.

FuelCell Energy moved quickly to capitalize on Ohio's aggressive program. It won a contract from the City of Westerville Electric Division to supply a 250-kW Direct FuelCell power plant to feed power at a substation into the local electricity-distribution system.

In a move to support education, the Wright Capital Project Fund awarded Stark State College of Technology $2 million to support the research, development, and commercialization of fuel cells by establishing the Advanced Prototyping User Center. The center plans to create 300 high-paying jobs for Stark County over the next seven years. This grant follows $18 million that was awarded to Case Western Reserve University and a team of four other universities and 21 business partners. To date, Ohio has invested more than $27 million in fuel-cell projects.

The state also hosted the 2003 Annual Fuel Cell Symposium at Kent State University's Stark Campus.

To boost citizen participation, Ohio's Technology Investment Tax Credit program offers a variety of benefits to taxpayers who invest in small research-and-development and technology-oriented firms. Investors can reduce their state taxes by up to 25% of the amount invested in qualified Ohio companies. The program's maximum credit of $37,500 per investment may be applied to personal income tax, corporation franchise tax, public utility excise tax, or the tax on dealers in intangibles.

Ohio is home to quite a bit of the nation's coal supply, and FuelCell Energy began running the world's first fuel-cell power plant on coalmine methane gas at the Rose Valley site in Hopedale, OH. The project is cofunded by DOE's National Energy Technology Laboratory and will demonstrate the feasibility and advantages of methane from coalmines to generate electricity cleanly and efficiently. The state has 18 DE-based projects managed by DOE.

As for solar energy, IREC ranks Ohio 31st in financial incentives for residential-customer-sited photovoltaic projects.

Home to both FuelCell Energy and UTC Fuel Cells, Connecticut is strongly vested in the fuel-cell industry. The Connecticut Clean Energy Fund (CCEF) has announced a request for proposals to install and demonstrate fuel cells (greater than 1 kW) under the CCEF Fuel Cell Initiative, now in its third year. CCEF, the state's public benefits fund, is financed by a surcharge levied against the state's electrical ratepayers.

The funding level is set at up to $4 million. Proposals are requested from fuel-cell manufacturers or integrators, and teaming of parties is encouraged and can include a wide variety of organizations. FuelCell Energy recently benefited from this program with the sale of a 250-kW unit to Yale University.

The state also offers the Yankee Ingenuity Technology Competition, with awards of up to $300,000 each to Connecticut universities that collaborate with Connecticut businesses. Investments will be made in such clean sources as solar, wind, waves, fuel cells, and other renewable technologies.

Another investment program, the Eli Whitney Fund, is Connecticut Innovations' primary investment fund, aimed at strengthening the state's high-technology environment by providing entrepreneurs with the capital and strategic guidance needed to start and build successful Connecticut businesses. The fund focuses on technology sectors with the greatest potential for economic growthÑinformation technology, bioscience, photonics (applied optics), and energy and environmental systems. Investments, which typically range from $500,000 to $2 million on the initial round, are made in early-stage Connecticut companies that meet established criteria.

On March 14-16, 2004, CCEF will host its second annual Fuel Cell Investment Summit, where attendees can learn about funding opportunities for fuel cell development and deployment and network with funding organizations, state and federal government representatives, and fuel-cell-industry participants.

The state has 23 DE-based projects managed by DOE. IREC ranks Connecticut 17th in financial incentives for residential-customer-sited photovoltaic projects.

Illinois restructured its utility laws in 1997 and created the Illinois Public Benefit Program to fund the Renewable Energy Resources Trust Fund and the Energy Efficiency Program. Revenue from this fund is expected to amount to approximately $100 million/yr. over 10 years. Of this money, 50% goes toward the Renewable Energy Resources Trust Fund, and the remaining 50% goes to the Coal Technology Development Assistance Fund. Money for the Coal Fund is distributed according to the Illinois Coal Technology Development Assistance Act. Money from this program is distributed to residential electricity customers for creating energy-efficiency improvements.

An additional $250 million comes from the Clean Energy Community Trust Fund, established through a settlement with Commonwealth Edison Company. The fund is used in programs for efficiency and renewables and includes grants, loans, venture-capital support, and other financial incentives. Funding is limited to in-state projects that benefit Illinois's environment or economy.

In the area of fuel cells, FuelCell Energy and Caterpillar Inc. partnered in the installation of the largest fuel-cell power-generation plant in Illinois. The 250-kW power plant is connected to the Peoria-area electricity grid. Developed to showcase Caterpillar's move into fuel-cell distribution, the company utilizes the power plant as a demonstration unit for customers, dealers, and development engineers.

The state has 23 DE-based projects managed by DOE. IREC ranks Connecticut 10th in financial incentives for residential-customer-sited photovoltaic projects.

The state is investing heavily in transmission infrastructure and spending more than $125 million/yr. on renewable energy and energy efficiency. The New Jersey Clean Energy Program promotes energy efficiency through grants and rebates for renewable-energy generation. The result is approximately 50 MW of clean, renewable power generation. The state's Board of Public Utilities and its Economic Development Authority recently announced a program to make $60 million in low-interest financing available for investment in renewable-energy generation and for efficiency and renewable-energy upgrades for small and medium-sized businesses.

In October 2002, the state's DE status received a boost with a fuel cell installed at a private business under the New Jersey Clean Energy Program. The business also pocketed a $200,000 rebate from the US Department of Defense under an alternative-technology program sponsored by the federal government.

New Jersey has two hotels running on FuelCell Energy power plants. Starwood Hotels & Resorts Worldwide Inc. bought a 250-kW unit to supply electric power and heat to its Sheraton Parsippany Hotel in Parsippany. A similar unit is installed at the Sheraton Edison Hotel Raritan Center, where it provides about 25% of the hotel's electricity and hot water.

The state has two DE-based projects managed by DOE. IREC ranks New Jersey seventh in financial incentives for residential-customer-sited photovoltaic projects.

Minnesota has a long history of DE activities. Its DE-friendly net-metering law was enacted in January 1983, and the state is one of the earliest to mandate net metering by legislative statute. It covers all renewable-energy resources and cogeneration up to 40 kW and is available to all customer classes and types of utilities throughout the state. Minnesota utilities must purchase net-excess generation at the average retail rate.

In 2001, the legislature required the state's Public Utilities Commission to develop standards for interconnection and operation of distributed-generation facilities.

The state also excludes the value added by photovoltaic- and wind-energy systems rated less than 2 MW from property taxation. Partial exemptions apply to larger systems. Current rules state that wind systems between 2 and 12 MW of rated capacity are about 90% exempt from property taxes, and projects larger than 12 MW are about 75% exempt.

IREC ranks Minnesota 14th in financial incentives for residential-customer-sited photovoltaic projects.

The fuel-cell industry received some support from the state's largest power producer, Xcel Energy. The utility has awarded $6.3 million from its renewable development fund for 11 projects. The categories included improvements in fuel cells and photovoltaic cells, ethanol feasibility studies using spent distiller grains, studies of electricity production from whole trees, biomass cofiring and gasification studies, controls for wind turbines, and methods for storing power from wind turbines and erecting them without cranes.

Minnesota is among the top five wind-energy-producing states in the nation, generating more than 320 MW of electricityÑenough to power 320,000 homes.

The Minnesota Department of Commerce State Energy Office has a program for DE and other energy projects for up to $300,000 in grants. Two Minnesota communities each received $150,000 Community Wind Energy Rebates under the program. The two projects will have a combined generation capacity to provide electricity to more than 1,700 Minnesota homes.

In other wind-generation news, Carleton College and Northfield Public Schools won grants for installing two 1.65-MW wind turbines (3.3 MW total) that would generate approximately 9,500,000 kWh annually, or the equivalent electricity usage of more than 1,100 average Minnesota homes.

The University of Minnesota at Morris' West Central Research and Outreach Center won grants for two 0.95-MW wind turbines (1.9 MW total) that would generate approximately 5,000,000 kWh annually, or the equivalent electricity usage of approximately 600 average Minnesota homes. All told, Minnesota leads the country in wind-generation grants, with $4,678,632 for projects including small residential-scale turbines, farmer-owned utility-scale turbines, and rural electric-cooperative wind projects.

The state has four DE-based projects managed by DOE.

Michigan is basing most of its DE strategy on supporting fuel cells through its education system. The Michigan Energy Efficiency Grant, provided by the Michigan PSC, offers assistance to organizations to develop and improve the quality and application of energy-efficient technologies and to create or expand the market for such technologies.

FuelCell Energy has partnered with Grand Valley State University to install and service a fuel-cell power plant for its Energy Institute's 26,000 ft.² research center in Muskegon, MI. Funding for the entire project, including the building and the fuel cells, is being provided for by a $3 million alternative-energy grant from the Michigan PSC and bonding from the City of Muskegon.

The project includes a solar/photovoltaic installation that will provide hot water and hot air for heating and air conditioning. It's the first commercial project in the world to integrate fuel-cell technology, a heat-recovery system for heating and air conditioning, photovoltaics, and a nickel-metal-hydride battery-storage system for excess energy.

DTE Energy Technologies installed fuel-cell systems at three state educational institutions as part of a state grant program. The systems, manufactured by Plug Power, include one fully integrated 5-kW CHP fuel-cell system at the Wayne State University College of Engineering in Detroit, one at the Henry Ford Community College science and technology building in Dearborn, and one at the Michigan Technical Education Center facility at Macomb Community College in Warren.

Each institution will collaborate with DTE Energy Technologies to jointly operate and maintain the units as part of the educational benefits of the grant.

The state has five DE-based projects managed by DOE.

The Pennsylvania Sustainable Energy Board currently oversees four sustainable-energy development funds designed to build on Pennsylvania's success with funding renewable-energy projects, such as wind farms and solar projects. To date, the funds have provided approximately $22.3 million in loans and $1.8 million in grants for more than 100 projects.

The University of Pennsylvania has a progressive fuel-cell research program and has built a fuel cell that runs efficiently on readily available forms of hydrocarbon fuels, such as methane and butane, instead of pure hydrogen.

Pennsylvania is home to one of the biggest guns in the power-generation and fuel-cell industry: Siemens Westinghouse. The company has been performing basic research and product development of solid-oxide fuel cells for more than 40 years. Fuel cell manufacturers Power+Energy Inc. and Franklin Fuel Cells Inc. also are headquartered in the state.

Finally the US Department of Defense Fuel Cell Test and Evaluation Center is based in Pennsylvania. It operates as a national resource facility for the independent, unbiased testing and validation of fuel-cell power systems for both military and commercial applications. The state has five DE-based projects managed by DOE.

Solar energy is a high priority, and IREC ranks Pennsylvania fifth in financial incentives for residential-customer-sited photovoltaic projects.

The Oregon Energy Loan Program made its first loan in 1981 and supports the production of DE from renewable resources, such as water, wind, geothermal, solar, biomass, waste materials, and waste heat. The program is available to individuals, businesses, schools, cities, counties, special districts, state and federal agencies, public corporations, cooperatives, tribes, and nonprofits. Projects must be in Oregon, however.

Oregon expects wind generation and fuel cells to be strong performers in the DE residential market and offers a tax credit of $0.60/kWh estimated to be saved during the first year, up to $1,500. Fuel-cell systems must have a minimum rated stack capacity of 0.5 kW and a maximum rated system capacity of 10 kW.

For Oregon businesses, a sustainable building tax credit offers something of a new approach. It is based on the square footage of the entire building (traditional tax credits are based on the increased cost of a project above the industry standard or the energy code).

Another program, Harvesting Clean Energy, provides a forum for farmers and agricultural leaders, tribes, rural utilities, economic development officials, lenders, and elected officials. The program supports technologies, including locally owned commercial wind power, biodiesel and ethanol, biogas and biomass digesters, and energy efficiency and on-farm renewables (e.g., solar, micro-hydro, geothermal, small wind).

Oregon-based IdaTech builds fuel cells, including a self-contained 3-kW power-generation package designed for the electrical needs of a 2,500-ft.² home. Oregon's Bonneville Power Administration purchased 110 prototype units for development and testing in various applications.

IREC ranks Oregon 12th in financial incentives for residential-customer-sited photovoltaic projects. The state has three DE-based projects managed by DOE.

ED RITCHIE is a frequent contributor to DISTRIBUTED ENERGY.

DE - March/April 2004