ABSTRACT
This chapter describes the economic policies that affect the current and potential levels of decentralized electricity production (DEP) development. It discusses buy-back rates, including surveys of current rates and possible changes that may occur in the future. The chapter reviews the process for setting buy-back rates, currently unresolved issues, and policy options for addressing these issues. It examines federal and state tax policies affecting DEP, including tax credits, depreciation, and the variation among state tax laws. The energy component of buy-back rates in oil dependent states could change with oil prices or as oil fired capacity in these states is phased out. Given the complexity of precisely calculating avoided costs, especially the capacity component, qualifying facilities and utilities often have difficulty negotiating buy-back rates and the process can drag on for years. State incentives in the form of tax credits, deductions, and exemptions have varied from being nonexistent in some states to being substantial in others.
