Fuel Cells—Clean and Reliable Energy

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NCSL Staff Contact

Glen Andersen


Fuel cells can provide a clean, consistent source of electricity and can be easily relied on as a sole power source, unlike some other renewable energy sources, such as solar energy and wind power. Many states do not promote their development as aggressively as other renewable energy technologies, and their cost remains somewhat high. Fuel cells convert energy from a fuel (usually hydrogen) into electricity, and advances in technology are bringing down costs. Fuel cells can use hydrogen produced from renewable electricity sources or be powered by other fuels, such as natural gas. They are basically emission-free, quiet and efficient, and very reliable. Although they remain expensive, a 30 percent federal tax credit combined with state incentives reduces purchase costs.

Fuel cells serve as both standby and primary power sources. As backup in the event of electric grid failure, they can start quickly and are very reliable. Costs are higher than traditional backup power, but fuel cells can generate more energy than diesel generators, are emission-free and far more efficient. Fuel cells can also meet daily needs and provide consistent, high-quality power regardless of electric grid disruptions.

In December 2010, recognizing the benefits of advancing fuel cell technology, the U.S. Department of Energy announced up to $74 million in funding to support research and development of fuel cells for stationary and transportation applications. States, however, play a major role in the adoption of clean energy technologies.

State Fuel Cell Incentives

States can expedite deployment and remove the barriers that impede development of hydrogen fuel cells by creating grant, loan, and rebate programs; implementing tax incentives; and including fuel cells as eligible technologies in renewable electricity standards. Some states recognize the benefits of all fuel cells, however many require that they use renewable fuels to qualify for incentive programs.

State Loan and Grant Programs

At least 12 states consider fuel cells eligible for loans or grants. Programs in Alabama, Montana, Oregon and Rhode Island only consider fuel cells that use renewable fuels. All fuel cell technologies, regardless of fuel type, qualify for loans or grants in Alaska, Colorado, Connecticut, Delaware, Maine, Michigan, Pennsylvania and Vermont.

Fuel cells that use renewable fuels

Clean energy programs typically offer low interest rates and set capacity requirements. For instance, the AlabamaSAVES Revolving Loan Program, funded by the American Recovery and Reinvestment Act of 2009 (ARRA), loans money to businesses to retrofit existing facilities at a 2% interest rate over 10 years. Montana’s Alternative Energy Revolving Loan Program provides up to $60,000 on a 15 year term, while Energy Trust of Oregon offers grants for up to 50% of costs for projects that are 20 megawatts or less in capacity. A perk includes development assistance activities. Most recently, Rhode Island passed House Bill 7806 (2008) to provide loans up to $750,000 for renewable energy projects that directly benefit the state.

Programs that support all fuel cells, regardless of fuel type

Some states recognize the benefit of fuel cell technologies that use any type of fuel. In May 2008, Alaska’s House Bill 152 created a grant program to help utilities, independent power producers, local governments, and tribal governments, conduct feasibility studies and construct renewable energy technologies. Colorado’s New Energy Economic Development Grant Program, funded by ARRA, includes fuel cells as an eligible technology.

Connecticut provides loans of various amounts and grants of $2.50 per watt for fuel cell projects, while a technology demonstration grant program in Delaware offers up to 25% of eligible equipment costs. Delaware’s Green Energy Fund supports research and development and provides 35% of costs for qualifying projects up to $250,000 per project for commercial and industrial projects.

In Maine, a public benefits fund grants up to $50,000 for small-scale demonstration projects to educate communities on the value of renewable energy. Michigan’s Low-Income and Energy Efficiency Fund supports fuel cells regardless of fuel type.

Effective May 2009, Pennsylvania’s $650 million Alternative Energy Investment Fund—a combination of loans, grants, and loan guarantees—supports fuel cell technologies regardless of fuel type and provides incentives for industry recruitment. Manufacturers can receive up to $35,000 in loans (interest rates range from 1-5% depending on the project) or $10,000 in grants for every job created within the first three years.

In Vermont, commercial, residential, nonprofit and local government sectors can borrow between $50,000 and $750,000 for clean electric-energy technologies at 2% interest.

Rebate Programs

Most rebate programs require that fuel cells use renewable fuels. California’s Emerging Renewables Program provides $3.00/watt for fuel cells (up to 30 kW) that use renewable fuels. But in 2009, Senate Bill 412 created a Self-Generation Incentive Program that provides $2.50/watt for all fuel cells regardless of fuel type and a higher incentive ($4.50/watt) for those that use renewable fuels.

Three rebate programs in Delaware support fuel cells that use renewables. One program provides 20% of installed costs up to $7,500 for residential projects and $10,000 for non-residential when systems generate at least 500 watts. The Delaware Municipal Electric Corporation provides a 50% rebate on installation costs up to $15,000 for residential and $30,000 for non-residential customers, and the Delmarva Power Green Energy Fund provides rebates up to $22,500 and $250,000 for residential and non-residential customers, respectively. New Jersey’s rebate program is funded through a Societal Benefits Charge collected from electric public utilities’ customers. Rebates are incremental depending on system size.

Renewable Electricity Standards

Twenty-two states and the District of Columbia include fuel cell-generated electricity in their renewable standards, which require retail suppliers to sell a minimum percentage of electricity from renewable sources. Hydrogen used in the cell typically must be produced from a renewable resource.

Most recently adopted standards include Kansas House Bill 2369 from 2009, which defines fuel cells using hydrogen produced by renewable fuel as an eligible resource. Missouri replaced its voluntary clean energy objective with a mandatory standard for investor-owned utilities in 2008. Under the new standards, 15% of electricity must come from renewable sources by 2021, including fuel cells that use renewable fuel. In Oklahoma, HB 3028 established a renewable energy goal which considers fuel cells using renewable fuels an eligible technology.

Tax Incentives

Property Tax

Eight states support stationary fuel cells with property tax exemptions for the commercial and industrial sectors, but only five of those states—Connecticut, Montana, New Jersey, Oregon and Vermont—extend the exemption to residential property owners.

Connecticut residents are 100% exempt for Class I renewable energy systems, which include fuel cells. Montana exempts residents who install fuel cells using renewable fuels from property taxes for 10 years. New Jersey created property tax exemptions in 2008, and Oregon law exempts added value to any property from the installation of a renewable energy system—including fuel cells—to be considered in the assessment of the property’s taxable value. Vermont allows municipalities the option of offering exemptions for fuel cell systems that use renewable fuels.

Sales Tax

Six states offer sales tax exemptions for construction, installation, and equipment costs for hydrogen fuel cells. In 2008, Florida enacted HB 7135, which provides renewable energy exemptions. Idaho offers a 100% rebate on sales-and-use tax for qualifying equipment and machinery for projects that generate at least 25 kW of electricity. Nevada passed legislation in 2009 (AB 522) to enact a fuel cell property tax abatement for businesses for which purchasers are only required to pay a 2.6% tax through June 30, 2011 and 2.25% thereafter until June 30, 2049.

South Carolina is active in its efforts to develop hydrogen fuel cell technology. The “South Carolina Hydrogen Permitting Act” (HB 3835 of 2009) defined hydrogen and fuel cell technology as alternative energy sources and created a permitting program to nurture fuel cell development. Senate bill 243 (2007) created a 100% sales tax exemption (commercial and industrial sectors) for the purchase of any equipment or machinery operated by hydrogen or fuel cells, or any equipment used to generate, produce, or distribute hydrogen. The bill also established the South Carolina Hydrogen Infrastructure Development Fund to authorize a research authority to administer grants for promoting hydrogen production and required state agencies to consider purchasing equipment and machinery operated by hydrogen or fuel cells.

Vermont’s 100% sales tax incentive for renewable energy systems includes fuel cells that use renewable fuels. Wyoming renewed its exemption (now set to expire June 30, 2012) in 2009 (SB 6170) for commercial, residential, and general public customers.

Personal tax incentives

Maryland, Montana, New York and Oregon offer personal tax incentives. Maryland’s 30% income tax credit applies to costs associated with fuel cells, including installation. All credits were allocated as of July 2009, however individuals can still fill out applications for when new credits are available.

A program in Montana for fuel cells using renewable fuels provides a 35% credit for investments of at least $5,000 (commercial and industrial sectors), while a residential incentive offers $500 per individual taxpayer up to $1,000 per household.

In New York, taxpayers can receive a 20% personal income tax credit up to $1,500 for fuel cells using proton exchange membrane (PEM) technology with a maximum 25 kW base load capacity when installed at a principal residence. Oregon offers $3 per peak watt (W) up to $6,000, or 50% of net cost for purchases of efficiency appliances, including fuel cells regardless of fuel type.

Incentives For Industry

Other state incentives—typically tax credits and job creation rewards—target businesses to accelerate fuel cell deployment. For instance, Arizona’s renewable business tax incentive includes fuel cells that use renewables. In July of 2009, Arizona created additional tax incentives to attract renewable energy product manufacturers to the state (SB 1403). Businesses must meet certain minimum requirements for the quantity and quality of jobs created.

In Connecticut, the Operational Demonstration Program provides up to $500,000 for fuel cells despite fuel type for the commercial sector, and the New Energy Technology Program provides up to $10,000 to develop innovative technologies, including fuel cells. Massachusetts offers a 100% corporate excise tax deduction. Michigan’s nonrefundable business activity tax credit and refundable payroll tax credit were extended to include fuel cells in 2006 (SB 583). In 2007, New Mexico implemented an alternative energy manufacturer’s 5-year tax credit carryforward (up to 5% of taxpayer’s qualified expenditures) for fuel cells that use renewables. The New York System Benefits Charge (SBC) aims to increase manufacturing of clean energy products and funds development of fuel cells. Legislation in Virginia (SB 428 of 2010) created an income tax exemption for a business’ first three years, including capital gains related to investments in fuel cells with efficiency greater than 35% and at least 2kW capacity.

Michigan, Montana, Nevada and Ohio exempt the commercial and industrial sectors from property tax relating to fuel cells. Most recently, Nevada raised the capacity minimum for eligible projects from 10 kW to 10 MW and increased abatement from 50% for 10 years to 55% for 20 years for the commercial and utility sectors (AB 522). In 2010, Ohio’s SB 232 exempted certain projects from public utility personal and real property taxes.

Green Jobs

Green jobs legislation can also focus on fuel cells. Massachusetts enacted House Bill 5018 in 2007, a green jobs bill that supports the Massachusetts Hydrogen Fuel Cell Institute. Legislation in Vermont (HB 885 of 2007) provided a workforce development plan and environmental technology sector job training, including fuel cells and hydrogen-related research. Virginia enacted a green jobs tax credit with Senate Bill 623 (HB 803) in 2010—for every job created with a yearly salary of at least $50,000, the employer earns a $500 income tax credit for five years. Fuel cell technologies must use renewable fuels to qualify.

Other Financing Options

Five states—Hawaii, Idaho, Illinois, New Mexico and Ohio—authorize bonds to finance fuel cell development projects. Hawaii passed House Bill 2168 in 2007 which allows the state to issue bonds for research in hydrogen and fuel cell technology. Idaho finances projects completed by electric utilities, and in Illinois, Senate Bills 1906 and 390 (2009) allowed the Illinois Finance Authority to issue tax-exempt bonds for fuel cell projects that use renewable resources. New Mexico’s Energy Efficiency and Renewable Bonding Act authorizes up to $20 million in bonds for fuel cells despite fuel type. Ohio’s bond-funded Advanced Energy Job Stimulus Fund, created in 2008, targets the industrial and commercial sectors and considers all fuel cells eligible.

California and Maine are the only two states with performance-based incentives. California’s feed-in tariff (created in 2008 and amended with SB 32 in 2009) allows eligible customers to enter into contracts with utilities to sell electricity produced by small renewable energy systems, including fuel cells using renewable fuels. Maine’s Community-Based Renewable Energy Production Incentive (pilot program), established by LD 1075 in June 2009, encourages the development of locally-owned, in-state renewable resources, including fuel cells. Up to $0.10/kWh (or the cost of the project, whichever is lower) qualifies for the program. Facilities must be 51% locally owned, located in the state, and be no larger than 10 MW in generating capacity.

Federal Incentives

Although in December 2010 the U.S. Department of Energy announced up to $74 million to support fuel cells, a number of federal incentives were already in place, such as $42 million in funding and $54 million in cost-share funding from industry participants announced in 2009 to accelerate fuel cell commercialization and deployment.

Other federal incentives for energy efficiency and renewable energy projects include fuel cells. In October 2008, the Energy Improvement Extension Act of 2008 (P.L. No: 110-343)  extended the duration of credits for fuel cell projects offered by the Business Energy Investment Tax Credit, and increased the credit amount for fuel cells, now capped at $1,500 per 0.5 kW of capacity.

Businesses can recover investments in renewable energy technologies under the federal Modified Accelerated Cost-Recovery System (MACRS). Although MACRS has been in place since 1986 for some technologies, the Energy Policy Act of 2005 classified fuel cell technologies as eligible property and provided loan guarantees.

The American Recovery and Reinvestment Act of 2009 (P.L. No: 111-5) created a grant program that includes fuel cells. Thirty percent of expenditures on qualified fuel cell property ($1,500 per 0.5 kW) for the commercial, industrial and agricultural sectors, is eligible for a grant. The Small Business Jobs Act of 2010 (P.L. No: 111-240) in September 2010, and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. No: 111-312) in December, further amended the program. Eligible property serviced after September 8, 2010 and before January 1, 2012 qualifies for 100% first-year bonus depreciation.

Personal tax credits for fuel cell projects of at least 0.5 kW are available up to $500 per 0.5 kW if the home served by the fuel cell system is the taxpayer’s principal residence. The Food, Conservation, and Energy Act of 2008 (P.L. No: 110-234) converted a former program into the Rural Energy for America Program (REAP), which promotes energy efficiency and renewable energy projects for agriculture and rural small businesses. The program offers up to $25 million per loan guarantee and grants for up to 25% of costs for fuel cells that use renewable fuel.


Database of State Incentives for Renewables and Efficiency, NC State University 2011
Charles Kubert, Stationary Fuel Cells and Critical Power Applications, Clean Energy States Alliance (May 2010)