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Kentucky Incentives and Laws

Listed below are the summaries of all current Kentucky incentives, laws, regulations, funding opportunities, and other initiatives related to alternative fuels and vehicles, advanced technologies, or air quality. You can go directly to summaries of:

• State Incentives (7)
• Utility/Private Incentives (2)
• Laws and Regulations (5)

State Incentives

Biodiesel Production and Blending Tax Credit

Qualified biodiesel producers or blenders are eligible for an income tax credit of $1.00 per gallon of pure biodiesel (B100) or renewable diesel produced or used in the blending process. Re-blending of blended biodiesel does not qualify for the tax credit. The total amount of credits claimed by all biodiesel producers may not exceed the annual biodiesel tax credit cap of $10 million. Unused credits may not be carried forward. For the purpose of this credit, biodiesel must meet ASTM specification D6751, and renewable diesel is defined as a renewable, biodegradable, non-ester combustible liquid derived from biomass resources that meets ASTM specification D975 or D396. (Reference Kentucky Revised Statutes 141.422 to 141.424)

Ethanol Production Tax Credit

Qualified ethanol producers are eligible for an income tax credit of $1.00 per gallon of corn- or cellulosic-based ethanol that meets ASTM specification D4806. The total credit amount available for producers is $5 million for each fuel type in each taxable year. Unused ethanol credits from one ethanol-based cap, such as corn, may be applied to another ethanol-based cap, such as cellulosic, in the same taxable year. Unused credits may not be carried forward. (Reference Kentucky Revised Statutes 141.422 and 141.4242 to 141.4248)

Alternative Fuel Production Tax Incentives

The Kentucky Economic Development and Finance Authority (KEDFA) provides tax incentives to construct, retrofit, or upgrade an alternative fuel production or gasification facility that uses coal or biomass as a feedstock. KEDFA also provides tax incentives for energy-efficient alternative fuel production facilities and for up to five alternative fuel production facilities that use natural gas or natural gas liquids as a feedstock. Energy-efficient alternative fuels are defined as homogeneous fuels that are produced from processes designed to densify feedstocks such as coal, waste coal, or biomass resources, and have an energy content that is greater than the feedstock. The incentives may consist of: 1) a refund of up to 100% of the state sales tax paid on the purchase of personal property used to construct the facility; 2) a credit of up to 100% of an approved company's state income tax and limited liability entity tax that the project generates; 3) up to 4% of the wage assessment of employees whose jobs were created as a result of the construction, retrofit, upgrade, or operation of a qualified facility; and 4) a credit for up to 80% of the severance tax paid for coal, natural gas, or natural gas liquids used as a feedstock.

The incentives expire at the time of receipt of the authorized amount or 25 years from activation of the project, whichever occurs first. Approved companies may recover up to 50% of their capital investment via the authorized tax incentives. The minimum capital investment for incentive eligibility is $25 million for an alternative fuel or gasification facility that uses biomass as the primary feedstock; $100 million for an alternative fuel or gasification facility that uses coal, oil shale, or tar sands as the primary feedstock; $25 million for an energy-efficient alternative fuel facility; and $1 million for a facility that uses natural gas or natural gas liquids as the primary feedstock.

(Reference Kentucky Revised Statutes 154.27-010 to 154.27-090)

Alternative Fuel Research, Development, and Promotion

The Kentucky New Energy Ventures (KNEV) program provides grants and investments to companies for research, development, and commercialization of alternative fuels and renewable energy. KNEV is designed to: 1) grow Kentucky-based alternative fuel and renewable energy companies to promote commonwealth-wide, innovation-driven economic growth; 2) stimulate private investment in Kentucky-based alternative fuel and renewable energy enterprises; 3) expand the alternative fuel and renewable energy knowledge base, talent force, and industry in Kentucky; 4) develop an alternative fuel and renewable energy resource network to build the technical and business capacity of entrepreneurs through informal and formal strategic support; and 5) build commonwealth-wide awareness of the economic development opportunities Kentucky's alternative fuel and renewable energy industry offers. For the purposes of KNEV, alternative fuels include biodiesel, ethanol, cellulosic ethanol, synthetic natural gas, fuels produced from coal, and other fuels produced from a renewable or sustainable source. To be eligible, a business must have its principle base of business or at least 51% of the property and payroll in the commonwealth. Additional eligibility requirements apply. (Reference Kentucky Revised Statutes 154.20-410 and 154.20-415)

Alternative Fuel and Vehicle Promotion

The Kentucky Department for Energy Development and Independence (Department) encourages the responsible use of transportation fuels by supporting academic research, public education, and collaborative partnerships involving alternative fuels and alternative fuel vehicles (AFVs). The Department facilitates projects that promote the use of AFVs and establish alternative fuel infrastructure in Kentucky.

Propane Excise Tax Exemption

Propane is exempt from the state excise tax when it is used to operate motor vehicles on public highways provided that vehicles are equipped with carburetion systems approved by the Kentucky Energy and Environment Cabinet. (Reference Kentucky Revised Statutes 234.321)

Biodiesel Education and Acquisition Grants

The Kentucky Energy and Environment Cabinet offers grants through the Biofuels for Schools Program (Program). The Program seeks to identify high schools that design, implement, and evaluate student projects that incorporate awareness and knowledge of biodiesel, pollution prevention, and resource conservations principles. Grants are also available to high schools that enable the long-term policies and planning for expanded use of biodiesel. Qualified schools will receive between $500 and $2,000. As of April 2012, the application period has closed. For program information and application requirements, see the Biofuels for Schools website.

Utility/Private Incentives

Plug-in Electric Vehicle (PEV) and Electric Vehicle Supply Equipment (EVSE) Grants

Kentucky Utilities Company (KU) is offering $250,000 in grant funding to assist with the cost of PEV acquisition in fleets owned by governmental and quasi-governmental bodies. KU will reimburse selected applicants for the incremental cost of PEVs, specifically passenger cars and light- or medium-duty trucks. KU will also fund the cost of one DC fast charge EVSE, up to $3,500, for each selected applicant. Applications for funding must be submitted for consideration by June 15, 2012. For more information, see the Program Criteria and Application.

Low Emission Vehicle Electricity Rate Incentive - Louisville Gas & Electric

Louisville Gas & Electric offers a pilot Low Emission Vehicle (LEV) time-of-use electricity rate for residential customers who own an electric vehicle, plug-in hybrid electric vehicle, or natural gas vehicle fueled through a home fueling appliance. The rate is limited to 100 residential customers.

Laws and Regulations

Biomass and Biofuels Industry Development

The Executive Task Force on Biomass and Biofuels Development must facilitate the development of a sustainable biomass and biofuels industry in Kentucky. The Executive Task Force Final Report recommends key strategic actions to develop the industry, including identifying a single agency to coordinate development efforts, developing policies to mitigate demand and supply risks, ensuring the industry's sustainability, and developing capitalization mechanisms. (Reference Executive Order 2009-817, 2009)

Vehicle Acquisition Priorities and Alternative Fuel Use Requirement

The Kentucky Finance and Administration Cabinet (Cabinet) must develop a strategy to replace at least 50% of commonwealth motor fleet light-duty vehicles with energy-efficient vehicles including hybrid electric, advanced lean burn, fuel cell, and alternative fuel vehicles. The Cabinet must also develop a strategy to increase the use of ethanol, biodiesel, and other alternative fuels in commonwealth motor vehicle fleets. The Cabinet must report targeted vehicle and fuel usage amounts annually. (Reference Kentucky Revised Statutes 45A.625)

State Energy Plan Alternative Fuel Requirements

The Governor's Office of Energy Policy (Office) oversees the development and implementation of Kentucky's comprehensive energy strategy. Specifically, the Office must develop and implement a strategy for the production of alternative transportation fuels and synthetic natural gas from fossil energy resources and biomass resources, including biodiesel and ethanol. The Office developed a commonwealth energy plan, Intelligent Energy Choices for Kentucky's Future, in 2008. This plan proposes seven strategies to support a renewable and efficiency portfolio standard and to develop an alternative transportation fuel standard and set fuel production goals. (Reference Kentucky Revised Statutes 152.720)

Natural Gas Deregulation

The Kentucky Public Service Commission may not regulate the rates, terms, or conditions of service for the sale of natural gas to a compressed natural gas fueling station, retailer, or to any end-user for use as a motor vehicle fuel. (Reference Kentucky Revised Statutes 278.508)

Low-Speed Electric Vehicle Access to Roadways

A low-speed vehicle is defined as a four-wheeled vehicle propelled by an electric motor, combustion-driven motor, or a combination of the two and designed to operate at speeds of up to 25 miles per hour (mph). Low-speed vehicles may operate on roads with posted speed limits of up to 35 mph provided that the vehicle has not been modified to increase its speed above the original standard manufactured limit. Low-speed vehicles may only cross roads with posted speed limits above 35 mph if the intersection is equipped with a traffic signal. Low-speed vehicles must display a vehicle identification number; be titled, registered, and insured as motor vehicles; and meet safety standards specified in Title 49 of the Code of Federal Regulations, section 571.500. (Reference Executive Order) 2008-824, 2008, and Kentucky Revised Statutes 186.010 and 189.282)