To analyze the impact of the Section 206 rebate program, the Energy Information Administration (EIA) used the National Energy Modeling System (NEMS), which is the basis for the forecasts published each year in the Annual Energy Outlook (AEO). While NEMS is a very flexible and comprehensive model, it does have some characteristics that limit this analysis. First, the only renewable energy sources modeled in the residential sector are wood-burning stoves, geothermal heat pumps (GHPs), solar thermal hot water heaters, and solar photovoltaic (PV) installations for electricity. This excludes several energy sources, notably residential wind turbines and pellet fuel stoves. While EIA does not collect data on or forecast these energy sources, some reliable anecdotal information is provided for them. Failing to account for residential wind turbines is unlikely to affect the results, since the installed cost of residential wind turbines is so high that the Section 206 rebate would likely not cause many additional units to be purchased. The second limit to this analysis is that no energy data (historical or projected) exist specific to small businesses, so potential benefits to them, largely in the commercial sector, were not examined. It should also be noted that this analysis does not consider possible synergies with State initiatives, particularly the new solar incentive recently adopted in California.^[2] The final limit to the analysis is that the rebate case projections assume authorized funds are structured by calendar year, whereas Section 206 prescribes limits by fiscal year.

EIA modeled the impact of Section 206 rebates by examining two separate cases. In the first case, prescribed unit rebates were considered, without regard to the overall budget impact they would have. For the second case, the total rebate limits were adhered to by assuming that there would be a smaller rebate for GHPs, the technology that analysis indicates would receive the largest benefit from the program. Alternatively, Section 206 legislation could result in customers applying for program funds on a "first come, first served" basis for the most economically viable technologies. It is beyond the scope of NEMS to model this behavior.

The data for 2004 and 2005 shown in this report are actually estimates calculated by the NEMS Residential Demand Module. This module uses information from EIA=s 2001 Residential Energy Consumption Survey (RECS)-the most recent RECS-as its base-year data. It then generates forecasts for each year through 2010 for this analysis using actual and forecasted weather and exogenous forecasts of housing starts and energy prices. External assumptions of projected energy equipment cost and performance are also used. NEMS then projects changes to housing and equipment stock and the resulting energy use. These estimates are calculated for each of the nine Census Divisions. Appendix B includes a description of the differences between these estimates and EIA's published estimates of renewable energy consumption in the residential sector.

To examine the impact of the Section 206 rebate program, EIA compared results from the Reference Case forecast published in the Annual Energy Outlook 2006 (AEO2006) with two Rebate Cases that contained the provisions of Section 206 described above.