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On 31 March 2021, the Biden administration detailed the core
components of its $2 trillion American Jobs Plan, which seeks to
put the United States on a path to 100% CO2-free
electricity by 2035 (among other objectives). Key elements that
address the electric power industry are:
Refundable tax credits for wind, solar, and stand-alone energy
storage. The existing production and investment tax credits (PTC
and ITC) for wind and solar would be extended for ten years and
phase-out.
Enticing 20 GW of new transmission capacity through an
investment tax credit and a new Grid Development Authority at the
Department of Energy that would coordinate project development on
existing rights-of-way.
Purchasing '24x7' clean electricity for federal facilities from
the regional power grid where they are located and matching it with
facilities' hourly consumption patterns.
Completely decarbonizing US electricity supply by 2035 through
a national Energy Efficiency and Clean Electricity Standard, which
includes nuclear and hydroelectric generation.
Refundable renewable tax credits
Onshore wind would be the biggest beneficiary from extending
federal tax credits, owing to the complete loss of the production
tax credit under the status quo. Instead of dropping to zero for
projects that start construction after 2021, the production tax
credit would remain at $15/MWh (2019 dollars), at least, for
another ten years. The levelized cost of wind energy would drop by
at least 20% for projects in the best wind resource regions of the
country.
In contrast, if the solar investment tax credit is extended at
22%, the levelized cost of utility-scale solar would fall by
10-15%. Solar already has a permanent 10% tax credit, which dilutes
the impact of any extension.
Finally, the refundable nature of the renewable tax credits
would lower the levelized cost of wind and solar by at least
another 5%, because simplified tax equity financing would lower the
cost of capital.
Transmission
Expanding transmission infrastructure is necessary for a
zero-carbon future, but the American Jobs Act is unlikely to yield
the envisioned interregional transmission lines on its own.
State-level permitting will remain challenging for transmission
lines that hope to move renewable electricity from one area of the
country to another. The focus on existing rights of way
overlooks the need for expediting new rights of way,
leaving interregional projects vulnerable to "not in my back
yard-ism" and states' zero-sum perspectives of economic benefits.
Although many projects seek to remain within existing rights of way
for most portions of their routes, few are likely able to
completely remain inside, exposing them to state-level
permitting risk.
Persistent interregional transmission headwinds imply that the
proposed investment tax credit would likely benefit region-specific
transmission projects that are already under development absent
broader policy reform that address state permitting
bottlenecks.
Federal renewable power procurement
Purchasing around-the-clock clean power for, and consuming it
at, federal facilities would encourage a diverse mix of renewable
generation capacity and require some amount of energy storage. In
2019, the federal government consumed 52 TWh of electricity, which
could be offset on an annual basis by 20 GW of utility-scale solar
or 15 GW of wind.
However, the '24x7' constraint means a blend of wind and solar
capacity will be needed, plus energy storage, to yield hourly clean
energy that mostly matches end-use consumption patterns. In fact,
an overbuild of renewable capacity would likely be needed, which
could yield excess renewable generation for the broader power
market.
Notably, renewable development could be bolstered in states
where renewable deployment has lagged because of the location of
federal buildings. For example, Georgia, Virginia, Florida, and
Maryland are home to an outsized share of federally owned
floorspace, meaning PJM and SERC could see incremental renewable
investment tied to federal procurement.
A national clean electricity standard
While only mentioned in brief, a national clean electricity
standard that sets the country on a path toward zero-carbon
electricity supply by 2035 would be more stringent than any state
decarbonization law, and it would dramatically accelerate renewable
deployment. However, garnering fifty votes in the US Senate, or
perhaps even bipartisan support, would likely require compromises
as legislation is drafted.
The path forward
Extending, and adding, power-related tax credits are among the
more likely elements of the American Jobs Plan to eventually become
law. Historically, both political parties have voted to adopt and
extend renewable energy tax credits. Doing so again, whether as
part of an infrastructure bill or through another piece of
legislation, would be consistent with recent history.
Ultimately, the American Jobs Plan is an opening bid in what
will surely be a dynamic and contentious process—and it signals
the Biden Administration is looking to implement the rapid clean
energy transition it campaigned on. If enacted in full, the plan
would represent the most aggressive federal climate response to
date—but substantial revisions can be expected.
Posted 16 April 2021 by Wade Shafer, Director, Climate and Sustainability, North America Power and Renewables
