Energy Industry Update: Tax Credits and the Bipartisan Infrastructure Plan
2021 was yet another year that tested the country’s energy infrastructure with unprecedented circumstances and expensive, dangerous—sometimes deadly—repercussions.
As the climate crisis continues to put new stresses on aging infrastructure and the clean energy transition becomes increasingly urgent, we are long overdue for a major reinvestment in our energy system.
The electricity grid is the most capital-intensive endeavor in human history—and modernizing it to both withstand and mitigate the effects of the growing climate crisis will be no small task. As the year comes to a close, elected officials are weighing potential solutions that would impact the energy industry as well as the electricity grid, and everyone who relies on the power it delivers.
All Eyes on Congress
Congress has recently passed the Bipartisan Infrastructure Plan (BIP) and is on the precipice of passing another monumental federal investment—the Build Back Better Act (BBB Act). The BBB Act is often referred to as the ‘reconciliation bill,’ given that it will use a special legislative track and only require a simple majority to pass the Senate. Though both the BIP and BBB Act contain initiatives addressing a variety of issues across the American infrastructure landscape, the vast majority of climate-focused investments are in the BBB Act.
This past weekend, the BIP was passed in the House of Representatives, but, the necessary investments in a clean-energy future for the US remain in flux as the BBB Act continues to be debated in both chambers of Congress.
Tax Credits 101: How Investment Tax Credits and Production Tax Credits Work
The BBB Act (the reconciliation bill), if passed, would extend and broaden the current tax credits for renewable generation–the investment tax credit (ITC) and production tax credit (PTC). Earlier iterations of these tax credits have been hugely successful in growing the renewable energy sector.
Today, the investment tax credit is available to residential and commercial development of many renewable energy projects, including most solar photovoltaic (PV) technologies, fuel cells, wind, heat pumps, and combined heat and power. The solar incentive tax credit—one of the most well-represented technologies utilizing the benefit—is 26%. The ITC reduces the dollar amount owed in income taxes related to the project. Without the updates in the BBB Act, residential solar credits will be eliminated after 2023, while commercial incentives will drop to a permanent 10 percent.
The production tax credit is awarded at a dollar amount per kilowatt-hour of electricity produced from renewable energy projects, e.g., landfill gas, biomass, municipal waste, select hydroelectric, geothermal, and wind. If the BBB Act does not pass, the benefit will expire for all eligible technologies that begin construction after December 31, 2021.
Looking Ahead: A Tax Credit for (Standalone) Energy Storage?
Energy storage is the linchpin to the clean energy transition and critical to creating a more sustainable, cost-effective, and reliable grid. Energy storage allows variable wind and solar resources (which only produce electricity when the wind blows or sun shines) to more dependably mimic or outperform conventional generation.
[ Learn more about the value of pairing solar and storage, and why they go better together ]
Today, energy storage projects can only receive tax incentives when paired with new solar generation; through this pairing, storage can access the existing solar ITC benefit. The reconciliation bill’s standalone storage investment tax credit, modeled on the existing solar ITC, would allow storage projects to qualify for the ITC directly. The idea of a standalone storage ITC has received bipartisan support for a number of years, given the many proven benefits of energy storage to the reliability and carbon footprint of the grid.
An energy storage ITC would provide enormous tailwinds for the energy storage sector and formally acknowledge the centrality of storage to the clean energy transition. More energy storage will allow for a more dynamic, interconnected power grid better equipped to support electric vehicle charging infrastructure, electrification of buildings and industrial processes, intermittent renewable generating assets, and distributed energy resources.
Additional Benefits to the Clean Energy Transition in the Reconciliation Tax Credit Plan
Additional provisions in the reconciliation tax credit plan encourage the development of projects in “energy communities,” to extend the economic and environmental benefits of clean power to regions traditionally home to coal, gas, and oil activity, as well as low- to moderate-income communities. These programs are targeted to ensure that all communities can share in the benefits of clean energy, particularly those that have been disproportionately impacted by pollution or most reliant on the fossil fuel industry for jobs and tax revenues.
Take Advantage of the Moment—Partner with Convergent
An expanded and extended system of tax credits will allow energy storage and accompanying technologies to proliferate to the benefit of all, serving the unique needs of local grids at a wider scale and across new geographies.
As more jurisdictions across the country adopt climate mandates or targets and ideate energy solutions, federal leadership and incentives will remain key.
If your organization is interested in learning more about how energy storage can bring you closer to your clean energy goals while lowering electricity costs, please contact us today.
As the Senior Regulatory & Policy Associate at Convergent, Emma Marshall-Torres is committed to making the energy and environmental transition as secure, inclusive, sustainable, engaging, innovative, and effective as possible.