The House’s big budget reconciliation bill would be a bonanza for clean energy

Tax credits and direct pay for clean energy, storage and transmission. Funding for EVs and electrification. A program to get utilities on board. But will the Senate go along?

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Tax credits and direct-pay provisions for a panoply of clean energy and carbon-reduction technologies. Incentives to expand and strengthen the nation’s power grids, encourage adoption of electric vehicles and electrify buildings. And a program to push U.S. utilities to make use of these technologies to reach an 80 percent carbon-free electricity supply by 2030.

These are the key energy and climate provisions in the text of the Build Back Better bill released by Democrats in the U.S. House of Representatives late last week. They’re seen as the best shot for federal policy that could deliver the emissions-reduction goals set by the Biden administration, including achieving a zero-carbon grid by 2035.

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All of these provisions, and the rest of the broader $3.5 trillion budget reconciliation package, face a steep challenge in a U.S. Senate split 50 – 50 along party lines. Senator Joe Manchin, the West Virginia Democrat who’s publicly demanded a dramatic reduction in the price tag of the bill, has earned millions of dollars from his stake in a company that brokers coal, a resource historically important to his state’s economy that would be heavily penalized by the provisions of the bill.

But there’s little chance of another major legislative effort before 2022, when elections risk shifting control of Congress to a Republican Party that’s been hostile to these policy goals, so climate activists and energy industry groups are putting all their weight behind this bill.

What are the details in this legislative package now set for markup by the House Energy and Commerce Committee this week? Here are the key provisions in the energy section of the massive bill.

The Clean Electricity Performance Program: The decarbonization centerpiece

The Clean Electricity Performance Program (CEPP) is the central plank in the Biden administration’s approach to forcing carbon-emitting generation off the electricity grid. Starting in 2023, it would subject every electricity generator in the country to an annual accounting of carbon emissions, and then send federal payments to those that increase their share of clean energy by 4 percent per year and charge penalties to those that don’t.

The pay-and-penalize structure is dictated by the rules of Congress’s budget reconciliation process, which allows a bill to be passed by a simple majority rather than overcoming a filibuster in the Senate, but only if it solely contains measures having to do with tax and spending regulation.

In a Friday Twitter thread, Jesse Jenkins, an energy-modeling expert and Princeton University professor who helped craft the CEPP concept, explained the basics of the program as it’s laid out in the newly unveiled legislation.

Clean electricity is defined as any source that produces less than one-tenth of a ton of CO2-equivalent greenhouse gas emissions per megawatt of generation — in other words, not coal, oil or natural-gas-fired power plants. U.S. utilities generated 38 percent of their electricity from carbon-free resources in 2019, including 20 percent from nuclear power. The remaining 18 percent was made up of wind, hydroelectric, solar, biomass and geothermal power, in order of their respective share of production.

The CEPP sets a goal for each utility to cut its emissions by 4 percent per year. Those that increase their share of clean electricity by 4 percent or more of total retail sales will be paid $150 per megawatt-hour of total retail sales, minus 1.5 percent of the percentage improvement, according to Jenkins. For example, a utility that increased clean power sales by 5 percent in a year would be eligible for a payment of $150 per megawatt-hour for 3.5 percent of its total megawatt-hours sold that year.

Conversely, utilities that fall short will have to pay $40 per megawatt-hour for the percentage of their sales below that 4 percent threshold. What’s more, they’ll have to make up their annual shortfall in next year’s target — that is, a utility that only increased clean power by 3 percent in year one would have a 5 percent threshold for year two.

A growing number of U.S. utilities have laid out goals to reach net-zero carbon emissions by 2050, including many that are not required to do so by state zero-carbon mandates such as those passed in California, New York and other states. But many of these utilities’ plans still call for adding new natural-gas-fired power plants in the coming years, a step that would undermine their long-range decarbonization goals, according to climate activists and analysts.

Utilities would start their 2023 accounting against a baseline set at the average of their 2019 and 2020 emissions levels, Jenkins stated. They will also be allowed to defer their accounting over the course of two or three years, to allow them a chance to make up shortfalls in one year with additional increases in their share of carbon-free energy in the following years. 

All told, the program is expected to cost about $150 billion over 10 years to fund payments to utilities that succeed in hitting or exceeding their targets. Leah Stokes, a professor at the University of California at Santa Barbara who helped devise the program, cited data from Analysis Group that indicates the economic activity driving this shift to clean energy would spur $1 trillion in growth — more than six times the cost to taxpayers.

Tax credits, direct pay and domestic sourcing for energy technologies

Part of the funding stream to enable the CEPP will come in the form of tax credits for carbon-free energy resources — the Investment Tax Credit and Production Tax Credit structures that have been the chief federal policy drivers for clean energy over the past two decades. More than a dozen studies agree that the U.S. must triple or quadruple the growth of wind and solar power deployment to hit the clean energy targets needed to avert the worst impacts of climate change.

Congress passed a budget reconciliation package in December that extended these tax credits for wind and solar power. But the Build Back Better bill language would go several steps further, including by allowing for direct pay” of these credits.

This direct-pay provision has been a long-time priority of energy industry groups that have pointed to the inefficiencies and limitations of forcing energy projects to find partners with tax liabilities to reduce.

Jeff Dennis, managing director and general counsel of Advanced Energy Economy, said in a Saturday Twitter thread that decoupling federal support for clean energy projects from tax equity markets will also reduce the fees collected by intermediaries to those markets, which can amount to 15 to 25 percent of the total amount of project funding.

This direct-pay structure is also built into the tax credits the bill would extend to a range of technologies that now lack access to them, Dennis added. Those include a stand-alone credit for energy storage technologies including batteries, which today must be linked to a solar project to receive the benefit.

The bill would also create an investment tax credit for transmission projects, something developers, utilities and clean energy advocates have been seeking to boost the transmission capacity needed to connect wind and solar energy to markets.

The House bill would give the full payment of credits only to projects that pay prevailing wages and hire a certain number of qualified apprentice workers, in a nod to labor group demands that the rapid growth of these industries should support a well-paid workforce.

To boost U.S. competitiveness in clean energy industries, the bill would offer a 10 percent increase in the value of the applicable credit for projects that use at least 55 percent domestic content.

Direct spending on EVs, transmission and building electrification

Along with converting tax credits to direct payments, the House bill lays out tens of billions of dollars in Department of Energy funding streams for critical clean energy technologies.

Those include $8 billion in loans and grants for new transmission that would support integrating clean energy or making the grid more resilient. Transmission advocates have complained for years that current transmission policy penalizes wind and solar projects by forcing them to bear the costs of grid upgrades and that removing these barriers would result in a more resilient power grid.

Reaching aggressive decarbonization goals will require not just cleaning the power grid but also shifting vehicles and buildings to using that increasingly clean electricity instead of fossil fuels. The Biden administration has set stringent targets for reducing emissions from federal buildings and vehicles — an effort that would receive $17.5 billion under the House bill.

Another $13.5 billion would be directed to fund public EV charging stations and support electrification of heavy-duty vehicles, in support of a goal to deploy 500,000 public EV charging stations by 2030

On the buildings side, the bill would direct $9 billion to institute guidelines for state energy offices to provide rebates to homeowners and aggregators for energy-saving retrofits and upgrades, as well as $3.5 billion to home weatherization assistance.

It would also create a $3.5 billion high-efficiency electric home rebate program, closely matching a proposal from the nonprofit Rewiring America. This measure would incentivize heat pumps, electric appliances and the infrastructure needed to support them in homes and multifamily residences. Another $5.5 billion would be directed to building electrification for low- and moderate-income households and tribal communities.

Another section of the House bill would impose a fee on oil and gas industries for the methane that escapes from wells and pipelines, part of a broader effort to limit the emissions of a greenhouse gas much more powerful than carbon dioxide.

A big opportunity, a small window

These and many other provisions of the House bill now face a tight timeline for negotiations to gain the support of Manchin and other on-the-fence Senate Democrats. Democratic leaders in Congress have been aiming to pass the bill by the end of this month.

The American people are facing a public health crisis, a rapidly escalating climate crisis, and long-term economic challenges that demand decisive action by Congress,” Representative Frank Pallone Jr., the New Jersey Democrat who chairs the House Energy and Commerce Committee, said in a Thursday statement. We have a historic opportunity to take bold action that delivers meaningful change for the American people.”

(Lead photo: Darren Halstead)

Jeff St. John is the editor-in-chief of Canary Media. He covers the technology, economic and regulatory issues influencing the global transition to low-carbon energy. He served as managing editor and senior grid edge editor of Greentech Media.