https://www.utilitydive.com/news/bi...plan-meets-power-system-needs-but-lea/598587/
Biden's $2.3 trillion infrastructure plan meets power system needs but leaves room for political dealing
The Biden infrastructure spend would rapidly transition the U.S. power sector in ways utilities like, but Congress is expected to seek changes.
Published April 28, 2021
By
Herman K. Trabish
Retrieved from
Twitter.
The Biden administration's $2.3 trillion plan to broadly rebuild U.S. infrastructure and move the power sector to 100% emissions-free electricity by 2035 and the economy to net zero emissions by 2050 aligns with many
key utility objectives.
The American Jobs Plan (AJP) proposal to expand renewable energy tax credits, and mandate clean energy and system modernization are the tools utilities need to meet policymaker and customer demand for clean energy, according to
Utility Dive's 2021 State of the Electric Utility (SEU) survey. But those proposals are likely to undergo significant changes as Congress addresses those proposals' costs, Washington insiders said.
A $568 billion, five-year Republican plan was
announced April 22 by Sen. Shelley Moore Capito, R-W.Va., ranking member of the Environment and Public Works Committee. The legislative process will determine the plan's final proposals, costs and impact because "the devil is in the details," power sector analysts and Congress-watchers said.
Most Capitol Hill analysts expect three Biden provisions to be approved, said Norton Rose Fulbright Law Firm Co-Head of Projects Keith Martin, a veteran renewables finance consultant: a new tax credit for energy storage; a 10-year extension of current renewables tax credits; and a "direct pay" revision that would allow tax credits to be used like cash by utilities and others without any tax liability, such as public power utilities.
But if the AJP's Energy Efficiency and Clean Electricity Standard passes and direct pay allows more utilities to use tax credits for wind, solar and other renewable resources, "studies show the annual U.S. demand for new renewables could reach 60 GW or more," said Energy Innovation (EI) Director of Electricity Policy Michael O'Boyle. "Last year's 35 GW is the record, so that new demand offers opportunities for both utilities and independent developers."
Concern about cost is real, but the 22 U.S. "billion-dollar weather and climate disasters" last year caused $95 billion in damages, and power outages cost the U.S. economy up to $70 billion annually,
a White House AJP Fact Sheet said. Federal spending aligned with utility needs can help pay for a transition now rather than waiting for the climate crisis to make it inevitable, analysts and utility leaders said.
Utility Dive, data from
State of the Electric Utility Survey
The Biden proposals
Much of
the $2.3 trillion AJP investment would go toward modernize U.S. highways, roads, bridges, trains, buses, stations and airports. It would also retool U.S. manufacturing to build zero emission transportation infrastructure like zero emission vehicle fueling and charging stations. Analysts estimate around $200 billion would go to the energy transition and power system transformation.
The proposal would also transition U.S. buildings away from fossil fuel heating and make them more energy efficient.
Biden's plan includes a limited tax credit to speed near-term transmission development and new Department of Energy authority would streamline longer-term transmission expansion.
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Utilities would be among those eligible for research and development (R&D) funding for demonstration projects, such as advanced energy storage, carbon capture and storage (CCS), green hydrogen, advanced nuclear, floating offshore wind, biofuel and bio-products, quantum computing, and advanced electric vehicle (EV) components.
Proposed investments would also replace, upgrade and modernize water systems, extend high-speed broadband infrastructure, and create workforce training programs and dislocated worker retraining programs.
The Republican plan "would expedite the environmental review and permitting process for energy and transmission projects so they can get built in a timely fashion," Republican Senate Energy and Natural Resources Committee spokesperson Sarah Durdaller said. The Republican plan offers no other power system-related proposals, but promises to be "fiscally responsible" and prevent "any corporate or international tax increases," she added.
The Biden administration would pay for the infrastructure plan in large part by resetting the average corporate tax rate to 28%. The administration's tax plan would also eliminate corporate incentives to shift profits and jobs overseas, impose a targeted corporate "minimum tax," and enforce penalties on polluting industries.
The changes would "raise over $2 trillion over the next 15 years and more than pay for the mostly one-time investments" in the AJP of about 1% of GDP per year over eight years, the White House said.
"If the federal government [itself] just goes fully green, that alone will drive the renewables industries for decades."
Morten Lund
Partner, Stoel Rives Energy Development Practice
As aspirational proposals are eliminated from the AJP in the legislative process, the overall cost will fall, Norton Rose Fulbright's Martin said. Approval of the Energy Efficiency and Clean Electricity Standard is uncertain and the 10-year tax credit extensions may be shortened to comply with Senate rules on long-term budget impacts, Martin added.
Congressional efforts to define and legislate the plan have begun to emerge.
Proposals like the CLEAN Future Act (
H.R. 1512), the GREEN Act (
H.R. 848), and the
Clean Energy for America Act are coming to the table, and "
incremental legislation and executive orders" could be the best way to achieve AJP goals, Stoel Rives Energy Development Practice Partner Morten Lund said. "If the federal government [itself] just goes fully green, that alone will drive the renewables industries for decades."
Implementation of the Energy Efficiency and Clean Electricity Standard may be difficult, he said. A FERC ruling to require the standard would only address organized electricity markets. But a national mandate replacing state renewables standards would likely be challenged as overriding state regulatory authority and face litigation to be settled by a largely Republican-appointed Supreme Court, he added.
National advocacy groups for the nuclear, CCS, solar, wind and energy storage sectors have endorsed the Biden plan. Fossil fuel advocacy groups have not, but the United Mine Workers, the biggest U.S. coal miners' union, expressed
support of its clean energy jobs program. The
American Trucking Association and Congress's 58-member bipartisan
Problem Solvers Caucus called for compromise between the plans.
Congress must avoid "pitting one technology against another" to obtain bipartisan support, said Hunter Johnston, a partner and veteran energy lobbyist with the law firm Steptoe and Johnson. "But the world has changed, and even conservative utilities now support
decarbonization and renewable energy."
Utility Dive, data from
State of the Electric Utility Survey
Feasibility for utilities
Utilities were already working to address the things the Biden plan calls for, the Utility Dive SEU survey and other studies show.
"Renewables, sustainability, or the environment" was the most important issue for 45% of utility executives and professionals surveyed by Utility Dive. System reliability, climate change impacts and resilience, and aging grid infrastructure followed. AJP addresses those issues and proposes investments in transportation electrification, something utilities are also working toward.
Utility leaders' top decarbonization solutions —
financial incentives (50%), federal decarbonization policy actions (45%), and infrastructure modernization (43%) — match the proposed AJP solutions. And SEU respondents agreed with the Biden approaches to increasing power system renewables by extending federal tax credits, building new transmission and incentivizing new energy storage.
National utility representatives' endorsements of specific AJP items emphasized the alignment of interests. The plan's ideas for creating jobs, driving R&D to "affordably and reliably" integrate clean energy, and investing in transportation and building electrification were welcomed by utility trade group Edison Electric Institute (EEI) President Tom Kuhn on March 31.
Existing wind and solar tax credits,
estimated to be worth $15 billion a year, cannot be monetized by publicly-owned and cooperatively-owned utilities, American Public Power Association (APPA) President and CEO Joy Ditto wrote in
a March 31 Hill editorial. The Biden direct pay provision could streamline access to tax credits for utilities that do not have tax liabilities and do not want tax equity partners.
But while industry groups have praised various provisions of the plan, some of the AJP's specifics are raising questions.
An increase in the existing 45Q tax credit for CCS of $50/ton could make natural gas-generated "blue" hydrogen a cost-competitive zero-emission alternative to green hydrogen, Steptoe's Johnston said.
But the 45Q tax credit will ultimately not make a difference to
the economics of green hydrogen, according to Julia Attwood, head of advanced materials at BloombergNEF. Green hydrogen "will still out-compete blue hydrogen by 2030."
The real problem with the 45Q tax credit is that CCS "has been shown not to work," Stoel's Lund said. "If we're going to choose winners and losers, we should at least choose a viable technology instead of one that leaves giant pits of carbon."
There is also a debate over the proposed
transmission tax credit. Transmission developers like SOO Green, which is developing a high voltage link between Midwestern and Eastern power systems, supports it, as does renewables advocacy group the American Council on Renewable Energy.
But the
transmission tax credit seems directed only at getting projects that are shovel-ready built faster and the U.S. needs a lot more new transmission than that credit funds, said EI's O'Boyle. "Transmission developers' real challenges are siting, permitting and cost allocation, which means the administrative support from DOE is a more important potential lever," he said.
Despite these questions, studies support the feasibility of the Biden plan.
Long-term clean energy incentives and a federal policy like a clean energy mandate that drives fossil generation into retirement can make zero power sector emissions by 2035, without new costs on households, feasible, according to
a Rhodium Group March 2021 study.
"The AJP has those two key elements and utilities, regulators, and developers know how to use tax incentives and understand clean energy mandates," said John Larsen a director at the Rhodium Group. AJP's feasibility is also supported by renewables' "established markets, supply chains, and deal flows of renewables, and by their increasing affordability."
And it is easy to overlook the cost of not acting, EI's O'Boyle pointed out. A U.S. program to reach net zero cumulative emissions by 2050 that starts in 2030 would have a 72% higher net present value cost than the same program starting in 2021, according to
EI modeling released in January.
The U.S. could reduce power sector emissions 90% below 2005 levels by 2035 while decreasing customer costs compared to today's levels, agreed
a multi-expert June 2020 study from the University of California, Berkeley's Goldman School of Public Policy and
a September 2020 EI study.
Those customer savings are only one of the opportunities the Biden administration is offering U.S. utilities.
Opportunity for utilities
New planning models show the AJP approach is not only feasible but offers utilities significant opportunities to meet goals many are already working toward.
New
economy-wide planning with a wider view of the changing power system and more computing power is incorporating Biden plan targets for emissions reductions, environmental justice, public health, jobs and many other factors to show the most affordable and reliable 100% carbon-free electricity pathways, said Jason Rondou, director of the Clean Grid LA Strategy Division at the Los Angeles Department of Water and Power (LADWP).
This planning strategy, first described in
a March National Renewable Energy Laboratory (NREL) study for LADWP, can guide other utilities in determining their "unique" generation, transmission and resource needs to meet AJP-like goals, Rondou said.
The new planning approach can be particularly useful for understanding the interdependent investment requirements "to simultaneously decarbonize the generation and transportation sectors," he added. And it can show policymakers which investments in renewables, electrification and emerging technologies proposed in the Biden plan, like green hydrogen and CCS, can cost-effectively drive decarbonization and
economic recovery, he said.
The NREL modeling "is as rigorous on reliability as a utility's planning," but its longer term suits the AJP 2050 timeframe, added
NREL Grid Systems Group Manager and LADWP report co-leader Jaquelin Cochran.
"Thinking bigger and more ambitiously is now necessary."
John Larsen
Director, Rhodium Group
The "big and rapid changes" in proposals like the AJP "
reach beyond a utility to community goals for equity, jobs, and healthy air," Cochran said. This analysis provides "actual planning data to accurately guide decisions" by utility planners and policymakers on investments like those proposed in the Biden plan.
Those big and rapid changes are the ones utilities now face and the ones the AJP would confront.
Both fossil fuel-intensive utilities and those moving to renewables have reasons to support the AJP to "maximize flexibility through the incentives it offers," Rhodium's Larsen said. "Flexibility will be critical because getting to 100% clean power by 2035 is a quick switch and utilities will need as many tools and options as they can get."
The Biden plan "offers states and utilities the opportunity to use federal funding to be part of a clean energy economy," EI's O'Boyle agreed. It offers policymakers the opportunity for a federally-supported workforce transition and federally-supported development of their state's renewable resources "instead of watching the decline of traditional generation."
"Thinking bigger and more ambitiously is now necessary," Larsen added. "The Biden plan's investment proposals do that."
(Image: state.gov)
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