Build Back Better Must Unlock Energy Storage Potential to Reduce Emissions
As Congress debates the Build Back Better Act, one key provision designed to encourage rapid adoption of large-scale battery storage will, perversely, have the opposite effect. As currently drafted, it is not financially feasible for regulated utilities to install these modern, efficient batteries that are essential to ensure renewable energy sources, like wind and solar, can meet the reliability standards needed to maintain adequate supply of electricity for their customers.
The issue is an expansion of the Investment Tax Credit (ITC) to help build many more energy storage (batteries) projects faster across America.
Today, the lack of energy storage, especially commercial-scale batteries, is limiting our ability to deploy more renewable energy sources onto our electric grid because many types of renewable power generation, like solar and wind, produce most of their power when there is low demand for electricity. Accordingly, to invest in the resources needed to produce this clean energy, the United States must also make a commitment to invest in battery storage.
By building both the power generation – the wind turbines and solar panels – and the batteries to store and then dispatch that green power when it’s needed most, we can expedite our shift to clean energy. In fact, according to an analysis by S&P Global Market Intelligence, nearly 2,200 megawatts of stand-alone energy storage projects are planned to launch in the U.S. between 2019 and 2023. Another 4,000 megawatts of storage projects are set to be co-located with U.S. power plants over the same period. Not surprisingly, 75% of these co-located projects will be next to renewable power plants, mostly wind and solar, because that's where storage is most urgently needed.
So, the key to success of future green energy projects is to guarantee that all players in the energy sector are able to take advantage of an Investment Tax Credit (ITC) to expedite energy storage development. The expanded ITC for energy storage, currently being considered by Congress, would allow project builders to deduct up to 30% of the cost to build battery storage projects from their federal taxes.
However, an antiquated part of the U.S. tax code is set to keep the largest player in the electricity ecosystem, America's regulated utilities, on the sidelines. This is because the IRS requires regulated utilities to "normalize" any tax benefit they receive, over the life of the project. In this case, that would mean spreading the ITC benefit over the 20-30 year life of the battery storage project.
Unregulated developers, however, are not forced to normalize these tax benefits. They can take the entire 30% ITC upfront. When it comes to financing large-scale, expensive projects like batteries, that makes a big difference.
Excluding large, publicly regulated utilities from energy storage ITCs will have two negative effects. First, it will significantly slow the expansion of clean energy deployment. How much? A recent analysis by the American Clean Power Association indicates the lack of accelerated depreciation could raise the cost of clean energy by 15%-20%. The impact of these higher costs will result in 130 gigawatts less of clean energy deployed through 2030. With those higher costs, an additional 820 million metric tons of greenhouse gas (GHG) emissions will be released over the remainder of the decade. Allowing regulated utilities to access the financial benefits of accelerated depreciation of the ITCs will ensure hundreds of additional clean energy projects will be built, pushing the decarbonization of the energy sector much further, much faster.
Second, well-regulated utilities share the benefits of building clean energy battery projects with their customers and workers. Utilities build their projects with their experienced employees or use contractors that employ high-wage, high-skilled workers. Sharing the economic benefits of transitioning to clean energy with workers is a key component of the Biden Build Back Better plan. Also, regulated utilities are required by their regulators to pay back to their customers revenue above their rate of return in the form of lower electric rates or added investment in needed electric infrastructure. Non-utility developers push for low wage contractors and pocket the profits for themselves. Those profits amount to an increase in costs that will be paid by all electric customers.
The Build Back Better Act provides an unprecedented set of targeted incentives to promote infrastructure and technologies that will push decarbonization of America’s electric grid. Changing the current language to permit regulated utilities to utilize opt out of normalization for Investment Tax Credits for new energy storage projects will be a critical win for their customers and workers across the country. Finally, this will allow utilities to step up and deliver cleaner energy to their customers by investing in these battery storage projects under the same rules that exist for developers. And it will put tens of thousands of highly skilled workers to work, accelerating our country’s transition to clean energy and lower emissions.
Bob Dean is the Business Manager of International Brotherhood of Electrical Workers Local Union 1245, which represents over 24,000 utility workers in California and Nevada.