Yes on tax incentives, R&D funds and opening public lands. No on storage ITC, direct pay and a clean energy standard.
Clean energy industry groups are cheering the last-minute inclusion of key tax incentive extensions and billions of dollars in research and development funds that found their way into the $2.4 trillion spending package and coronavirus relief bill passed by Congress on Monday night. (Whether the bill would be vetoed by President Donald Trump remained an open question as of Wednesday morning.)
But solar and wind power groups and energy storage advocates didn’t get all they’ve been asking for from Congress in the bill — and they’re seeking support for those additional policies from the incoming Biden-Harris administration and lawmakers from both parties.
What’s in the bill: Tax credits, renewables on public lands
There’s no doubt that solar and wind power will benefit from the Investment Tax Credit extensions included in the bill. For solar, that includes a two-year extension of the ITC at its current 26 percent through 2022 and at 22 percent through 2023, as well as an extended Jan. 1, 2026 deadline for completing projects that have claimed the credit based on when they started construction under “safe-harbor” provisions.
“That’s a pretty significant change,” Abigail Ross Hopper, CEO of the Solar Energy Industries Association, said in a Tuesday webinar. “As we think about this solar decade, this gets us a lot of the way there.”
Offshore wind also gained full 30 percent ITC credits for projects started by the end of 2025. That will bolster a nascent industry that’s seen delays in federal permitting that could have threatened the build-out of a massive new clean energy resource in the coming decade, according to Dan Shreve, Wood Mackenzie’s head of global wind research.
These “commonsense emergency relief measures” represent “a bipartisan vote of support for the renewable industry and the hundreds of thousands of Americans building our clean energy future,” Gregory Wetstone, CEO of the American Council on Renewable Energy, said in a statement.
Solar and wind groups were also cheered by language in the bill to promote the development of renewable energy on public lands — something that the incoming Biden-Harris administration may be able to accomplish via executive action at the Interior Department and DOE, rather than through acts of Congress.
This includes instructions to DOI’s Renewable Energy Coordination Office to streamline permitting processes on public lands, giving incoming Interior Secretary Deb Haaland the authority to reduce lease rates on solar and wind projects, and setting a target of 25 gigawatts of renewable energy on public lands by 2025.
“Now the hard stuff comes in: making sure the administration takes that legislation and enacts it in a way that’s positive and beneficial,” SEIA Chairman Bill Shuster said in Tuesday’s webinar.
Renewable and energy storage in the $35 billion energy R&D package
Solar, wind and energy storage groups also praised the portions of Energy Department research and development funding aimed at clean energy technologies, including $1.5 billion for solar power, $625 million for wind power and $1.08 billion for energy storage over the next five years.
Programs targeted for research range from improving efficiency and lowering manufacturing and materials costs, to pilot projects and software platforms to integrate these technologies into the broader power grid at the local or systemwide scale.
The R&D package also includes $2.2 billion over the next decade for DOE grid modernization research, grants for demonstration projects and tools for local and state grid regulators to accelerate the adoption of new technology and grid controls, and a hybrid microgrid program for isolated communities.
Some of this funding will help “reduce the ‘soft’ costs of solar and batteries to further expand access” to solar power, said Anne Hoskins, chief policy officer at leading U.S. residential solar installer Sunrun, in a statement.
The energy storage R&D programs set in place by the Better Energy Storage Technology Act also offer energy storage companies opportunities to expand their role in renewable-powered grids, said Jason Burwen, VP of policy for the Energy Storage Association.
Beyond $500 million for energy storage research and development, the bill directs $71 million per year, amounting to $355 million over five years, to competitive solicitations for energy storage demonstration projects open to states, utilities and private companies.
Those projects are meant to demonstrate “not only new technologies but [also] working out new applications and new business models,” Burwen said in a Tuesday interview. That’s critical for an energy storage sector that’s focused not just on reducing battery costs but also on “making sure their full value to the grid can be realized.”
“If you can’t interconnect effectively, if you can’t provide the flexibility you can provide because the grid’s not designed to see it, you can’t realize all the value you can offer.”
What’s missing: Clean energy standard, direct pay, storage ITC
The bill did contain “sense of Congress” language directing the Energy Department to prioritize R&D to provide 100 percent “clean, renewable, or zero-emission energy sources.” But it does not include Biden administration priorities such as a clean energy standard or carbon-pricing mechanism that could reduce electricity sector carbon emissions to zero by 2035.
These policies face an uphill battle in Congress. Republicans may retain their Senate majority depending on the results of the January runoff elections for Georgia’s two U.S. Senate seats, and Democrats will hold a narrow 10-seat margin in the House.
“We’re certainly engaged with many of the groups that are engaged in a carbon-pricing mechanism. But I’m not sure it’s the right time,” Erin Duncan, SEIA’s vice president of congressional affairs, said in Tuesday’s webinar.
The tax credit extensions in Monday’s bill also lack the “direct pay” or refundability options being sought by wind and solar developers worried that the economic downturn caused by the coronavirus pandemic will reduce the demand for tax equity investments from banks and financial institutions. While it’s possible that another opportunity for this could emerge in Congress next year, “when it comes to direct pay, a lot of Republicans don’t have an appetite for that,” SEIA’s Shuster said.
Nor does the bill offer the energy storage and solar industries another key plank in their federal policy agenda: creating an ITC for standalone energy storage systems. While that was part of SEIA’s 100-day agenda for the Biden administration, “it did not make the cut in this extenders package,” Duncan said.
ESA’s Burwen agreed that a standalone storage tax credit was a key goal for future legislation: “We’re going to keep pushing,” he said.
ESA and SEIA are also seeking clarity from the Biden administration over the still-uncertain tax credit status of batteries paired with solar power.
Under the terms of an IRS advice letter from 2015, storage costs can be counted as part of a solar installation’s costs subject to the ITC, if the batteries are charged at least 75 percent of the time by the solar panels, rather than from the grid, over the course of a year. But this understanding has never been followed up by formal IRS guidance that could clarify the uncertainties contained in the advice letter, Burwen pointed out.
As for tax credits for batteries being retroactively added to solar systems, a 2018 IRS advice letter indicates that residential solar PV owners can apply the ITC to batteries added later — but only if they’re charged completely from solar. Larger-scale solar projects lack any provision to apply the ITC to batteries added later.
Clear IRS guidance opening up ITC eligibility for batteries being added to existing solar installations of all sizes could be a boon for projects and solar-rich regions facing a disconnect between when solar power is produced and when the grid needs it most, Burwen said.
“The single biggest immediate step the Biden administration could take [would be] to formalize that IRS guidance [and] make it retroactive,” he said. “That alone could be a huge boost to storage.”