NREL Analysis Says Tax Credits Can Boost Renewables, Reduce Emissions Beyond 2020

After a sharp burst of activity on Capitol Hill in December, renewable energy policy seems to have entered a period of inertia. The delay imposed by the Supreme Court on EPA’s implementation of the Clean Power Plan would seem to have put on hold a major tool for promoting the development of new energy technologies. And a wide-ranging energy bill, though somewhat meager in its support of renewable energy, sits adrift in the Senate, hung up among other reasons in a dispute over drinking water concerns in Flint, MI, and how to address them.

However, an analysis released this week by DOE’s National Renewable Energy Laboratory (NREL) shows that the move to a clean energy future continues. The study confirms what proponents said of a package of long-term extensions of production tax credits (PTC) and investment tax credits (ITC) adopted by Congress in December for a wide range of clean energy technologies: renewable energy capacity investments will be spurred well into the next decade and can increase even further the reduction in CO2 emissions from the U.S. electricity system.

The measure extended a wind PTC of 2.3 cents per kilowatt hour (kWh), which had most recently expired at the end of 2014. A lower rate ‑ $0.012/kWh – was extended for open-loop biomass, landfill gas, municipal solid waste, qualified hydroelectric, and marine and hydrokinetic energy resources. Also extended was an investment tax credit (ITC) of 30 percent for solar facilities, and smaller ITCs for other sources of energy like geothermal, that were all set to expire at the end of this year.

The NREL report ‑ Impacts of Federal Tax Credit Extensions on Renewable Deployment and Power Sector Emissions ‑ examines the impacts of the tax credit extensions under two distinct natural gas price futures, given that those prices have been a key factor influencing the economic competitiveness of new renewable energy development. The analysis finds that, in both natural gas price cases, the tax credit extensions can spur renewable energy investment. The extensions, researchers say, will drive up the capacity developed to 18,600 megawatts (MW) per year through 2020 under a “base” natural gas price scenario. That compares to only 8,300 MW in additional capacity added each year for the next five years if there were no extensions of tax credits ‑ an annual average lower than that recorded each year in the United States since 2012.

The acceleration in renewable energy capacity development sparked by the extensions, the NREL researchers says, will further reduce fossil fuel-based generation and decrease electric sector CO2 emissions even more than if not extensions had been granted. Cumulative emissions reductions over a 15-year period (spanning 2016-2030) attributable to the extensions alone are estimated to range from 540 million to 1.4 billion metric tons of CO2.

There were significant caveats attached to the credit extensions as a condition of their passage, principal among them provisions to phase them out. Any wind facility that begins construction before 2020 is eligible for a PTC, but that credit declines by gradual amounts the later construction begins on the facility, dropping by some 60 percent for those projects that don’t start construction until 2019, when the PTC ultimately expires.

Utility-scale solar systems that begin construction before 2020 are eligible for the 30-percent ITC. That investment credit phases down the later the system goes into operation, dropping to 10 percent for those utility-scale systems that begin construction after 2021. The same phase-out rate will apply to tax credits for residential solar systems, though they will end after 2021.

(The extensions approved were unprecedentedly long-term. Unfortunately, Congress failed to extend in the long term the ITC for small business and residential wind projects, which now expire at the end of next year. Small wind projects are farm friendly and usually involve one or two turbines on a farm, ranch or rural residence. The 30-percent investment credit makes funding for rural small wind projects viable, whereas the PTC does not. Lawmakers said in December they would pursue longer term ITCs for small wind, as well as for combined heat and power systems, geothermal energy and fuel cells.)

The NREL report noted, even after the tax credits ramp down, greater renewable energy capacity will be driven by the ongoing drop in costs for renewable generation, an expected increase in fossil fuel prices and existing clean energy policies. But given the vast tax benefits and advantages afforded the fossil fuel industry over the past century, there remains an imbalance of equity between conventional energy and renewables.

Federal tax credits for renewable energy have offered financial incentives for renewable energy deployment over the last two decades in the United States. The NREL analysis confirms that renewable energy will continue to grow in the years ahead. But it is critical for stakeholders and clean energy advocates to maintain the pressure on lawmakers and regulators to adopt, improve and sustain the policies that will assure over the next several decades the renewable energy development required in this country to meet our energy and climate needs.

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