Clean Energy, Infrastructure Legislation: Current State-of-Play

Clean Energy, Infrastructure Legislation: Current State-of-Play

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Congress is contemplating potentially transformative changes to accelerate the transition to a clean energy grid. As the voice of the waterpower industry on Capitol Hill, the National Hydropower Association (NHA) is pushing for Congressional provisions that recognize waterpower as an essential part of a climate solution.

Last week, NHA secured several major legislative successes as various committees in the U.S. House of Representatives adopt proposals related to budget reconciliation (more details about the reconciliation process are provided at the end of this article).

Successes include:

  • A first-ever 30 percent tax credit for energy storage, including pumped storage
  • A 10-year extension of the expiring tax credit for: incremental new hydropower at existing dams, efficiency improvements, and conduits (although at a rate lower than wind or solar)
  • Parity for waterpower with other carbon-free technologies in the proposed “Clean Electric Performance Plan”

See next section for details on each of these three items.

Efforts to advance the bipartisan, bicameral 21st Century Dam Act have not born fruit yet. Specifically, the House Ways and Means Committee did not include NHA’s bipartisan, bicameral proposal for a 30% investment tax credit to incentivize additional investments in dam safety, environmental improvements, grid flexibility, and dam removals.

The Senate proposal (S.2306, sponsored by Sen. Cantwell and Murkowski) has gathered greater support in the Senate Finance Committee, and NHA is continuing to push inclusion of this proposal as reconciliation advances in Congress.

These proposals are in addition to the almost $1 billion in grants for waterpower in the Senate-enacted Infrastructure bill that is scheduled to be considered by the House by September 27th.

Details on Last Week’s Successes

Energy Storage 30 % Investment Tax Credit Includes Pumped Storage: NHA was successful last Congress in including pumped storage in the energy storage tax proposal that was included in the GREEN Act. This proposal was included in the House Ways and Means reconciliation language.

If enacted into law, it would create — for the first time — a 30 percent investment tax credit for energy storage, including pumped storage.

The provision includes direct payments of tax credits, which would allow companies without tax liability and public power entities to benefit from this new tax incentive.

10-Year Extension of the Production Tax Credit (PTC):  Production Tax Credits for all renewables, including hydropower, are extended through 2032 with a phase down in the last two years.

In addition, all the energy sources are subject to new prevailing wage and apprenticeship requirements.  If those requirements are met, the project receives 100 percent of the normal credit rate; if they are not met, the credit rate for the project is 20 percent of the otherwise available rate.

Unfortunately, the U.S. House of Representatives’ Ways and Means Committee retained the restriction in the existing PTC that limits the value for hydropower to one-half of the rate that applies to wind and solar. In addition, it imposes for the first time the phase down requirements such that the credit will ramp down and ultimately sunset after 2032.

Clean Electric Performance Plan:  Waterpower secured parity with other renewable electricity sources in the $150 billion Clean Electricity Performance Program (CEPP) adopted by the House Energy and Commerce Committee.

The CEPP, which complements tax incentives for clean energy, would require the U.S. Department of Energy (DOE) to issue grants to and collect payments from electricity suppliers from 2023 through 2030 based on how much qualified clean electricity each supplier provides to customers.

What does this include?

An electricity supplier will be eligible for a grant if it increases the amount of clean electricity it supplies to customers by 4 percent compared to the previous year. Suppliers that meet the 4 percent clean electricity growth target would receive $150 for each megawatt-hour of clean electricity above 1.5 percent of the previous year’s clean electricity.

Electricity suppliers must use the grants exclusively for the benefit of their customers, including direct bill assistance, investments in qualified clean electricity and energy efficiency, and worker retention.

An electricity supplier that does not increase its clean electricity percentage by at least 4 percent compared to the previous year will owe a payment to DOE based on the shortfall. If, for example, the electricity supplier only increases its clean electricity percentage by 2 percent, the supplier will owe $40 for each megawatt-hour that represents the 2 percent shortfall. The CEPP gives electricity suppliers the option to defer a grant or a payment for up to two consecutive years.

Significantly, eligible clean electricity is defined as electricity generation with a carbon intensity of not more than 0.10 metric tons of carbon dioxide equivalent per megawatt-hour. Hydropower is expected to meet that criterion, notwithstanding concerns about methane emissions from certain reservoirs.

In addition, the proposal uses the average of 2019 and 2020 as the baseline years for determining the amount of clean electricity previously generated. How this will impact the hydropower industry, considering the ongoing western drought and other seasonal variation, is unclear.

The CEPP faces significant legislative hurdles. First, unlike the extension of the PTC or the energy storage tax incentives — which are budget mechanisms driving revenues, the CEPP doesn’t have a budgetary effect (no change in outlays or revenues), which will be challenged by the “Byrd Rule”. In addition, Senator Joe Manchin (R-WV) has expressed skepticism about the need to include the CEPP as part of reconciliation, and his vote is essential to move the package in the 50-50 Senate.

Continued Advocacy – Pushing Top Needs for Hydropower

As stated earlier, clean energy tax provisions in reconciliation as proposed by the House Ways and Means Committee currently does not include the pending bipartisan legislative proposal to maintain and enhance existing hydropower.

NHA is working across the House Ways and Means Committee as well as advancing efforts with the Senate Finance Committee to highlight the importance of the 30 percent investment tax credit for incentivizing critically needed private sector investment in environmental improvements, dam safety, and grid flexibility to help improve performance of the existing fleet of more than 80 gigawatts of hydropower and 23 gigawatts of pumped storage capacity.

Championed by Senator Cantwell and Senator Murkowski, it is imperative that the industry raises its voice for this measure to be included in the Senate version of reconciliation.

Another area not included in the House reconciliation package are dollars for both the U.S. Army Corps of Engineers and the U.S. Department of the Interiors’ Bureau of Reclamation for upgrades of federal powered and non-powered dams.

The proposal requested non-reimbursable funds which means that neither the Corps nor Reclamation would include such funds in the expense accounting, assuring that those expenses are not charged to their customers.

NHA is working with its partners in the 21st Century Dam Act coalition and our congressional champions to drive efforts in reconciliation to include this proposal.

As NHA continues to work with Congress to advance these efforts, two key letters were sent to Congressional leaders in both the House and Senate.

The Uncommon Dialogue Coalition in the “Hydro and Dam Reconciliation Support Letter” asked for support for the Rehabilitation, Retrofit, and Removal (“3Rs”) of the nation’s 90,000 dams in reconciliation. This letter urges Congress to provide $26 billion to improve the dams in the U.S. — $21 billion in direct spending and $4.7 billion in tax support for the existing hydropower fleet.

Additionally, NHA with the support of close to 50 of its member companies/organizations sent the “NHA Member Support Letter for Hydropower,” advocating for a 30 percent investment tax credit for maintaining and enhancing hydropower. The letter also expresses appreciation for the 10-year extension of the PTC,  while also advocating for hydro’s parity with carbon-free technologies and support for the enactment of the 30 percent energy storage tax credit.

What is Reconciliation?

Reconciliation is a unique legislative tool that applies only to policies that change spending or revenue.  Budget reconciliation provides a fast-track process for consideration of bills to implement the policy choices embodied in the annual congressional budget resolution.

The benefit in using this tool is that the budget cannot be stalled in the Senate by filibuster. In addition, reconciliation in the Senate only needs to pass by majority vote instead of 60 votes under other legislative processes.

While reconciliation bills are considered using expedited procedures in the Senate, the “Byrd Rule” prohibits provisions that are considered “extraneous” to the budget, thereby limiting Congress’ ability to use reconciliation to increase deficits.

Given the razor-thin majorities held by the Democrats in both the House and the Senate, reconciliation is widely viewed by Democrats as their only practical opportunity to advance their policy agenda this Congress.