New Infrastructure Plan – A “Once in a Generation” Investment in Renewable Energy
By Steve Carter, CPA, Principal
ASL Renewable Energy Group
In March 2021, President Biden announced his $2.3 trillion infrastructure bill, The American Jobs Plan. The package targets both traditional and non-traditional infrastructure, for example, roads, bridges, and water systems as well as the caregiving industry. The Plan also calls for substantial investments in research and development and expanding broadband internet access to rural areas.
Renewable energy is a focal point of the Plan, from calls to upgrade and modernize existing electrical infrastructure to investing in electric vehicles and clean energy. Part of the Plan looks to involve the private sector while other financing options include tax credits and incentives.
The Biden administration wants to achieve 100 percent carbon-free electricity by 2035 and net-zero emissions by 2050. An independent academic study found that the U.S. “could reduce power sector emissions 90% below 2005 levels by 2035 while decreasing customer costs compared to today’s levels,” but that also depends on the scale of renewable energy investments.
Tax Credits and Incentives
A mix of new and existing tax credits builds the framework for incentivizing public and private industry investment in renewable energy. Out of all the proposals in the Plan, Capitol Hill analysts believe that three tax credits and incentives are the most likely to pass: the new tax credit for energy storage, the direct-pay revision to the Section 45Q tax credit, and extending current tax credits for wind and solar by ten years.
Targeted Investment Tax Credit – New
- Its purpose is to upgrade existing and build new high-capacity transmission and distribution lines for more reliable electric power.
- Aimed at transmission line developers and regulated utility companies.
- Industry insiders are waiting eagerly for this credit, as many have noted there is not currently a way to recover the costs of building high-capacity transmission lines, though they are critical to developing a clean energy infrastructure.
Direct-Pay Investment Tax Credit (ITC) – Extended and Expanded
- Currently, the ITC is a 26 percent tax credit for solar systems. It was in the process of being phased out when Congress extended it by two years in 2020.
- Proposal to expand the ITC’s scope to include energy storage systems and extend it for ten years.
- Its purpose is to allow developers to receive tax refunds regardless of current liabilities and provides the opportunity to use tax credits instead of traditional tax equity.
- Eliminates the need for developers to secure outside financing for renewable energy capital projects and is viewed as a highly efficient tax incentive.
Production Tax Credit – New
- This tax credit would bolster 15 decarbonized demonstration projects in distressed communities.
- The goal would be to invest in capital-project retrofits and installations to propel decarbonization efforts.
Section 45Q Tax Credit – Expanded
- The existing tax credit would become direct pay and more accessible to industrial applications that are harder to decarbonize as well as direct air capture and retrofits of existing power plants.
- Some industry analysts have explained that Section 45Q is less effective at spurring development than other tax incentives, pointing to its tendency to pit one carbon capture technology against another.
Section 48C Tax Credit – Expanded
- Established in 2009, its purpose is to incentivize clean energy manufacturing.
- Existing format provides 30 percent investment tax credit, but the expanded version would also include advance domestic clean energy manufacturing.
Clean Energy and Sustainability Accelerator
Even before the Plan was introduced in Congress, National Clean Energy and Sustainability Accelerator bills were introduced in both the House and Senate. Based on these bills, the Accelerator would take the form of an independent nonprofit funded with federal money for at least its first five years in operation. The expectation was that the bills would be folded into a larger piece of legislation.
As written, $27 billion has been set aside through the Plan to involve the private sector in renewable energy projects. This is not a new concept. Models were built after state green banks in New York, Connecticut, and Michigan wherein public dollars are matched with private funds to better leverage renewable energy investments.
ARPA-C
The Advanced Research Projects Agency for Climate (ARPA-C) was initially proposed during President Biden’s campaign. It has eight components ranging from grid-scale battery storage to small modular nuclear reactors, decarbonization, and carbon capture. Its overall goal is to “develop new methods for reducing emissions and building climate resilience.” ARPA-C would also increase funding for climate research.
Some policy analysts have pointed out that ARPA-C would serve too similar a purpose to the existing Advanced Research Projects Agency for Energy (ARPA-E), which was set up in 2007.
Along the same lines, the Plan seeks to fund demonstration projects for:
- Utility-scale energy storage
- Carbon capture and storage
- Hydrogen
- Advanced nuclear
- Rare earth element separations
- Floating offshore wind
- Biofuel and bioproducts
- Quantum computing
- Electric vehicles
It is likely there will be changes to the American Jobs Plan as it is reviewed in the House and Senate. However, the information outlined above provides important insight into the investments the Biden administration wants to direct to the renewable energy industry. If you have questions about the information outlined above or need assistance with any type of program compliance reporting, business planning, or tax issues, we are happy to help. For additional information, call us at 408-377-8700, and ask for Josh Cross, CPA or Patrick Ngai, CPA, leaders of our Renewable Energy Group. We look forward to speaking with you soon!