The reconciliation package passed by the US House of Representatives, aggressively sunsetted wind and solar energy subsidies – more aggressively than an earlier version would have, according to Isasc Orr and Mitch Rolling on Substack.com.
While the original version would have gradually phased out the “clean electricity production credit” and the “clean electricity investment credit” for all resources starting in 2029 and ending them in 2032, the new version will end technology-neutral clean electricity tax credits for sources including wind and solar starting in 2029. It will also require those projects to begin construction within 60 days of the legislation becoming law and be placed in service by 2028.
The law also includes provisions that bar U.S. projects from using components, subcomponents, or even materials from China that would make it nearly impossible for US solar and battery manufacturers to qualify for the tax incentives, according to analysts at Bloomberg New Energy Finance.
Bloomberg reports that without the tax credits, returns for renewable power plants could drop below the threshold necessary to stimulate investment and likely spur a strategic capital shift away from the US.
The amount of wind and solar installed in the future is likely to drop dramatically compared to the endless taxpayer handouts for wind and solar in the Biden administration’s IRA.
“The House bill saves money for taxpayers and helps stop the continued erosion of grid reliability by stopping subsidies for wind and solar while still providing a temporary leg up for nuclear power,” said the Substack.com report.
Entities such as Energy Innovation Policy & Technology advance arguments in support of the subsidies with the claim that without them costs will increase for customers. Orr and Rolling rebut the claim stating, “This could be true if you happen to live in a state with aggressive mandates for wind and solar, because these foolhardy policies will require utilities to construct these intermittent energy sources regardless of the cost. Therefore, without the subsidies, ratepayers will be on the hook for the full cost of transitioning to wind and solar and will no longer get to shift this cost onto taxpayers. However, the key reason costs will go up is that lawmakers are mandating the adoption of wind and solar in the first place.”
“…repealing the subsidies will make it more difficult for monopoly utilities to pretend that wind, solar, and battery storage are cheaper than keeping the existing coal and nuclear plants online and using new combined cycle natural gas to meet incremental increases in electricity demand.”
Another claim that is made about the need for subsidies is that “red” states benefit more from the subsidies than “blue” states.
While it’s true that many of the manufacturing plants that are supposedly under construction due to the IRA are located in “red” states, this is not because of the benevolence of Congressional Democrats who passed the IRA in 2022, wrote Orr and Rolling. They point out that “manufacturing facilities are going to ‘red’ states because ‘blue’ states are generally more hostile to businesses with higher taxes, higher energy prices, and higher labor costs.”
Repealing these subsidies will prevent the malinvestment of this capital into non-competitive industries, and the tax provisions in the reconciliation package designed to boost domestic manufacturing will disproportionately flow to “redder” states for the same reasons the IRA money was going there: they have healthier overall economies that are accommodating to growth.
Furthermore, “benefit” is the key word here. While the IRA subsidies sparked investment in wind and solar energy, doing so ultimately resulted in (and would continue to produce) electricity grids prone to blackouts—which leads to myth three: that these sources of electricity are needed because we are in an energy emergency, and we need more electricity generation capabilities to power data centers.
“While wind, solar, and batteries may have short construction times, we have yet to read an article about a data center developer who is eager to run their facility intermittently and subject to swings in the weather.”
“Our reliability modeling has shown consistently that even with tens of thousands of MWs of battery storage available, a grid reliant on intermittent wind and solar is more prone to blackouts because it still needs to deal with the issue of prolonged droughts and severe underperformance, and the batteries don’t charge themselves.
