President Biden’s American Jobs Plan, unveiled yesterday, contains the most ambitious infrastructure investment program any U.S. president has put forward in decades. The proposed $100 billion investment to transform our electricity grid will create jobs, drive renewables expansion, and enable grid stability.
While it is too soon to know how portions of the plan might be implemented, its ideas and language offer a roadmap of the administration’s priorities for advancing clean energy and energy storage as a means of strengthening American competitiveness and achieving 100% carbon-free electricity. In this blog, I will review some of the plan’s key elements and explain what they could mean for energy storage.
Significantly Extended Federal Support for Clean Energy and Storage
One of the plan’s more striking aspects is its proposal to extend clean energy tax credits for 10 years, which would offer valuable stability and predictability to clean energy companies, their employees and customers. The on-again, off-again production tax credit, for example, has frustrated wind developers and constrained project finance for years. The plan’s actual language is:
President Biden is proposing a ten-year extension and phase down of an expanded direct-pay investment tax credit and production tax credit for clean energy generation and storage.
“Direct-pay” is just what it sounds like: an entity receives a direct, immediate payment rather than a (potentially more complicated, longer-term) tax credit. Popular with developers, direct-pay accelerates and facilitates capital flow, helping more projects to get financed sooner. Extending direct-pay for 10 years would be an important catalyst for clean energy project development.
Implications of an ITC for Energy Storage
You will note the language above references tax credits for “clean energy generation and storage.” There’s ambiguity here, but my read is that the administration favors an investment tax credit (ITC) for energy storage (often referred to as a “standalone storage ITC” or simply a “storage ITC”). Currently, energy storage only qualifies for a federal ITC when it is paired with solar.
A standalone storage ITC would improve the economics of energy storage projects across the board: projects that pencil today would be even more economically attractive, and the ITC would open some markets that currently do not pencil. Analyst firm Wood Mackenzie has estimated a storage ITC would expand the U.S. market for energy storage by about 15 percent by 2024.
In Texas, which is seeking to build a more resilient grid in the wake of its recent crisis, a storage ITC could provide the measure of financial certainty some developers need to proceed with energy storage projects in an otherwise uncertain market. In California and Massachusetts, some large-scale standalone storage projects would likely become viable, helping to maintain reliability by adding storage where it is most needed.
In states such as Arizona, Connecticut, and Virginia that are establishing new energy storage programs, a federal storage ITC would solidify the launch of those programs and provide a strong foundation for the energy storage marketplace in those states for years to come.
And for our solar developer and installer partners, a storage ITC would also create a tremendous opportunity to retrofit existing solar systems with energy storage and offer a new value proposition to customers they already know well.
The Interplay Between EVs and Storage
The American Jobs Plan codifies the Biden administration’s enthusiasm for electric vehicles by putting a price tag of $174 billion on achieving some important tactical milestones (e.g., building a 500,000 national EV charger network, electrifying 20% of school buses) in addition to the bigger-picture strategic goal of retooling the U.S. auto industry to win global EV market share.
Battery energy storage will be the key resource for mitigating the impact of a huge influx of EVs onto the grid – and the larger the vehicles and fleets, the more essential energy storage becomes. Without storage, EV charging loads could unduly stress the grid and trigger expensive distribution system investments – which can be avoided with (cheaper) batteries.
Leveraging Massive Federal Purchasing Power for Clean Energy
Many observers, including me, opined that the federal government could accelerate job creation and economic growth via clean energy if it tapped into its immense purchasing power. Biden’s plan does exactly that, identifying procurement opportunities to electrify the federal postal fleet, source low-carbon construction materials and jumpstart clean energy manufacturing.
But perhaps most impressively, the plan announces the administration’s intention to purchase 24/7 clean power for federal buildings – which, it rightly points out, will “drive clean energy deployment across the market.” Pioneered by Google last fall, 24/7 clean energy sourcing is something only the most forward-thinking companies in the world have begun to embrace; that the U.S. federal government is also moving in this direction, only months after Google popularized the concept, is good news for renewables and energy storage.
In releasing the plan, the Biden administration has both identified its priorities and called upon Congress to act. Aspects of Biden’s plan may receive broad bipartisan support – energy storage in particular is known as a bipartisan winner – but its proposed funding mechanism, raising taxes on corporations and the wealthy, may not.
If Congress doesn’t act, Biden could seek to pass elements of his plan with a simple Senate majority through the budget reconciliation process (which recently produced the COVID relief bill) as early as this summer.
The funding proposed for energy storage is just a tiny fraction of Biden’s overall plan, but it would still represent the federal government’s largest investment in storage. Why now?
The plan references Texas’ recent crisis and the massive economic toll blackouts take on the U.S. economy – up to $70 billion annually, according to the U.S. Department of Energy – and again, the desire to achieve 100% carbon-free energy by 2035.
By announcing unprecedented federal support for energy storage, the Biden administration is implicitly recognizing the key role energy storage will play in modernizing the grid and building a stronger, more competitive U.S. economy. As market signals go, that is about as favorable as it gets.
President Biden’s American Jobs Plan represents an important and potentially transformative step in the federal government’s support for clean energy and its role in driving job creation and economic growth. As someone who has worked for years alongside many of you in anticipation of such a plan, I am encouraged by its vision and I look forward to continuing to work together so this vision becomes a reality.