Last month, Democrats on the House Ways and Means Committee rolled out the Growing Renewable Energy and Efficiency Now (GREEN) Act, a bill that would extend the existing tax credits for wind and solar, expand tax credits for electric vehicles, and includes new investment tax credits (ITC) for energy storage. Yesterday, year-end tax negotiations yielded an agreement to extend perhaps the most unnecessary of those tax credits, while leaving out the most useful credits. Almost none of the GREEN Act’s proposals made it into the year-end spending bill. Lawmakers only agreed to preserve the Production Tax Credit (PTC) for onshore wind, set to expire this year, through 2020. This is the worst decision they could have made.
Tax credits for clean energy technology should target nascent technologies to help them scale up and reduce their costs. Simply extending tax credits for relatively mature technologies, such as onshore wind, is an inefficient use of public funds.
The previous extensions of the PTC for onshore wind and the ITC for solar contributed significantly to the rapid deployment and accompanying cost reductions of renewables since 2010. However, further extension of these tax credits is questionable considering that Levelized Cost of Energy analysis shows that the unsubsidized cost of new-build onshore wind is competitive with new coal and combined-cycle plants, and can even compete with the marginal cost of existing coal and nuclear plants. Tax credits for energy storage, however, would provide policy support to increase the deployment of this nascent technology and push its cost to more competitive levels.
Making clean energy cheap is necessary, but not sufficient to deploying renewables. An increasingly important barrier to renewable energy deployment is the lack of infrastructure (e.g., transmission lines, energy storage, etc.) to support a high-renewables energy grid. A power grid that is going to handle high levels of variable renewable energy penetration is going to require significant investment in transmission, distribution, and storage infrastructure, and the lack thereof is limiting cheap renewables from making it onto the grid. The extender package seems to have gotten this backwards by forgoing tax credits that would address this barrier to deployment, and instead extending credits for mature technologies that are already competitive enough to stand on their own two feet.
Energy storage is a key piece of the decarbonization puzzle. The intermittency of wind and solar energy means the transition to a renewables-dominated power system is dependent upon our ability to expand energy storage quickly and affordably. A 2012 National Renewable Energy Laboratory study found that a grid with high penetrations of variable renewable energy would need energy storage deployment to reach 100-152 gigawatts by 2050, up from 31.2 GW today. Today’s leading energy storage technology, the lithium-ion battery, has just dropped below $200 per kWh, roughly an 85 percent cost reduction from 2010, but capital costs are still too high for energy storage to be deployed at the levels necessary to enable this transition.
With an estimated learning rate–i.e. cost decreases for each doubling of installed capacity–of 18 percent, increasing the volume of battery storage technology is one of the best strategies for reducing its costs. Based on current demand forecasts, batteries are expected to be around $94/kWh by 2024, a critical price point for electric vehicles to begin competing with traditional internal combustion engines. The ITC for energy storage will incentivize greater deployment of this technology, meaning that we will reach this price point sooner–not only enabling decarbonization of the electricity sector, but also making significant strides on decarbonizing the transportation sector via cheaper electric vehicles. Policy support (such as the ITC offered in the GREEN Act) that targets technologies that enable more deployment of clean energy across sectors is essential if we are to reduce emissions in a timely manner.