Big wins for renewable energy in the ‘Build Back Better’ bill

Over the weekend, Democrats in the U.S. House released the first specifics of the Build Back Better plan within the $3.5 trillion budget reconciliation bill. The overall package is seen as the most significant legislative effort ever proposed to address climate change. Reconciliation requires only a simple majority of the House and Senate to pass.

So, what’s in the Build Back Better bill for renewable energy? Here’s a breakdown of the highlights.

Clean Electricity Performance Program

The Midcontinent Independent System Operator is making it easier to connect renewable energy resources to the grid.

The Build Back Better bill includes the Clean Electricity Performance Program (sometimes identified as the Clean Electricity Payment Program), which stands to make the biggest dent in U.S. greenhouse gas emissions by cleaning up the grid. Beginning in 2023, the program would reward utilities that increase their share of clean energy by 4% per year with grants and punish utilities that fall short by imposing fees.

In the program’s first year, utilities would be scored against their average clean electricity share in 2019 and 2020. The program would run through 2030.

In August, Senate Majority Leader Chuck Schumer told colleagues in a letter that President Biden’s goal of cutting greenhouse gas emissions by 50% compared to 2005 levels is within reach, in large part due to the proposed CEEP. Analysis of the program found that it would create nearly 8 million jobs by 2031.

Direct pay tax credits for renewable energy

Germany can, and must, meet the targets of the Paris Climate Agreement by achieving 100% renewable energy by 2030, a new study claims. (Courtesy:
Andreas Gücklhorn/Unsplash)

The Build Back Better bill restores the production tax credit (PTC) and investment tax credit (ITC) to their full values, and taxpayers are eligible for direct pay instead tax equity offsets.

“This allows entities with little or no tax liability to accelerate utilization of these credits, including tax-exempt and tribal entities,” the bill summary reads.

For wind, solar, geothermal, landfill gas, and qualified hydropower projects commencing before 2032, the production tax credit provides a base credit rate of .5 cents/kWh and a bonus credit rate of 2.5 cents/kWh. The base and bonus credit rates phases down to 80% in 2032 and 60% in 2033.

The bill extends the ITC to 30% of full value with a base rate of 6% for property constructed by the end of 2031, then phasing down over two years. There are additional incentives for projects that utilize domestically-produced equipment and for those deployed in low-income communities. A recent study found that clean energy developers are unfairly burdened with transmission upgrade costs.

The ITC is expanded to include energy storage technology and linear generators, each eligible for a 6% base-credit rate or a 30% bonus credit rate through the end of 2031, before phasing down in 2032 and 2033.

Qualifying electric transmission projects and upgrades are eligible for an ITC with a base credit rate of 6% or a bonus credit rate of 30%. These projects are defined as being capable of transmitting electricity at a voltage greater than or equal to 275 kilowatts and having transmission capacity greater than or equal to 500 megawatats.

A new tax credit is created by the Build Back Better bill for clean hydrogen production beginning in 2022. The base rate of $0.60 or bonus rate of $3.00 is multiplied by the volume in kilograms of clean hydrogen produced during a taxable year.

Electric vehicles

An electric vehicle charging station (Flickr/Pat Gerber)

The Build Back Better bill provides a refundable income tax credit for new qualified plug-in electric vehicles with a base amount of $4,000, plus an additional $3,500 for vehicles placed into service before Jan. 1, 2027, with battery capacity greater than or equal to 40 kWh, and for vehicles with a battery capacity of no less than 50-kilowatt hours thereafter.

The base amount increases to $4,500 for vehicles produced in the U.S. under a union-negotiated collective bargaining agreement. The base amount increases another $500 for vehicles with 50% or more domestically-produced content. Beginning in 2027, the credit will only apply to vehicles with final assembly in the U.S.

Purchasers of pre-owned, plug-in electric vehicles would be eligible for a new refundable credit through 2031. Buyers can claim a base credit of $1,250 for qualified electric vehicles.

Sustainable fuels

The Build Back Better bill extends income and excise tax credits for biodiesel and biodiesel mixtures at $1 per gallon through 2031. The $0.10-per gallon small agri-biodiesel producer credit and $0.50-per-gallon excise tax credits for alternative fuels and alternative fuel mixtures are extended through 2031.

There’s also a refundable blenders tax credit for each gallon of sustainable aviation fuel sold as part of a qualified fuel mixture.

“The value of the credit is determined on a sliding scale, equal to $1.25 plus an additional $.01 for each percentage point by which the lifecycle emissions reduction of such fuel exceeds 50%. Taxpayers may elect to claim this credit as an excise tax credit against section 4041 excise tax liability,” the bill summary says.

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