Accelerated Clean Energy Development Could Save Americans $5 Billion Annually, Protecting against Inflation and Rising Natural Gas Prices
With energy security, inflation, and gas and electricity prices flooding the news cycle, leaders are searching for solutions that will provide immediate and sustained relief. Global instability has once again put Americans at the mercy of fossil fuel price spikes — and this trend will continue if we fail to prioritize domestic energy sources like wind and solar that have zero fuel costs.
New RMI analysis shows that investing in and using cleaner energy can help protect against inflation by reducing electricity costs significantly over the next two years. Our analysis shows that implementing clean energy tax credits for the power sector starting in 2022 would result in cost savings across the continental United States. By 2024, these tax credits could save American electricity customers over $5 billion a year.
A Recipe for Cleaner Energy and Cost Savings
Our analysis examined the cost implications of a few key power sector tax credits, including:
- A 10-year extension of the 30 percent Investment Tax Credit (ITC), which allows renewable energy, energy storage, or transmission project owners to recoup 30 percent of their investment through direct pay from the IRS. The ITC provides dollar-for-dollar credit for investments in renewable energy installations. The 10-year time frame will allow for long-term wind and solar investments and give regulators greater certainty on future clean energy costs.
- A 10-year extension of the $25/MWh Production Tax Credit (PTC), which would provide a $25 tax rebate for every megawatt-hour of electricity produced by new clean energy sources — including solar — over the first 10 years of operation. The extended PTC allows developers to recoup their costs through direct pay from the IRS. In the past, solar projects have only qualified for the ITC, but with solar prices decreasing, a PTC will more effectively incentivize utilities to bring solar installations online at the pace and scale needed.
To unlock these full savings, we found that the power sector tax credit package needs to be in the form of direct pay, which helps electricity suppliers take full advantage of the incentives to reduce customers’ electricity bills. Today, the absence of a direct pay option for several clean electricity tax credits inhibits many utilities and other electricity suppliers from accessing affordable financing for new projects — which in turn slows renewable energy deployment.
Credits That More Than Pay for Themselves
This package of clean energy tax credits proposed in Congress earlier this year remains one of the most cost-effective ways to reduce emissions, according to research from the Energy Policy Institute at the University of Chicago and the Rhodium Group. This assessment found that these credits more than pay for themselves — with economic benefits three to four times greater than the cost of inaction.
Time for a new title to move a reconciliation bill forward. How’s “Saving Americans Money Act?” We must move on from BBB and salvage what we can because we don’t have time for inaction. Studies show that energy tax credits and investments will make life more affordable.🧵(1)
— Alisa Petersen (@amariepetes) February 17, 2022
A broad clean energy incentive package would also provide a down payment on a more secure energy system. New analysis from Energy Innovation shows that proposed tax credits for electric vehicles would offset fossil fuel demand equivalent to last year’s US imports of Russian oil. Those savings would be achieved in less than five years, and roughly half of the savings would be realized within 36 months. By 2030, the reduction would be more than double last year’s demand for Russian oil.
Building for Today and Tomorrow
This month, the cost of crude oil surged to its highest levels since 2008, while national average gas prices surpassed $4.57 a gallon. In addition, rising coal and natural gas prices have caused electricity rates to jump by 51 percent in the PJM electricity market (covering portions of the Midwest and mid-Atlantic) and 85 percent in New England. While some argue that increasing fossil fuel extraction will save us from these massive price spikes, the reality is that recent increases in oil and gas drilling have failed to bring fuel prices under control. And the Energy Information Administration projects that prices will remain high for at least another year — and perhaps longer, if global conflict continues.
Furthermore, investments in new fossil infrastructure can prove short-sighted, as they lock US consumers into decades of payments on assets that will soon be stranded as clean energy prices keep falling. Meanwhile, greenhouse gas emissions will continue to warm the atmosphere, leading not only to catastrophic long-term ramifications, but also near-term consequences. This summer is expected to (yet again) break temperature records, which will further increase demand for fossil fuels and push electricity costs even higher.
Now is as urgent a time as ever to think strategically about diversifying our energy sources and strengthening our economic resilience. And while we cannot transition our whole energy system to clean energy sources overnight, we can focus on the investments needed to make our system more resilient for the long run, which will save American households hundreds of dollars a month in the process. A strong clean energy tax credit package delivered by Congress can set the foundation for a more stable, affordable energy future.