Posted on January 8, 2020 by Rich Powell and Mitch Kersey
Energy sector innovation and broader efforts to address climate change should resemble the best of the tech start-ups in the U.S.: fast, disruptive, exciting and good for consumers. But the complexity of the energy tax code and market can stymie American ingenuity.
A new bipartisan bill sponsored by Rep. Tom Reed (R-N.Y.) and Rep. Jimmy Panetta (D-CA.) – especially when added to the recent suite of bipartisan proposals to right-size the U.S. innovation engine and regulatory code – could be a major missing financing piece of the clean energy innovation puzzle.
This Energy Sector Innovation Credit, or ESIC, would update the energy portion of the tax code by allowing cutting-edge technologies to gain commercial viability and upend the status quo without distorting the free market.
How would it work?
For one, it’s technology neutral. This means that eligible technologies can represent the full gamut of clean energy tools – including a new power plant that can capture and store or utilize carbon emissions from fossil fuel generation, an advanced nuclear reactor and facilities that can store electricity from wind, solar and other sources. Importantly, while it would not allow technologies to qualify if they are receiving other existing incentives — such as the existing wind production or solar investment tax credits that have become politicized in recent years — and thereby could more readily open the door for next-generation renewable power — such as offshore wind and the perovskite solar cell — sources to be supported by the tax code.
Second, it has a built-in ramp down for each technology as it grows to better target emerging and highly-promising options that are in most need of early help.
ESIC By The Numbers
Third, this incentive applies to the value of energy when it is sold. In other words, it does not reward unwanted power.
For example, if the technology is new, still making less than 1% of total national electricity generation, it will pay out as 60% of whatever someone earns selling the energy. That means that, if the market values electricity at $10 / MWh at a given time, and you are able to meet that demand, the incentive would pay out a maximum of $6 for that MWh. And in times where there’s an oversupply of power into the market and electricity is valued at $0 or less, the incentive would not pay out anything at all.
ESIC would be a market based solution in the truest sense because the incentive is designed to reward the most flexible clean power sources – the ones that can respond to market signals to provide power. We already have two terrific sources of low-cost intermittent clean power in wind and solar, and they’re getting cheaper every year. But we have very limited access to flexible 24/7 clean power than can ramp up and down when we need it. ESIC is designed to incentivize innovators to develop those flexible clean power sources like advanced nuclear reactors, carbon capture technology, energy storage or geothermal.
This tax code fix complements a series of bipartisan bills that could turbocharge clean power innovation. That includes refocusing federal-private sector energy research development and demonstration across major low-emission energy sources, while also recognizing that we need a soup to nuts investment – from early stages all the way through demonstration and commercialization.
There is a larger puzzle that is being pieced together to firm up development and deployment of technologies that are both cleaner and reliable and can help the U.S. take hold of the global technology market, while reducing both U.S. and global emissions. ESIC is a financing mechanism that could be a corner piece of that puzzle.
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