Reforming Federal Policy to Support Innovation and Clean Energy in the U.S. Power Sector

Solar and onshore wind technologies have become increasingly competitive with conventional electric generation technologies in the United States. The progress to date has been driven largely by federal deployment subsidies. But while these two technologies have reached relative maturity, experts agree that current-generation solar and wind are insufficient for the task of fully decarbonizing electric power grids. Filling the remaining gaps will require reforms to federal energy technology policy, including but not limited to deployment policy.

Following a decade of shifts in the US power sector — including the growth of solar and wind, the coal-to-gas transition, and the electrification of sectors like light-duty transport — the next few years present an inflection point in the evolution of the American electric system. Barriers to deep decarbonization of the power sector remain, including lack of sufficient transmission, energy storage, and firm clean generation. Action now to address these barriers will enable faster, cheaper decarbonization in the future.

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Principles for Federal Investment in Clean Energy Deployment and Power Sector Decarbonization

• Focus deployment subsidies on emerging technology: Shift federal subsidies from cost-competitive technologies (e.g. onshore wind and solar) to emerging technologies (e.g. offshore wind, advanced nuclear, enhanced geothermal, carbon removal, and energy storage).
• Focus investment on complementary and supportive technologies: Ensure funding adequately supports complementary technologies, such as transmission, firm generation, and energy storage.
• Use technologically inclusive strategies for mature technologies: Policies for broad-based clean energy deployment and decarbonization, such as a clean electricity standard (CES), should be technologically inclusive.

Recommendations for clean energy deployment and innovation policy

Temporary deployment support

• Delay the sunsetting of the wind and solar tax credits until the end of calendar year 2022 to allow adequate recovery time from the COVID-19 pandemic and recession.
• Make all federal clean energy tax credits fully refundable for projects that begin before the end of calendar year 2022.
• After 2022, extend federal clean energy deployment incentives through the end of calendar year 2030, removing eligibility for solar and onshore wind projects.
• Impose a 250 MW per-reactor cap on the existing nuclear production tax credit to ensure federal deployment support benefits a new generation of smaller, advanced nuclear reactor technologies. Lift the existing 6000 MW cap on the credit availability.
• Extend the section 45Q tax credit for carbon removal through the end of calendar year 2030, and allow project developers to receive a cash payment in lieu of the credit if their project begins before the end of calendar year 2022.

Transmission expansion and increased grid interconnection

• Invest in new grid infrastructure to better connect the Western and Eastern Interconnections.
• Dedicate federal funding for transmission expansion and upgrades in the Power Marketing Administrations (PMAs).
• Establish a tax credit for the construction of regionally significant transmission projects.
• Reform and strengthen federal backstop siting authority for projects in transmission corridors.
• Alleviate regulatory burdens on transmission construction projects.

Smart planning for large-scale infrastructure projects

• Support deployment of wind and solar on federal lands by identifying priority areas for development in a manner that minimizes environmental impacts.
• Develop a federal plan for strategic national transmission expansion.

Energy storage

• Develop a dedicated investment tax credit for grid-scale energy storage projects to facilitate deployment.
• Increase funding for research, development and demonstration (RD&D) of long-duration grid-scale storage systems.

Read the full report here.