By: Jinjoo Lee, Wall Street Journal
When you have a fiscal hammer in the form of tax credits, perhaps everything looks like a nail.
President Biden’s infrastructure plan proposes some tried-and-trusted methods to spur clean-energy development such as a 10-year extension of existing tax credits for solar and wind energy. More interestingly, it introduces an investment tax credit for high-voltage transmission lines. The goal is to incentivize the build-out of at least 20 Gigawatts worth of transmission. That is roughly the amount of transmission that could match the Texas grid’s very significant wind generation.
The administration is certainly looking in the right direction: To reach President Biden’s net-zero emissions goal by 2050, the U.S. will need to expand electricity transmission systems by 60% by 2030 and may need to triple it by 2050, according to research published by Princeton University in December. That is because renewable energy-rich places such as the windiest regions aren’t necessarily close to population centers, where electricity demand is.
While the clean-energy industry probably won’t complain about a new subsidy, the tax-credit proposal is a bit of a head-scratcher given that the real roadblocks to transmission lines have to do with permitting, much of which is in the hands of state and local authorities.
“For most transmission we need in the country, it’s not a cost issue or an access-to-capital issue, although transmission can be delayed because of cost allocation debates,” said George Bilicic, global head of power, energy and infrastructure at Lazard.
Tax credits were instrumental in helping wind and solar take off because funding really was a bottleneck to development. When tax credits were introduced for wind and solar in 1992 and 2005, respectively, the technologies were much more expensive than they are today and not fully trusted by investors. By contrast, transmission line technology is well past middle age: Modern high-voltage transmission lines have been around since the 1950s.
In that vein, it is true that a tax credit for transmission could help offshore wind, still relatively new to the U.S., become more cost competitive, as Clarke Bruno, chief executive officer of transmission developer Anbaric Development Partners, notes. Because there is no offshore grid, U.S. offshore wind projects all need to build transmission lines from scratch to connect to the shore.
The proposed plan also calls for a so-called Grid Deployment Authority within the Energy Department to “better leverage existing rights of way” along roads and railways. That would be a good first step, though eminent domain—the power of the government to take private property and convert it for public use—remains largely within state regulators’ hands. While the Federal Energy Regulatory Commission has authority to grant natural-gas pipelines the right of eminent domain under the Natural Gas Act, there is no equivalent authority for electricity transmission under the Federal Power Act and little momentum in Congress to grant that provision.
The infrastructure plan is certainly a helpful indicator of what the Biden administration prioritizes. Soon, however, it will come to realize something that transmission line developers have known for a while: The devil is always in the details.
Article originally appears in the Wall Street Journal