The Energy Act of 2020 included provisions that could impact the bottom lines of electric utilities and energy developers for several years. Among the most important terms are extensions of solar and wind tax incentives that had been set to phase out over the next two years.
Though it didn’t receive much attention, the Energy Act of 2020 has been called “perhaps the most significant climate legislation Congress has ever passed” by Grant Carlisle, senior policy advisor for the National Resources Defense Council, New York. In addition to extending investment tax credits for renewable-energy projects, it also puts the United States on a path to significantly reducing the use of a type of climate-threatening refrigerant over the next 15 years.
Solar and wind projects halted as the COVID-19 pandemic prompted shutdowns beginning last March. Residential solar sales and installations were hit especially hard. Social distancing concerns forced solar retailers to rethink in-person marketing. Similarly, installation became more complicated in what can be close quarters on rooftops. A July survey by the Solar Energy Industries Association (SEIA), Washington, D.C., found that 27% of more than 21,000 responding solar workers had been laid off or furloughed.
Disrupted supply chains have been the bigger issue for wind farm construction. The many parts of a wind turbine often are sourced from all over the globe. As a result, a combination of plant shutdowns and shipping problems created delays in getting turbines up and running.
Both industries improved significantly by the end of the year. SEIA figures show residential solar installations grew 14% between 2020’s second and third quarters, with the year as a whole predicted to be up 7% over 2019’s performance. Solar and wind installers had been facing a ticking clock in the form of tax incentives that began winding down in 2020. The Energy Act presses pause on that process, with tax credits holding at 2020 levels through 2022.
The 30% tax credit for commercial and residential solar and wind installations rolled back to a 26% rate in 2020. It was scheduled to drop to 22% in 2021 before falling to 10% for commercial projects—and disappearing entirely for residential installations—in 2022. Now, the 26% credit remains available for all solar and wind projects that begin construction prior to Jan. 1, 2023, with the 22% rate kicking in for projects that break ground before Jan. 1, 2024. Residential credits would then expire, with the 10% credit remaining in place for commercial projects.
Additionally, offshore wind developers now have even more generous tax credits, as they are eligible for the full 30% rate for projects that begin construction prior to Jan. 1, 2026. This incentive could prove critical to a new industry whose progress had been hindered by extended government reviews under the previous presidential administration. Close to a dozen projects are at the stage of submitting—or having submitted—construction and operations plans to the U.S. Bureau of Ocean Energy Management. This includes the 800-megawatt Vineyard Wind project to be located off the coast of Massachusetts. This would be the first utility-scale offshore wind project in the United States.
Other energy-related issues in the act include increased research and development funding for solar, wind, hydropower and geothermal technologies; financial assistance for low-income renewable-energy installations; and added funding for research on reducing industrial emissions. Additionally, legislators authorized added funding for the Advanced Research Projects Agency-Energy program, which funds high-risk, high-reward research. The previous administration sought to eliminate this effort multiple times.
While the extended tax credits will certainly encourage zero-carbon energy development, the move to cut the use of hydrofluorocarbon-based (HFC) refrigerants could have more significant environmental impacts. The provision also highlights the interconnectedness of many such issues.
The first global environmental agreement, the Montreal Protocol, was signed in 1987 to phase out the production and use of chlorofluorocarbons and other substances that were depleting Earth’s stratospheric ozone layer. This effort has been successful, with the ozone layer expected to return to pre-1980s conditions by the 2060s. However, the HFCs that many air conditioning and refrigeration system manufacturers turned to have been identified as even more potent and long-lasting greenhouse gases than carbon dioxide. As air conditioning usage has climbed rapidly in India, China and other developing nations, the intention to phase out these chemicals has become even more urgent, especially with global rising temperatures.