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Essential Energy Insights - March 2021


Biden energy plan boosts renewables outlook, puts oil and gas on notice

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U.S. President Joe Biden's American Jobs Plan includes $100 billion in spending on the nation's aging power infrastructure.
Source: Justin Sullivan/Getty Editorial via Getty Images

U.S. President Joe Biden's $2 trillion infrastructure and energy plan would dramatically reshape the nation's energy landscape by offering new tax incentives for clean energy, electric transmission projects, and carbon capture and storage technology.

However, industry experts cautioned that the huge proposal, which Biden envisions financing largely through major changes to the corporate tax code, will likely need to win unanimous Democratic support in the narrowly divided U.S. Senate.

Unveiled March 31 as the American Jobs Plan, it will also need to overcome opposition from the U.S. oil and gas sector, which stands to lose under the plan's heavy emphasis on electric vehicles and charging infrastructure, analysts said. And some former government officials also questioned the wisdom of creating new government offices to implement the plan instead of harnessing existing federal authorities.

But clean energy advocates and industry analysts agreed that the plan's clean energy provisions, including a federal energy efficiency and clean electricity standard, could spur hundreds of billions of dollars in additional private sector investments.

Targeted tax incentives

The American Council on Renewable Energy praised Biden's proposal for a 10-year extension of the investment and production tax credits for clean energy technologies such as wind and solar and to create a new stand-alone credit for energy storage resources. The plan also aims to make those credits refundable, meaning entities without any tax liability could claim them through a process known as "direct-pay."

"The direct-pay option for renewable generation credits will go a long way toward accelerating the deployment needed to decarbonize the power sector by 2035, and new incentives for transmission and energy storage will be key to securing a more reliable, efficient and cleaner electric power grid," Gregory Wetstone, the council's president and CEO, said in a statement.

With the U.S. electric grid largely siloed into three systems — a Western Interconnection, Eastern Interconnection, and the Texas grid — calls for more interregional transmission infrastructure have also grown increasingly urgent as variable renewable energy penetration continues to grow.

Biden's plan, which includes $100 billion for power infrastructure, would provide a "targeted" investment tax credit for the high-voltage transmission needed to move renewable energy from remote locations to population centers. The plan would also establish a new Grid Deployment Authority within the U.S. Department of Energy empowered to leverage existing rights-of-way along roads and railways, potentially allowing transmission projects to overcome local opposition.

David Hill, a former lawyer for DOE and NRG Energy Inc., praised the transmission-focused tax credit but suggested the creation of an entirely new DOE office may cost valuable time. "The key here will be making sure that the authority can actually do something and that it's not just going to be another administrative stumbling block," Hill said in an interview.

Hill noted that the DOE already has broad authority under the Energy Policy Act of 2005 to identify national interest electric transmission corridors. A 2009 ruling by a divided federal appeals court created legal uncertainty over the extent of that authority, but Hill argued years of federal inaction on transmission point to a question of "political will" more than anything else.

"Rather than deck chair rearrangement, how about using the authority that is out there sitting on the books right now?" Hill said.

Oil, gas seen as early losers

Biden's plan also calls for $621 billion in spending on transportation infrastructure and resilience, including a $174 billion investment to "win" the electric vehicle market. That effort would hand EV makers and electricity providers a win at the expense of a U.S. oil and gas industry that has struggled to build new pipeline infrastructure in recent years.

"Sticking to the energy-related area, the biggest proposal appears to be the $174 billion within the transportation side that pushes a shift towards electric vehicles," Seth Schwartz, president of Energy Ventures Analysis, said in an interview. "To me, the big winner would be electric vehicles, and the big loser would be oil consumption for transportation purposes."

The push for EVs along with provisions to enable the manufacture of electric heat pumps for residential heating and commercial buildings through investment in federal buying power appear to be aimed at driving electrification and moving away from hydrocarbon fossil fuels like oil and gas, Schwartz said.

The American Petroleum Institute contended that the "proposal misses an opportunity to take an across-the-board approach to address all our infrastructure needs including on modern pipelines."

Frank Macchiarola, API's senior vice president for policy, economic and regulatory affairs, said in a statement that the trade group will "continue to advocate for a tax code that supports a level playing field for all economic sectors along with policies that sustain and grow the billions of dollars in government revenue that we help generate."

Congressional hurdles

Thin margins in Congress could prove problematic for the massive infrastructure package, as Democrats will need to either garner unanimous support among their ranks or entice some Republicans to come on board, according to Washington insiders.

"The massive proposal including raising the corporate tax rate to 28% does not appear to be designed to attract Republican support, which means that it would need to be passed via a high-risk budget reconciliation process in a 50-50 Senate," Benjamin Salisbury, director of research and senior policy analyst at Height Capital Markets, said in a research note.

Salisbury emphasized that "Congress, rather than the president, will write the bill and individual members (and their stakeholders) will jockey to add their own priorities creating an ongoing risk that an initiative of this size will collapse under its own weight or shrink significantly."

Lindsey Walter, deputy director of center-left think tank Third Way's climate and energy program, said the plan's energy components still need to be fleshed out but would put the U.S. on track to satisfy Biden's climate goals. Those goals include decarbonizing the power sector by 2035 and achieving net-zero emissions economywide by 2050.

"It hits a lot of the topline infrastructure priorities that we would need to get to a net-zero economy," Walter said. "I look forward to seeing a little bit more of the details on specific pieces."

In particular, Walter praised the $100 billion in public money for grid modernization and transmission development, which she said could spur two to three times that amount of spending from the private sector. The plan's transmission permitting measures and support for extended clean energy tax credits will help also move the country toward Biden's targets, she added.

Many parts of Biden's proposal could garner bipartisan support and potentially move through regular order in Congress. Those bipartisan concepts include Biden's call to increase research and development funding for clean energy innovation and to support large-scale carbon capture sequestration.

The American Jobs Plan also endorses new bipartisan legislation called the Storing CO2 And Lowering Emissions Act, or SCALE Act, which aims to enable widespread deployment of carbon capture, utilization and storage through the formation of carbon transportation infrastructure.

But some pieces of Biden's plan might be better suited to moving through reconciliation legislation, which only needs support from a simple majority in the U.S. Senate and could more easily surmount GOP resistance. Walter said the president and Democrats in Congress may need to rely on reconciliation to enact the clean electricity standard portion of Biden's infrastructure plan.

Reconciliation measures must affect federal revenue and deficit levels, so any clean energy standard moving through that process may need to be structured as a rebate program to qualify, Walter suggested.

Jasmin Melvin is a reporter for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.