Federal investments have the potential to propel utilities into a clean energy future and to meet customers where they’re needed
The last year has seen significant investments signed into law to: help modernize infrastructure; create programs to accelerate deployment of clean energy and reduce greenhouse gas emissions; and increase accessibility and opportunity for consumer-driven change at home.
The breadth of federal investments ranges widely from research and development of clean energy technological innovation to reduced utility bills for residential and business customers.
Between Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA), utilities are now presented with a historic amount of opportunity in the energy space.
It’s vital to start analyzing and taking advantage of opportunities to help position utilities for a clean energy future and maximize benefits for customers.
In addition to analyzing existing roadmaps to understand the impacts of the legislation on upcoming activities and pursue relevant grants/credits, utilities should:
The passing of IIJA provides utilities with funds to help modernize their transmission grid and expand their customer outreach with broadband, cybersecurity, and resiliency programs. The subsequent passing of IRA provides new opportunities for clean energy investments and production, while also allocating funds to customers to help increase energy efficiency. Together, nearly $2 trillion in federal money is being allocated toward modernizing infrastructure and helping drive toward the goal of reducing greenhouse gas emissions by 50%—relative to 2005 levels—by 2030.
Understanding what funding opportunities are available and how to maximize the benefits will help the utility of the future become the utility of now.
The $1.2 trillion bipartisan IIJA, which passed in November 2021, addresses the country’s degrading roads, bridges, and public transportation, and will help upgrade the nation’s power infrastructure to improve resiliency, expand access to high-speed broadband, expand the network of electric vehicle chargers, and replace lead pipes to ensure safe and clean drinking water.
Its primary intent was to accelerate the much-needed upgrade of core infrastructure through direct grant investments in research and development (R&D) and infrastructure modernization.
The $737 billion IRA was enacted nine months later, designed to lower inflation, lower healthcare drug costs, and allocate nearly $390 billion to bolstering federal investments in clean energy, climate change mitigation and adaptation, and environmental justice initiatives.
Unlike the IIJA, with its focus on providing grants to state and local governments and to private sector companies, the IRA is primarily composed of incentive payments and tax credits. Those are intended to encourage increased energy production and consumer adoption of clean energy, energy efficiency, and carbon reduction.
In this sense, IIJA and IRA are complementary, with the IIJA building the underlying physical system capacity and structure to support future change—and the IRA serving as the mechanism to catalyze this change.
The grant programs and tax incentives in both the IIJA and IRA are robust, ranging from clean energy production and distribution to consumption and aimed at overhauling and accelerating grid modernization and the adoption of green technologies.
For example, the IIJA establishes the Build America, Buy America Act, which requires that federally funded construction projects that use iron, steel, and other manufactured products use domestically produced materials.
Complementary to this, the IRA includes substantial increases in and expansion to investment tax and production tax credits that will help strengthen and incentivize the domestic material production industry and clean energy supply chain.
Staying attuned to how these various laws and regulations will shift industry norms and preferences— particularly as they relate to federally funded projects—can ensure stakeholders leverage the opportunities provided by both Acts together to maximize benefits.
IIJA, through its Grid Resilience and Innovative Partnerships (GRIP) Program, will dramatically help upgrade the electric grid, allowing for greater grid capacity and resiliency, along with the ability to adequately integrate and handle the increases in distributed energy resource (DER) power integrations, shifts to electrification, and electric vehicle (EV) adoption.
From a consumer-facing perspective, the IRA complements this through its home appliance electrification incentives and residential clean energy tax credits—all of which will motivate consumers toward electrification. Additionally, the expansion of the investment tax credit (ITCs) and production tax credits (PTCs) for qualifying investments in wind, solar, energy storage, and other renewable energy projects will incentivize the growth of DER projects.
From a transmission perspective, the IRA makes available loans and loan guarantees for the construction and modification of electric transmission to further promote energy security and enabling the use of intermittent energy sources such as wind and solar, grants to facilitate the siting of interstate electricity transmission lines, and funding to the U.S. Department of Energy to support interregional and offshore wind transmission planning, modeling, and analysis.
For utilities looking to implement hydrogen projects, IRA and IIJA both provide opportunities to help lower costs across the value chain and build the hydrogen production-to-consumption industrial ecosystem. Combined with ITCs for renewable power production and energy storage infrastructure, the upstream value chain for domestic green hydrogen production infrastructure is now subsidized in some form by the U.S. government.
Clean hydrogen has recently grown in prominence due to its ability to decarbonize industrial and heavy-duty sectors. But producing, storing, and transporting hydrogen is typically a highly energy-intensive process, making it more expensive than other fuels. IIJA provides grant opportunities for hydrogen innovation and scaling under Section 40314. The three hydrogen programs include Clean Hydrogen Electrolysis, Clean Hydrogen Manufacturing, and Regional Clean Hydrogen Hubs.
IRA can help further reduce costs of utility hydrogen projects through production and investment tax credits. Clean Hydrogen Production tax credits create a new tax credit for qualified hydrogen production based on the carbon intensity. Existing investment tax credits are now expanded to cover hydrogen and energy storage.
There are certain programs included in IIJA—such as the extension and expansion of the Smart Grid Investment Grant Program—that help utilities enhance their smart grid capabilities. One of the many benefits of smart grid investments is that they increase utilities’ customer data collection capabilities. That, in turn, helps customers make informed choices on energy usage to reduce their monthly electricity bills.
This can be paired nicely with the IRA consumer tax credits that help customers increase the energy efficiency of their homes and businesses. These energy efficiency tax incentives in the IRA are primarily focused on low and medium-income customers. They include a wide range of options—from rebates on home energy audits to appliance rebates—providing ample opportunities for utilities to further engage with their customers.
Utilities can expedite and expand existing plans for zero emission vehicles and embark on other clean fueling projects with IIJA and IRA. IIJA’s grants for clean fueling stations, such as the National Electric Vehicle Infrastructure (NEVI) program, primarily focus on public charging—both along transportation corridors and within communities to provide more equitable and convenient access to charging infrastructure. Hydrogen, propane, and natural gas fueling infrastructure can also qualify as eligible for grant funding.
Utilities can partner with municipalities to help provide enhanced services for these charging stations with grant funding. To supplement these charging stations, utilities can evaluate whether IRA’s Qualified Commercial Vehicle tax credit can help cover costs of a utility’s medium and heavy-duty fleets that can utilize the charging infrastructure installed along transit corridors or in communities. In addition, IRA’s Alternative Fuel Refueling Property incentives can lower costs of fueling stations for clean fuels, further supporting utility’s decarbonization goals while keeping costs low.
There are other programs within IRA and IIJA that utilities need to consider. Within IIJA, beyond meeting eligibility requirements for projects, responses to funding opportunities will need to be comprehensive. The reason? Consider cybersecurity implications, community engagement initiatives, environmental impacts, and equity and workforce development programs that will augment and/or grow an applicant’s own internal programs. The Justice40 initiative, which earmarks 40% of overall benefits from federal investments for disadvantaged communities (DACs), also shapes how IIJA opportunities can be pursued.
IRA opportunities also include provisions that may impact utilities and their customers. Additional opportunities within IRA include robustly funded loan guarantee programs that utilities may be eligible for depending on their infrastructure project, extension of carbon sequestration tax credits, and methane emission reduction program grants. Additional impacts from IRA include minimum corporate income taxes that many large utilities are subject to and waste methane emissions fees.
What was once considered the utility of the future has quickly been reshaped to actionable items for the utility of now. Utilities now have a once-in-a-lifetime opportunity to secure significant funding and expedite their modernization plans. IIJA and IRA allow the energy industry the power to develop and scale clean energy infrastructure unlike ever before. Utilities need to seize this opportunity and take a close look at what they are eligible for and understand the impacts of the Acts on their organization and customers.
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