This blog is the nineteenth in our series, “The ABC’s of the AJP.”
Increasing grid-scale energy storage in the United States is a critical part of infrastructure development. President Biden’s American Jobs Plan (AJP) would place investments in energy storage at the center of his goals of achieving a net-zero electricity sector by 2035 and making the electricity grid more resilient. These investments would also support the Administration’s efforts to secure an end-to-end domestic supply chain for high-capacity batteries and the critical minerals that go into them.
In just the last year, the U.S. has experienced major crises related to the need to modernize the electricity grid and make it more resilient in the face of extreme weather events. In Texas this past February, shortages of energy precipitated by an unprecedented winter storm resulted in nearly two hundred deaths, when power generation facilities that were not designed for such extreme cold tripped off line and natural gas lines and other infrastructure that fed some of those plants simply froze and prevented fuel from reaching the power generation facilities.
Grid-scale energy storage could help avoid such outages. Moreover, the transition to greater reliance upon renewable energy resources to combat climate change amplifies the need for grid-scale storage. While some renewable energy resources have consistent output, like geothermal or hydroelectric, other sources, like wind and solar power, generate intermittently.
Biden’s AJP proposes to promote energy storage by making standalone storage projects eligible for the federal investment tax credit. As it currently stands, energy storage only receives tax credits if it is integrated with renewable generation sources that are already eligible for the tax credit. Additionally, the AJP includes utility-scale energy storage in a list of investments eligible for fifteen billion dollars of support.
The AJP’s investments in energy storage as a vehicle for job creation align with the Administration’s recent announcement of its intention to develop a “10-year, whole-of-government plan to urgently develop a domestic lithium battery supply chain that combats the climate crisis by creating good-paying clean energy jobs across America.” That plan, like the AJP, is intended to reduce the U.S.’s reliance upon China for the vast majority of the world’s lithium-ion battery cell manufacturing and raw material refining.
Storage Investment Tax Credit
Despite being essential to the scalable adoption of clean renewable energy sources, energy storage on a standalone basis does not at this time qualify for a federal investment tax credit . Supporting investment in energy storage improves energy resilience in all forms. But storage of energy on a massive scale is particularly critical to the deployment of wind and solar generation resources.
There are many different ways of storing energy, some not dependent on new technologies. For example, pumped hydro resources have been around for decades and simply involve pumping water to an upper reservoir in times of energy surplus, and discharging that water to a lower reservoir at times when energy supplies are tight or more expensive; on the way, the falling water passes through a turbine and produces electricity that it supplied to the grid. But the physical land and water demands of a pumped hydro project make it an option that is not universally available.
Other more advanced forms of long-duration energy storage involve cooling ambient air to supercritical temperatures when electricity is in surplus or cheaper, storing it in low-pressure vessels, and then allowing the rapid expansion of the gas to drive a turbine and create electricity without combustion at times when energy demand increases. These more advanced options can provide a 50 megawatt (MW) facility, with five to eight hours of storage on an acre of land.
Green hydrogen also holds promise as a means of storing intermittent renewable energy, as we described in a prior post in this series.
But, by far, the most common form of energy storage being deployed today is through lithium-ion batteries. As one example, Tesla is currently commissioning its Megapack battery installation at the site of a former fossil generation facility in California. As the largest battery facility commissioned to date, it will provide 182.5 MW and 730 megawatt-hours (MWh) of capacity and supply to Pacific Gas and Electric Company.
Even without the tax credit, it is therefore clear that the industry is growing fast. According to Wood Mackenzie and the U.S. Energy Storage Association, more than two thousand megawatt-hours of new energy storage systems were brought online in Q4 2020. This is an increase of 182% from the previous quarter, and marked a new record quarter for U.S. storage.
The President’s proposed tax credit could assist in encouraging that growth. The solar energy industry has cited the tax credit as one of the most critical mechanisms supporting its meteoric growth of approximately 10,000% since 2006.
More than 150 groups, including the Environmental Defense Fund, NRDC, Solar Energy Industries Association, American Clean Power Association, signed on to letters to House and Senate leadership, urging the legislature to make energy storage technologies eligible for these tax credits. Specifically, they argued that such a reform would allow energy storage to compete with other green technologies.
Clean energy industry leaders stand behind the policy. According to Gregory Wetstone, president and CEO of the American Council on Renewable Energy (ACORE), “[a] federal tax credit for energy storage would have a transformative impact, promoting private sector investment and helping monetize the value of energy storage technology.” The energy tax credit also enjoys bipartisan support.
Additional Funding for Utility-Scale Energy Storage
One of the major goals of the AJP is to establish the United States as a leader in climate science, innovation and R&D. Specifically, the AJP would invest $15 billion in demonstration projects for climate R&D priorities, including utility-scale energy storage, among a number of other technologies. So, in addition to the extension of eligibility for the investment tax credit, the AJP could provide financial assistance to utility-scale energy storage projects at the cutting edge.
A Secure Domestic Supply Chain for Energy Storage
Despite the paucity of federal support available to-date, cost effective energy storage has been described as the “holy grail” that could unlock possibilities for the deployment of intermittent renewables at the scale needed to achieve the President’s target of a zero-carbon electricity sector by 2035. The AJP’s and Congress’s plans to reward storage with tax benefits would be an important first step in mobilizing the private capital needed to realize storage’s potential.
Additionally, as a result of the Administration’s assessment of critical supply chains, which was conducted pursuant to Executive Order (E.O.) 14017, the Administration, just last week, announced an even broader effort to secure a domestic supply chain for high-capacity batteries.
The recommendations resulting from the Administration’s supply chain assessment include the following (among others):
- Developing a National Blueprint for Lithium Batteries – a 10-year plan to onshore the entire supply chain for batteries, from the critical minerals that go into them, to recycling at their end-of-life;
- Investing in development of next-generation batteries that will reduce critical mineral requirements for grid storage; and
- Launching an effort to support deployment of energy storage projects by federal agencies through the Department of Energy’s (DOE) Federal Energy Management Program.
Consistent with the AJP’s goal of using clean-energy investments as a vehicle to create “good jobs,” the battery supply-chain initiative announced last week is intended to “support good-paying, quality jobs with a free and fair choice to join a union and bargain collectively.” Both in this respect and in its goal of making the U.S. energy-storage-independent of China, the supply-chain initiative reflects this Administration’s view that investments in clean-energy technologies are necessary, not only to address climate change, but to secure the U.S.’s global leadership in the 21st century.