A close look at the clean energy legislation offered by House Democrats

After months of anticipation, Democrats have begun to reveal pieces of their upcoming Build Back Better Act (aka the budget reconciliation bill), including the key clean energy provisions.

On Monday, the House Energy and Commerce Committee began markup of its full set of recommendations for the bill. Meanwhile, the House Ways and Means Committee released its draft tax package for the bill, including the clean energy tax credits.

As negotiations around the reconciliation bill move forward, I’ll have more to say about the politics, economics, and larger implications of all this Democratic energy policy. For now, I just want to get the specifics on the record.

For one thing, there’s a lot of policy here, and it will take some time to think it through. For another, it will be important to track what gets added and (more likely) cut when the bill goes to the Senate, so this post can serve as our baseline for comparison.

Let’s start with Energy and Commerce and its Clean Electricity Performance Program (CEPP), arguably the most important single piece of energy policy on offer.

E&C: the CEPP and some other good spending

(For a quick introduction to the CEPP, see highlights from my interview with Sen. Tina Smith.)

The $150 billion CEPP would offer grants to utilities that increase their year-on-year share of clean energy by at least 4 percentage points; it would charge fines to utilities that fall short of that goal. (“Utilities” here includes any and all end-use electricity providers: vertically integrated utilities, investor-owned utilities, co-ops and munis, etc.)

For the purposes of the bill, “clean energy” is energy that emits no more than 0.1 tons of CO2-equivalent per megawatt-hour of electricity generated. This 0.1t/MWh threshold is notably stringent — it would exclude all fossil fuels and biomass unless they are equipped with carbon capture and storage.

The grants are based on a somewhat complicated formula: $150/MWh x (YoY percentage point increase in clean share - 1.5 percentage point) x total retail sales.

Say a utility boosted its year-on-year clean share by 5 percentage points. Five percentage points minus 1.5 percentage points is 3.5 percentage points. So the utility would get a one-time grant of $150/MWh for 3.5 percent of it retail sales that year.

The formula for the fines is: $40/MWh x (4 percentage points - YoY percentage point increase in clean share) x total retail sales.

Say a utility grew its share 3 percentage points. Four percentage points minus 3 percentage points is 1 percentage point, so it would pay a one-time fine of $40/MWh for 1 percent of its retail sales. (The exception here is utilities with a clean share at 85 percent or above; they are exempt from fines, but still eligible for grants.)

A utility is not allowed to fall steadily behind; any shortfall is added to the following year’s target. If it only hits 3 percentage points growth one year, the next year a utility must hit 5 percentage points growth.

Utilities can choose to tally up their performance over a two- or three-year period, to smooth over year-to-year spikes or valleys; for instance, if a utility hits 3 percentage points in year one and 3 percentage points in year two but 6 percentage points in year three, it averages out to 4 percentage points a year and it receives the grants.

This is all a bit convoluted; it would definitely keep accountants and lawyers busy. There are five things worth noting about the CEPP at this point.

First, $150/MWh is real money. Spread out over a 10-year power purchase agreement (PPA), it’s about $15/MWh/year, not that different from (but additive to) the clean-energy tax credits. That, coupled with the tight definition of clean energy, makes this a relatively strong offering, design-wise.

Second, a lot of details would be left up to the Department of Energy, which would administer the program, such as how distributed and behind-the-meter resources will be counted, how much compliance can be done through renewable energy credits (RECs), and so forth. There are lots of devils in those details.

Third, it is not accurate to say that the CEPP targets, much less guarantees, 80 percent emission reductions in the electricity sector by 2030. That is Biden’s goal, and the aspiration for the full suite of policies Dems are trying to pass, but the CEPP, by design, does not guarantee any particular outcome. How would utilities respond to this level of incentives and fines? We hope to find out! It’s a new program; it’s never been tried before. (It would kick off in 2023.)

Fourth, a study by the independent firm Analysis Group found that, through 2031, the CEPP would expand the US workforce by 7.7 million new jobs, add $907 billion to the national economy, raise $154 billion in tax revenue, and lead to over 600 gigawatts of new clean energy. It’s not a cost, it’s an investment.

Fifth, there’s no guarantee Sen. Joe Manchin (D-WV) will let this pass unmolested, or let it pass at all. He chairs the Senate Energy and Natural Resources Committee, which will be marking up the energy parts of the bill. He could kill the CEPP. He could weaken the carbon-intensity requirements to allow for dirtier energy; he could lower the required rate of clean energy growth; he could reduce the incentives or the fines. Nobody knows what Manchin will do, or why, so we’ll just have to wait and see.

Also! Other items worth noting in the E&C package.

* There is $9 billion for home energy retrofits — $2,000 rebates for projects that save 20 percent relative to average energy use, or $4,000 for 35 percent. (Both numbers are doubled for low-income projects.)

* There’s another $9 billion for home electrification — $3,000 per heat pump with greater than 27,500 BTU-per-hour capacity and $4,000 if it's cold-climate rated; $6,000/$7,000 for low-income projects. For heat pumps under 27,500 BTU/hour, it’s $1,500/$2,000; $3,000/$3,500 for low-income projects. In that same section are rebates of $1,250 per heat-pump water heater, $3,000 per smart electric panel, and other, smaller grants for electric stoves and dryers.

* $13.5 billion for electric vehicle infrastructure, focused on underserved areas.

* $5 billion to replace heavy-duty vehicles like fire trucks and school buses with zero-emission vehicles.

* $9 billion for electricity transmission, including funds for DOE’s transmission planning and modeling capabilities and for state transmission planning processes.

* $17.5 billion for decarbonizing federal buildings and fleets (including, one hopes, the Postal Service fleet).

* $27.5 billion for a green bank, which we’re not supposed to call a green bank, but rather “nonprofit, state, and local climate finance institutions that support the rapid deployment of low- and zero-emission technologies.” (40 percent goes to vuln