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Top 4 Reasons the U.S. Should Extend Federal Renewable Energy Tax Credits
As the nation’s leaders consider how to jumpstart the economy and put Americans back to work, we urge lawmakers and industry leaders to recharge the renewable energy industry by extending the production tax credit (PTC) and investment tax credit (ITC) programs. These are sensible measures that will create jobs, stimulate investment and contribute to a sustainable future.
Renewables have been an engine of growth for the U.S. economy and have ushered in a new era of sustainability, and these tax credits have played an important role in the process. The fastest-growing energy source in the country, renewables have surpassed coal for the first time in 130 years.1 Job growth has also prospered, with the industry employing more than 855,000 workers at its peak across all 50 states in manufacturing, engineering, maintenance and construction occupations.2
#1 Addressing COVID-19 impacts
Unfortunately, the coronavirus pandemic is threatening to stall much of this progress. Renewable energy workers have been suffering double-digit unemployment since March, due largely to the effects of COVID-19,3 and, at the current pace of job restoration, it could take up to 15 years to recover to pre-COVID-19 levels.4
We see renewable energy tax credits as an effective way of stimulating widespread economic growth. Over the years, the PTC and ITC measures have helped create a business climate that is primed for growth, stimulates technology development and ultimately lowers consumer prices. Since the ITC was enacted in 2006, the U.S. solar industry has grown by more than 10,000 percent, created hundreds of thousands of jobs and stimulated billions of dollars in investment.5
In the wind industry, the PTC stimulated broad investment and helped establish a U.S. manufacturing base that has driven wind power costs down by 70 percent since 2009.6 In the same time period, solar energy also dropped significantly in price, with the cost of energy falling 82 percent for solar photovoltaic and 47 percent for concentrated solar energy (CSP).7
#2 Supporting rural communities
This investment has had a ripple effect, stimulating indirect growth in related industries and areas. Renewables have been especially beneficial to rural areas, where 99 percent of wind and most solar projects are located. In total, wind projects deliver $1.6 billion annually to states and local communities, including more than $700,000 in annual land-lease payments. This provides landowners with a drought-proof cash crop that helps them weather lean years and expand operations.8
There are also nearly 2 gigawatts (GW) of community solar installed in rural areas across the country, supporting farming communities by generating local revenue and helping states make progress toward their clean energy and climate goals.9
This progress has been threatened by COVID-19, and a lack of investment incentives will compound the challenge by curtailing long-term stability. The sector is still heavily driven by investment returns and highly vulnerable to market volatility. With job growth in every state reduced to less than 1 percent due to COVID-19, and with tax incentives set to expire, there is significant risk to the industry’s continued development and future investment forecast.
#3 Keeping the renewable momentum going
On a corporate level, we at Hitachi ABB Power Grids are already seeing signs of a slowdown in the near term. And, since these tax cuts often have beneficial effects on future projects, we are concerned about the prospect of an overall investment slowdown for the longer term. More specifically, a major spike in ITC opportunities in 2019 led to tens of millions of dollars in potential business related to ITC components in that year. We expect a reduced level this year, driven by a drop in the levels of available tax credits, and the challenges posed by the COVID-19 pandemic.
This is why we are joining city, state and industry leaders throughout the country in asking Congress for temporary refundability of renewable energy tax credits and a delay in their scheduled phase-down. As these measures are already in place, extending them would be relatively easy to accomplish. In addition to stimulating the economy and reducing greenhouse gas emissions, an extension is a low-impact way to open new markets and help both states and utilities modernize the grid while meeting ambitious carbon-reduction goals.
One of these new markets is offshore wind, an industry that is already contributing to major developments and economic recovery in Europe and throughout Asia. Untapped wind resources off the coast of the U.S. could provide up to 2,000 GW of power, almost twice the amount of the country’s electricity use, and yet there is only one-small scale offshore wind farm currently in operation in the country.
Coastal states, home to some of the country’s largest population centers, stand to benefit in many ways. In addition to developing a supply chain and priming local industry, coastal cities can lower carbon emissions, improve national security, and revitalize their economies, as the offshore business has the potential to create 83,000 jobs by 2030.10
Many U.S. States have also set ambitious carbon-cutting goals but do not have a clear pathway to achieve them. Maine has set a goal of achieving zero-emissions before 2050, and California is mandated to be carbon-free as of 2045, just to name a few. Policy extensions can provide the much-needed incentives to help states and municipalities meet their goals.
#4 Driving grid modernization
Stimulating investment in renewables will also help states invest more in their grids, which are, in some cases, aging, inefficient and in need of modernization. Some of the earliest U.S. power lines date back to the 1880s and most of the grid was built in the 1950s and ’60s with a 50-year life expectancy. Due to increased severe-weather incidents and its aging grid, the U.S. has the highest blackout rate among developed countries.11
Updating the grid will not only make it more flexible and able to incorporate distributed energy sources but will also boost grid security and efficiency, which can help utilities and other entities at all stages of the energy transition away from fossil fuel. While the nature and pace of this transition varies greatly state by state, every jurisdiction is targeting dramatic reduction in reliance on greenhouse gas producing energy production by 2050.
With the economy suffering due to the COVID-19 pandemic and with the effects of climate change becoming more severe and impactful, lawmakers and leaders have an opportunity to direct recovery funds in a way that can encourage a more sustainable and reliable approach to energy production, while creating jobs. For all of these reasons, we need to work together to extend the PTC and ITC programs and provide short-term relief and long-term stability across the U.S.