The US’s historic climate bill, the Inflation Reduction Act of 2022 (IRA), was signed by President Biden on August 16, 2022. It is the final version of the budget reconciliation bill (formerly known as the Build Back Better Act), originally introduced in March 2021, and a slimmed-down version of the original $4 trillion package proposed by the president. The $437 billion Act, passed by the Senate earlier in July 2022, addresses climate change, taxes, healthcare and inflation. Of the total, $370 billion is designated for climate programmes and tax credits to accelerate the development of clean energy, representing one of the biggest investments in the segment in US history by far. The aim of the IRA is to aid the US government in realising its ambitious goals of reducing carbon emissions by 50 per cent by 2030, and creating a carbon-free electricity system by 2035.
The IRA provides significant tax and government incentives to promote the deployment of renewable energy and energy storage facilities. The extension of tax credits is expected to lead to further cost declines, thereby accelerating the transition to clean power. In addition to offering immediate financial benefits, the act also promotes the long-term growth of the renewable sector, particularly that of offshore wind (OSW), by increasing the geographic area of OSW leases. Industry experts have been emphasising that it will be challenging to meet power sector climate goals without policy changes to ease transmission deployment. Acknowledging that timely development of electricity transmission is vital to unlocking renewable capacity, the IRA extends $2.9 billion in grants and loans for the development of high capacity interregional and offshore transmission facilities.
It has three provisions related to transmission in Part 5 of the law.
Transmission Facility Financing: Section 50151 of the IRA allocates $2 billion in direct loans to non-federal borrowers for the construction or modification of electricity transmission facilities located within a national interest electric transmission corridor (NIETC), until September 30, 2030. The loan term cannot exceed 90 per cent of the projected useful life of the transmission facility or 30 years, and the loan amount cannot exceed 80 per cent of the project costs.
The US Department of Energy (DOE) designates an area as an NIETC if it meets certain criteria, such as promoting energy security or enabling the use of renewable energy sources. Although there are no NIETCs currently, the Bipartisan Infrastructure Law, enacted as the Infrastructure Investment and Jobs Act (IIJA) in November 2021, amended the NIETC designation process by expanding the list of considerations the DOE uses to designate national corridors. The DOE has indicated that it intends to provide a process for designation of national corridors on a route-specific, applicant-driven basis, and consider proposed NIETCs that utilise existing highway, rail, utility and federal land rights of way. That said, it remains to be seen to what extent the DOE will use its authority to designate NIETCs.
The DOE’s recently created Grid Deployment Office (GDO) (under the IIJA) will administer the Transmission Facility Financing programme. GDO is working out the programme modalities and is likely to release more details in November 2022. It may be noted that this is separate from the $2.5 billion Transmission Facilitation Program authorised by the IIJA.
Grants for siting of interstate transmission lines: Section 50152 commits $760 million, to remain available until September 30, 2029, for facilitating the siting and permitting of high voltage interstate transmission (at 275 kV and above) or offshore transmission (at 200 kV and above) lines. It covers both alternating current and direct current technologies. In the US, siting authority for transmission infrastructure generally lies with the state and local governments. This IRA provision authorises relevant siting authorities to receive grants for studies and analyses of the impacts of the project; examination of up to three alternative siting corridors within which the project feasibly could be sited; covering 50 per cent of the costs to participate in regulatory proceedings or negotiations in another jurisdiction that is also considering the permitting of a covered transmission project; covering 50 per cent of the costs to participate in federal or state regulatory proceedings for determining applicable rates and cost allocation for a project; or taking other measures to improve the chances of or shorten the time required for siting approval of the covered transmission project. To receive the grant, the siting authority must reach a final decision on the application within two years.
Interregional and OSW transmission planning, modelling and analysis: Section 50153 commits $100 million, through September 30, 2031, for expenses associated with planning and modelling of interregional and OSW transmission. Currently, the US transmission system comprises three interconnections or grids with limited connections among them, namely, the Eastern Interconnection, the Western Interconnection and the Electric Reliability Council of Texas. Although transmission development involving two or more regions has been sporadic, recent studies have highlighted the benefits of greater amount of interregional electricity connection, particularly by uniting the US eastern and western grids, to enable sharing of generation resources and flexibility across regions. Particularly, it can promote greater use of OSW energy and ultimately lower the cost for consumers. In this context, it is pertinent to note that the Federal Energy Regulatory Commission (FERC), in April 2022, issued a notice of proposed rulemaking to improve its regional transmission planning and cost allocation requirements. The FERC continues to examine interregional transmission planning, including as part of the Joint Federal-State Task Force on transmission (formed last year).
The passage of the IRA together with the IIJA indicates high levels of federal commitment to achieving energy and climate goals. While the IIJA prioritises rebuilding and modernising the nation’s electric grid, the IRA has tremendous potential to facilitate large-scale clean energy development by addressing challenges in various aspects of transmission siting and permitting. It seeks to reverse the regulatory delays that have hindered transmission projects connecting renewable power. The industry awaits greater clarity on the finer details of availability and effective utilisation of the IRA funds. Nevertheless, it is clear that federal agencies are making concerted efforts to facilitate the requisite transmission buildout aligned with upcoming renewable investments.