The Inflation Reduction Act will upend key tenets of utility resource planning, including the need for bottom-up forecasting to account for a pending surge in electric vehicle and building load, according to panelists at a National Association of Regulatory Utility Commissioners meeting.
In a change to utility planning assumptions, the IRA, signed into law in August, includes a range of tax credits for clean energy resources that will last for at least a decade.
The Princeton University-led REPEAT Project tentatively estimates the IRA could help bring U.S. solar capacity to 600 GW, wind capacity to 400 GW and storage capacity to 90 GW by 2030, Jamil Farbes, a principal at Evolved Energy Research, which is part of the project, said Wednesday.
“These [IRA] incentives … are transforming how we think about electricity procurement because these resources are going to be so cheap,” Farbes said.
Wind and solar paired with battery storage is in the $20/MWh to $30/MWh range, making them competitive with natural gas-fired generation, said Matt Pawlowski, NextEra Energy Resources executive director of business management and regulatory affairs.
Later this decade, with the IRA, NextEra expects wind coupled with a 4-hour battery system will cost $14/MWh to $21/MWh, according to a Nov. 4 company presentation. Solar with batteries will cost $17/MWh to $24/MWh, the company estimates. An existing natural gas-fired power plant will cost $35/MWh to $47/MWh to operate, assuming gas is in the $4/million British thermal units to $5/MMBtu range, according to NextEra.
The prices for solar and batteries and wind and batteries are about 35% to 44% lower than cost estimates NextEra provided in a mid-June presentation before the IRA was released.
Although the IRA’s tax credits run for at least a decade, some of the law’s programs end sooner, Sam Walsh, Department of Energy general counsel, said.
“We have a once-in-a-lifetime set of incentives that are on the table. The biggest risk for ratepayers would be a failure to capitalize on that right now,” Walsh said. “Even for that 10-year tax credit window, the planning has to start now.”
Before the IRA, wind and solar were constrained by their cost-competitiveness, according to Farbes. Now, they are limited only by how fast they can be built, he said.
State utility regulators will need to change their resource planning practices, panelists said.
Instead of top-down load forecasting of modest load growth, regulators will need bottom-up forecasting to account for a pending surge in electric vehicle and building load, according to Farbes.
Since the late 2000s, load growth has been generally flat, Farbes said. However, the IRA could spur 3.1% annual load growth this decade, or about 30% growth by 2030, he said.
Electrified transportation could account for about 15% of electric demand in 2030, and electric heating could make up 5% of demand, according to the REPEAT Project modeling.
Transmission may be the biggest limit on renewable energy development, even with the IRA, according to the panelists.
“It’s probably one of the largest obstacles to building more renewables on the grid,” Pawlowski said. “We’re already behind on transmission.”
The U.S. high-voltage transmission system needs to grow 2.3% a year, up from its 1% annual growth rate over the last decade, to meet the IRA’s potential, Farbes said.
Expanding transmission at its current pace would reduce potential wind and solar deployments by 50% and reduce its emissions reduction potential by 80%, he said.
Federal and state permitting as well as structural problems with the Federal Energy Regulatory Commission’s transmission planning and cost allocation rules are major challenges to building power lines, according to Walsh.