The Inflation Reduction Act’s “turbocharging” of clean energy tax credits could boost renewable energy developers like NextEra Energy Partners and AES while helping traditionally fossil-oriented power companies such as Vistra pivot towards solar and energy storage, according to S&P Global Ratings.
Renewable energy developers like Brookfield Renewable Partners, Clearway Energy and Pattern Energy Group could also benefit by providing electricity to make green hydrogen, S&P analysts said in a Sept. 8 report, adding that nuclear power plants owned by Constellation Energy Generation, Energy Harbor, NRG Energy and other companies could also be used to produce green hydrogen.
The law will also facilitate the move away from fossil fuels, the report said. “We think the legislation might pave the way for firm power by making renewable generation more reliable through co-located battery storage, and also by making green hydrogen economical about 10 years earlier than anticipated,” the S&P analysts said.
The IRA, which became law last month, could be a “gamechanger” for the power sector, driven by long-term production and investment tax credits, S&P analysts said.
“A key aspect to the Act is the technology neutral standpoint, which allows for certain regions to take advantage of renewable technology that best suits its needs and capabilities, as well as leaving room for new technology as developed,” the analysts said.
The investment tax credit for onshore wind and solar starts at 30%, but if certain criteria are met, it could be as high as 70% for projects under 5 MW and 50% for larger projects, according to the report.
“We think renewables will become even more cost competitive, accelerating the proliferation of installations,” the analysts said. “Both [NextEra Energy Partners] and AES have strong incumbent positions and are high-growth, innovative participants.”
A package of clean hydrogen tax incentives may be the IRA’s most significant provision, according to the analysts. Under the law, low-carbon hydrogen production facilities can take advantage of a production tax credit for the first 10 years the facility is operating, they noted.
“We think it accelerates the economics of hydrogen a decade ahead, which will both compete with, and complement, batteries,” the analysts said.
The law provides major support for merchant nuclear power plants, according to the report.
“It was only three years ago that nuclear plants were economically beleaguered and retirements were being announced,” the S&P analysts said. “The PTCs change the model for unregulated nuclear power generators from a merchant business to a nine-year contracted business, with floor pricing of $40/MWh to $44/MWh.”
In part, the IRA will help foster the shift away from large, fossil-fueled power plants by making it easier to provide firm power from intermittent resources like wind and solar, according to the report.
“We think sometime soon, technology will get to a point where delivered power is entirely clean, firm, and cheap. But the electric grid is still transitioning, and it's not quite there yet,” the S&P analysts said. “Among clean, firm, and cheap power, it appears that right now the choice is any two.”