Energy Systems Consulting Perspectives

Tucked in amongst a host of energy credits in the February Congressional Budget deal were several changes to the existing 45Q federal tax credits for carbon capture and sequestration (CCS) aimed at making the technology more economical. CCS has the potential to be revolutionary for the power sector, once regulatory hurdles are overcome and the technology becomes affordable to scale-up across fossil fuel emitting power plants. These changes to the 45Q tax credits might just be a significant step towards that goal.

While the U.S. electrical grid continues to be dominated by fossil fuels, the push to decarbonize the nation’s energy mix remains strong. As climate change concerns become a driving factor in energy policy, many are promoting the increased use of carbon-neutral fuel sources (including both nuclear power and renewable energy) to minimize the environmental impact of the energy sector. Any decarbonization trend that relies heavily on non-dispatchable renewable energy sources (such as wind and solar) in lieu of dispatchable fossil fuel sources (such as coal and natural gas), comes with side effects—both good and bad—to the nation’s electrical system beyond the intended reduction of CO2 emissions.

In the fight to minimize human-caused carbon dioxide (CO2) emissions associated with climate change, one of the latest and most exciting technologies is carbon capture and storage (CCS). The idea behind this method is that the CO2 emitted during certain activities, such as fracking for oil and gas, burning coal and natural gas for electricity, and many industrial activities such as ethanol production, can be captured instead of being released into the atmosphere. Once captured, the CO2 can be compressed into a denser gas or liquid and then transported by pipeline and used for enhanced oil recovery or permanently stored underground in saline aquifers, coal beds, salt caverns, or other geological formations. While the technology for capturing, condensing, transporting, and ultimately injecting CO2 has advanced notably in recent years to make the technology theoretically viable on a large scale, the actual implementation of the practice has lagged behind largely due to the regulatory hurdles associated with the transport and storage of the CO2.

The mix of fuels making up the U.S. power sector is constantly evolving, responding to market forces including the changing price of fuels, the mix of new generator construction, government policies such as renewable portfolio standards, and technological improvements. As the share of U.S. electricity that is being generated from renewable energy and natural gas continues to grow, increasing focus is being placed on ensuring adequate and reliable baseload generation at a time when traditional baseload energy sources are being replaced with non-dispatchable, or intermittent, power generation.

The recent Bipartisan Budget Act of 2018 re-instated residential energy efficiency tax credits - but only retroactively for one year through 2017.  This ‘Section 25C’ credit provides a tax credit for the purchase of certain energy-efficient equipment up to $300, which incentivizes homeowners to choose energy-efficient products over less efficient alternatives. Over $1.6 billion of these ‘Section 25C’ tax credits were claimed by homeowners in 2015 for investments in energy efficiency improvements.