Policy Memo: Senators, Jolt Capital Via a Transmission Investment Tax Credit

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To: Senator Bernie Sanders, Chairman of the United States Committee on the Budget, and Senator Lindsey Graham, Ranking Member of the United States Committee on the Budget
RE: Policy Memo Advocating for a Transmission Project Investment Tax Credit

Renewable energy deployment at scale in the United States is a national priority – it can enhance energy independence and, if done thoughtfully, reduce the economic burden on low-income Americans. Rapidly deploying clean energy requires substantial buildout of America’s transmission lines. In this pragmatic pursuit, an investment tax credit (ITC) for transmission projects would be a catalyst, lowering the necessary financial rate of return for a project’s success, and should be pursued in the budget reconciliation bill.

A nationwide transmission ITC will attract capital to transmission projects and expedite long distance, high voltage transmission lines that are required to meet current and future renewable energy demand at the lowest cost for American citizens.

Expanding America’s transmission lines: Achieving a 100 percent carbon-free national power grid by 2035 is a national priority. Meeting this goal requires increasing America’s transmission capacity. According to the Princeton University Net-Zero America study from December 2020, approximately $360 billion must be invested in transmission capacity this decade to enable renewable energy growth toward a net-zero grid by 2035, and Wood Mackenzie estimates the United States needs to double its high voltage transmission lines to reach 100 percent clean electricity. Increasing high-voltage transmission lines facilitates existing and future clean energy generation coming to market.

It can also lower energy costs for consumers by permitting more low-cost clean energy production in locations with favorable natural resources, such as the Great Plains with wind energy, be transported over new, long-distance high-voltage transmission lines to demand centers, such as cities along the east coast. A clean electron superhighway can also bolster energy justice by ensuring low- and moderate-income Americans have access to affordable, clean energy, regardless of where they reside. A transmission ITC is an efficient solution to incentivize the capital markets to direct money toward these high-priority grid buildout projects.

A clean electron superhighway can also bolster energy justice by ensuring low- and moderate-income Americans have access to affordable, clean energy, regardless of where they reside.

Attract capital, increase certainty, and immediately unlock nationwide benefits: Building long-distance, high voltage transmission lines is a complex process involving myriad groups and governments over an unpredictable timeline, all of which makes investors wary of committing capital to a project. With timelines often over a decade, transmission projects require committed financial backing to fund efforts seeking countless approvals. Shoring up that long-term capital is often a challenge. However, a Brookings Institute report found that tax credits can be effective tools for attracting private capital toward areas policymakers want to support on a bipartisan basis.

A transmission ITC would increase the likelihood of a desirable financial return for private investors through tax credits that the investor can apply to a tax bill or sell to a third party. The greater potential for risk-adjusted returns that surpass an investor’s target rate of return can attract a broader range of investors, making the process more competitive and providing the developer a larger investor pool from which to choose a trustworthy financial partner that will stand by the project through completion.

In addition, a project’s financial support can determine the likelihood that a transmission project makes it to completion by locking in the requisite funds to sustain a transmission project over many years. A transmission ITC increases the likelihood of financial support, thereby increasing project certainty while reducing costs for consumers.

A transmission line ITC could also unlock economic potential this year. In April 2021, transmission superstar Michael Skelly joined the advocates at Americans for a Clean Energy Grid to publish a study spotlighting 22 existing “ready-to-go” high voltage transmission projects capable of increasing renewable production by 50%. Not only would a transmission ITC create good-paying jobs quickly, but also would begin paying for itself. National Renewable Energy Laboratory found the benefits of increasing transmission between the Eastern and Western United States outweighed costs in all scenarios, while the Massachusetts Institute of Technology found a coordinated transmission expansion would nearly halve the price of achieving a 100 percent renewable grid. A transmission ITC will immediately help unlock these nationwide benefits by encouraging investments in long distance, high voltage transmission projects that contain positive externalities such as meeting environmental goals.

Synergies with current legislation and Budget Reconciliation: Though not yet passed, a transmission ITC appears to be gaining momentum. Transmission ITC proposals were recently introduced in a bill put forth by Senator Henrich and Representative Horsford and included in President Biden’s American Jobs Plan. The budget reconciliation bill is an ideal opportunity to pass such a proposal due to synergistic provisions elsewhere in the reconciliation package and within the Senate-passed infrastructure bill. For example, the reconciliation bill’s proposed clean energy investment and production tax credits would encourage a massive ramp-up of clean energy production, which in turn depends on a significant transmission buildout, as illustrated in the studies mentioned above. A transmission ITC is uniquely suited to help accomplish this rapid clean energy deployment in an efficient, market-driven manner.
And, while the recently passed Infrastructure Investment and Jobs Act includes a headline $73 billion for the electricity grid, little goes toward new, high voltage transmission lines. A transmission ITC in the budget reconciliation bill would therefore not be duplicative. Further, a transmission ITC could enhance the impact of the Infrastructure Investment and Jobs Act’s new provisions for National Interest Electric Transmission Corridors and the now-clearer authority of the Federal Energy Regulatory Commission to overrule state regulatory commissions regarding transmission site permitting.