$369 billion-worth of climate-friendly incentives will spread through the U.S. economy as a result of the Inflation Reduction Act. As the host of the Energy Show — a podcast/radio show going on for 10+ years — I’ve been doing my best to explain these technologies in practical, easy-to-understand terms. You are receiving this email because I believe your editorial focus is aligned with the topics we cover on the Energy Show.This week’s Energy Show podcast is about the IRA. Even if you’re retired or Irish, the inaptly-named Inflation Reduction Act is the most important legislation for clean tech ever. We’ll talk about the big picture of U.S. energy generation and use, and then delve into how much homeowners can save with the incentives in the IRA.
The Inflation Reduction Act
I downloaded all 755 pages of this bill so I could check the legal details in the fine print (DeVinne 18 pt). Congress threw the entire clean tech kitchen sink into the IRA, along with some much-needed social programs. There is no doubt in my mind that the IRA will accelerate the transition away from fossil fuels – particularly as homeowners electrify their homes and stop using gasoline and natural gas (Converting a House to Zero Net Energy).
The IRA has the potential to reduce U.S. emissions by 42% by 2030. Nevertheless, ten years from now the climate will still be hotter. Moreover, accelerated utility investments in electric generation infrastructure will likely double electric rates, accentuated by utility efforts to recapture losses from stranded fossil fuel assets (Energy Prices Through the Roof). It will take an all-hands-on-deck effort — on a worldwide basis — to deploy the necessary technologies to reverse global warming. The IRA is just a start for the U.S.
Here is a summary of the key homeowner provisions of the IRA. In calculating costs and savings for average homeowners, the following assumptions were made: 1,000 kwh electricity/month, 640 therms methane/year, 1,000 miles driving/month, California EV2 electric rates, and suburban California construction costs. Where appropriate, I’ve included links to previous Energy Shows that cover many of the technologies in the IRA.
- EVs will become majority of new cars sold in 5 years. There will be chargers at 50% of service stations (Electric Vehicle Charging) as the term “gas station” gradually becomes obsolete. Service station owners need to keep selling Slim Jims and bad coffee — and stopping for a charge is the best way to keep their customer base. The IRA has a $7,500 credit for new EVs and a $4,000 credit for used EVs. You’ll need 7.2 more solar panels to power your car (Electrifying Your Home – How Many More Solar Panels Do I Need?), with savings of $12,100 over 10 years compared to driving with gas.
- 25% of homes with a sunny roof will have solar panels. Hawaii and California are already at 30% and 12% respectively since in these states rooftop solar is dramatically cheaper than utility power. Solar would be on 75% of homes if not for utilities’ deliberate efforts to increase — or outright prevent — homes and businesses from installing rooftop solar (Don’t Tax the Sun). The Residential Clean Energy Credit (RCEC, my favorite new FLA) in the IRA will increase homeowner’s tax credit (Solar Investment Tax Credit) for solar to 30% for ten years, up from the current 26%. Rooftop solar will save the typical customer $4,500 per year with paybacks of fewer than 5 years.
- Battery storage now qualifies for the full 30% tax credit (What Batteries Should I Buy with My Solar System). However, the widespread adoption of batteries depends on two key factors. First, battery availability – which is challenging since the vast majority of batteries are going into EVs. Second, utility policies towards customer-owned batteries — as with rooftop solar, many utilities do their best to prevent customers from installing storage batteries since utilities maximize their profits by installing their own batteries. On the other hand, trends towards less reliable utility power and near universal dependence on electricity make having a solar backup system almost a necessity (Five Tips to Maximize Your Battery Storage Savings).
- 50% of homes will have a Heat Pump Water Heater (HPWH), mostly as replacements as old gas hot water heaters die (Best Ways to Heat Water for your Home) and (How Much Heat Can a Heat Pump Pump). With the $1,750 HPWH incentive in the IRA, a new HPWH will cost about the same as a gas hot water heater. You’ll need 1.6 more solar panels to power a HPWH, with savings of $3,300 over ten years if powered by rooftop solar compared to utility-supplied methane.
- 25% of all homes will be heated and cooled with a heat pump (Lose the Gas Furnace, Install a Heat Pump), mostly as replacements to old central AC compressors and old gas furnaces. New air-to-air heat pumps work very efficiently in all but the coldest climates. With the $8,000 incentive in the IRA, installing a heat pump costs about the same as a gas furnace. Additional work to replace old, leaky ductwork and air handlers would be covered with energy efficiency incentives in the IRA. You’ll need 6.8 more solar panels to power your heat pump HVAC system, with savings of $14,000 over 10 years if powered by rooftop solar compared to utility-supplied methane.
- 75% of standard electric ranges will be replaced with induction cooktops. With the $840 incentive in the IRA, induction cooktops will be less expensive than conventional cooktops. My wife was reluctant to give up her old high-output gas range, but now she’s an induction convert since it cooks faster with better control — and has zero harmful emissions in the kitchen (except when she sautés hot peppers). One caveat: steel or iron cookware is required, so the aluminum cookware industry may go into a slow decline. You’ll need 1.3 more solar panels for your induction cooktop, with savings of $1,400 over 10 years if powered by rooftop solar compared to utility-supplied methane.
- 50% of old homes will have their electric panel or electric service upgraded. The IRA includes a $4,000 incentive for these upgrades, as well as $2,500 for wiring upgrades. These incentives will cover costs in low-cost locations. However, here in Silicon Valley costs for simple electric panel upgrades are more like $6,500. Electric service upgrades – due to the hideously-complicated coordination necessary between the city and utility — range from $8,000 with overhead wiring to over $15,000 for underground wiring (Electrical Panel Upgrades). Painful as these high costs may be, the power requirements of EVs and heat pumps make these panel and service upgrades a necessity for an all-electric home.
Scalable commercial energy technologies will probably reap the lion’s share of total government support in the IRA. Utility-scale solar and stand-alone storage will grow even faster than current trends. Not only are there direct incentives, such as the extension of the ITC, but there are also depreciation, kwh production, domestic content, preferential siting and transferable credit incentives. Note that commercial projects over one megawatt require prevailing wage workers, which will be a boon to unionized employers.
- Carbon Oxide Sequestration, commonly referred to as Carbon Capture and Direct Air Capture (Carbon Capture and Storage – the Reality), has new incentives that range from $35/ton to $180 ton. Incentives depend on the capture sources and eventual disposition of the CO2, as well as the use of prevailing wages for construction. Most of the incentives will directly benefit the oil and gas industry (Economics of Fossil Fuels). The fossil fuel industry won’t give up on technology that extends the use of their products – even though these carbon capture technologies are thermodynamically and economically inferior (Direct Air Capture – Panacea or Pandora’s Box?). My jaded view is that we support these loser technologies so that there is funding for winners.
- Zero Emission Nuclear Power (Nuclear Power Too Cheap to Meter – or Not) is now eligible for a generation credit in the IRA. Recent nuclear plants have taken over 20 years to design and commission, so I am skeptical about timely deployment of new nuclear plants. Nevertheless, continued research is worthwhile, as well as considering extending the life of existing nuclear plants (Long Term Costs of Nuclear Power).
- Credits for a variety of clean fuels are included in the IRA: biodiesel, renewable diesel and sustainable aviation fuel. Until we have adequate supplies of green hydrogen, we will continue to need liquid fuels for long distance transportation.
- Clean hydrogen hits the jackpot with a $3/kg production credit. Out of all the fuels, I am most enthusiastic about the potential for the cleanest form of hydrogen: green hydrogen, which is electrolyzed from water using wind or solar power (Benefits of Green Hydrogen). Success with this technology is dependent on two factors: inexpensive power (achievable now with wind and solar) and inexpensive electrolyzers.
Renewal of the solar ITC, both for commercial and residential projects, takes place immediately upon the IRA’s signature by the president. Most of the non-tax provisions — such as incentives for heat pumps, electrical upgrades and energy efficiency – will be administered by state energy offices. So expect paperwork, complicated as always, to become available sometime in early 2023. Incentives for carbon capture, nuclear power, clean hydrogen, etc. will be administered by the Federal Government with regulations developed within one year of the IRA being signed into law.
Was Uncle Joe distracting almost everyone in Congress with talk of Executive Orders for clean technologies while Senators Manchin and Schumer were negotiating this legislation in secret? Perhaps we’ll never know. Nevertheless, the combination of clean tech and fossil fuel incentives in the IRA strikes a reasonable balance between winners and losers.
Bottom line, the Inflation Reduction Act is the biggest clean technology effort by the federal government, ever. It will help the U.S. accelerate a transition away from polluting fossil fuels, reduce greenhouse emissions from the U.S. by 42% by 2030, and save the average homeowner who electrify their homes about $7,500 in annual energy costs. For more details, please listen up to this week’s Energy Show, and click on the relevant links for more details about each technology.