Reports: IRA tax credit repeal to increase electricity, system costs

TL/DR –

If Congress repeals the Inflation Reduction Act’s technology-neutral Section 45Y investment and Section 48E production tax credits for clean electricity, residential, commercial, and industrial customers could face higher electricity costs, according to reports by The Brattle Group and NERA Economic Consulting. A full repeal of these credits by 2029 would increase delivered electricity prices nationwide by 7.3% for residential customers and 10.6% for commercial and industrial customers, or 9.2% across all sectors. Additionally, full repeal could result in a $250 billion reduction in direct spending in the power sector and a $510 billion decline in U.S. gross domestic product through 2035 compared with current projections.

Dive Brief:

• Should Congress repeal the Inflation Reduction Act’s Section 45Y investment and Section 48E production tax credits for clean electricity, both residential and commercial electricity costs may inflate over the next decade, say The Brattle Group and NERA Economic Consulting.
• By 2029, a full repeal would increase electricity prices by 7.3% for households and 10.6% for businesses, says a NERA report for the Clean Energy Buyers Association.
• A full repeal could also reduce direct spending in the power sector by $250 billion and the U.S. GDP by $510 billion through 2035, according to a Brattle report for ConservAmerica.

Dive Insight:

Electricity demand is anticipated to surge by 50% due to factors like growing data centers and increased oil and gas production, as per ConservAmerica.

The Brattle/ConservAmerica report suggests wind, solar, and batteries are best-equipped to meet near-term demand, with the first two being the most cost-effective options.

Removing clean energy credits could lead to a 50% drop in wind and solar deployments through 2035 and curtail industrial growth, warn Brattle and ConservAmerica.

Despite the Trump administration’s promises of support for resources like gas and nuclear, procurement challenges and worsening project economics led to Engie withdrawing a proposed 930-MW gas plant.

Texas added about 5 GW of battery capacity between 2023 and 2024, bolstering the grid’s capacity and reducing wholesale price spikes, as per analyses by the American Clean Power Association and the Federal Reserve Bank of Dallas.

If Congress completely repeals the credits, the U.S. average electricity price would rise almost 10% by 2029, according to the NERA/CEBA report, with Western and Midwestern states most affected.

By 2035, repeal could cause a 14% increase in total power system costs, with lower- and middle-income customers bearing the bulk of it, say Brattle and ConservAmerica. The report also predicts wind and solar capacity would decrease by 168 GW by 2029 without the tax credits.

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