Washington outlook for renewable energy

Washington outlook for renewable energy

December 08, 2020 | By Keith Martin in Washington, DC

The Biden Administration​ will face greater challenges than any recent administration, not the least of which is the possibility that Donald Trump will remain a constant thorn after leaving office. The news media has an incentive to keep him in the news and to look for controversy.

There is not the same feel in Washington that there was at the start of the Kennedy, Reagan, Clinton and Obama administrations when the incoming administrations felt like starts of major new chapters. On the other hand, maybe that is not what the country needs. It is hard to think of any other spontaneous celebrations in major US cities – like occurred on the Saturday the major news media declared the race for Biden – since the end of World War II.

As for what the new administration will mean for renewable energy and the broader project finance market, it is useful to think in terms of two time periods.  One is the lame-duck session of Congress that looks likely to run through at least December 18, and the other is next year.

Another economic stimulus bill appears likely, but talks could still fail. The federal government will run out of spending authority on December 11. Congress could extend the authority into March next year or all the way to the end of the current federal fiscal year next September after first buying a little more time to push the deadline closer to Christmas.  A tax extenders bill is possible, but unlikely, to deal with 33 expiring tax breaks. 

The Senate Republican leader, Mitch McConnell, has an incentive to do as much as possible before year end, but it is not an overwhelming incentive, and there is little remaining time.  Senator Mark Kelly (D-Arizona) replaced Martha McSally (R-Arizona) the first week in December after winning a special by-election to fill the seat of John McCain, leaving McConnell with only 52 Republicans to 48 Democrats (including two independents who vote with the Democrats) for the remainder of 2020, which may not be an effective majority.

The bigger question is what happens in 2021.  If Congress passes a stimulus bill during the lame-duck session, that will leave Biden with less room to maneuver.  If there is no stimulus, then some form of economic relief measure can be expected between next February and June.  New administrations must act quickly.  By 2022, the US will be back in election season.  The party holding the White House tends to lose seats in Congress.

The Georgia runoff election for two US Senate seats on January 5 is key.  If Republicans win either seat, then Republicans will retain control of the Senate and the issue will be whether McConnell decides the best path is to try to deny Biden anything that might be seen as a Biden success in the hope of limiting him to a single term.  

Neither majority party in the House or Senate will have a strong hand. McConnell will end up at best with a two-seat majority in the Senate, but unable to rely on three Republican Senators (Susan Collins (R-Alaska), Lisa Murkowski (I-Alaska) and Mitt Romney (R-Utah)) who are not afraid to break Republican ranks.  Nancy Pelosi, the House speaker, has only a five-seat majority out of 435 members in the House, with two seats still uncalled, Republicans leading in both and a frustrated Democratic centrist caucus that may not fall into line. 

Thus, the odds of gridlock are high.  In the end, the election may have replaced the man at the top to try to set a better tone, but otherwise provided no public consensus for broader change.

Renewables will do fine no matter the outcome.  Coal plant retirements are accelerating.  Use of coal to generate US electricity declined by 30% during the four years that President Trump was in office, on top of a 38% decline in the previous eight years of the Obama administration. Even the oil companies are now talking about the “energy transition.”

 There are two big winners within the renewables community no matter the outcome of the Georgia Senate races.  One is offshore wind.  Two things have been holding up construction in the Atlantic: a hold by the Bureau of Ocean Energy Management on issuing any construction permits and a tax rule that requires construction of new renewable energy projects to be completed within four years after construction has started for tax purposes. The four-year window is ill suited for massive offshore wind projects in the north Atlantic with limited construction seasons.  Relief on both is within sight.

Solar is the other big winner.  The solar industry has been working hard to get the investment tax credit extended.  An extension has a decent chance of getting into any economic stimulus bill next year. The odds improve if the Democrats win the two Georgia Senate races. 

It is harder to predict what the Biden administration might do on solar tariffs.  It could head off a move that President Trump launched in October to extend existing tariffs on imported solar panels past their scheduled expiration in February 2022.

Several other green tax proposals remain in the mix for possible action in 2021.  Odds are best for a proposal to give offshore wind projects more time to start construction to qualify for tax credits and next for a tax credit for standalone storage.  A “direct-pay” alternative to tax credits is less likely, and depends on the state of the tax equity market. An extension of production tax credits for wind stands the best chance if the solar tax credit is extended.

  Biden is expected to take a series of executive actions to help renewables.  They include increasing federal agency purchases of renewables and requiring more stringent Securities and Exchange Commission and bank regulatory disclosures of climate-change effects. 

The replacement of Neil Chatterjee as chairman of the Federal Energy Regulatory Commission the day after the November elections may give Democrats an effective majority at FERC before Chatterjee’s term ends in June on some issues of interest to the renewables community on which Chatterjee has sided with Richard Glick, the Democratic commissioner. The commission will be back to five commissioners in December after the Senate approved the appointments of Allison Clements, a Democrat, and Mark Christie, a Republican. Biden can move the chairmanship to a Democrat.