Fuel Cell Tax Incentives for Utilities Market: Making a Good Deal Even Better
Uncertainty Over Market Regulations
In the 2018 State of the Electric Utility Survey, 40% of 700 utility professionals named uncertainty over market conditions and regulations as their top concern. This was nearly twice the level of concern expressed about integrating distributed energy systems with their existing systems.
While the energy policies of the Trump administration differ from its predecessor, one thing remains clear: utilities are phasing out of the most polluting resources like coal, mostly due to the declining costs of cleaner alternatives. In the past two years, wind and solar power together have surpassed the production of electricity from hydropower, and in 2016, more power was generated from natural gas than from burning coal.
The Challenge of Clean Energy
But clean power brings challenges and uncertainties of its own: the sun doesn’t always shine and the wind doesn’t always blow. And we need power 24×7—with demand surging in the evening when most of us are at home after a long day of work or school.
As a crucial part of the renewable energy mix that includes solar, wind, biogas and more, fuel cells serve as an ultra-reliable weather-independent supplier of electricity and complement efforts to “reduce, flatten and flex”:
- Reduce our total energy usage
- Flatten our total capacity by removing “peaks” of production
- Improve flexibility with energy storage and ad-hoc production
Preparing for the Unexpected
Fuel cells help mitigate uncertainty by helping utilities prepare for the unexpected. Whether from a hurricane, an earthquake, or a hungry or mischievous animal, power surges will occur, and substations will go offline. The key to customer satisfaction is limiting the duration of the outage and mitigating the direct and indirect economic costs.
In December 2017, the costs of being unprepared were there for all to see when a fire at an underground Georgia Power facility led to an 11-hour outage at Atlanta’s Hartsfield-Jackson, the world’s busiest airport. The outage caused the cancellation of more than 1,100 flights and cost Delta Airlines up to $50 million.
Indirect losses occurred as well, including the disruption of travelers’ plans and damage to Delta’s corporate brand as seen in a tweet from a former US Transportation Secretary:
The Fuel Cell Alternative
The uncertainty of power outages can be mitigated by utilities with the use of a fuel cell backup power solution to provide electricity to critical systems even when the gird goes down. Unlike battery backup solutions that discharge power over a finite amount of time (usually 6-8 hours), fuel cells actually generate electricity using hydrogen and oxygen. This means that they can keep supplying power as long as they have hydrogen fuel, whether it’s for 11 hours or 11 weeks.
Reducing Uncertainty with a 30% Investment Tax Credit
In February 2018, the Bipartisan Budget Act was passed by Congress, retroactively renewing and extending the tax benefits for fuel cells and placing them on an even footing with other clean energy technologies. The Investment Tax Credit (ITC) is designed to reduce the perceived uncertainty and the higher capex costs of fuel cells.
But as they say in late-night infomercials, “Act now while supplies last.” The Investment Tax Credit (ITC) is retroactive to 2017 and will phase-out over five years:
- 30% ITC for projects that begin (or began) construction in 2017-19
- 26% ITC for projects that begin in 2020
- 22% ITC for projects that begin in 2021
Projects beginning construction after 2021 or placed in service after 2023 are not eligible for any tax credit.
A New Chance for Rapid Growth
Despite the uncertainty felt by utilities in 2017, the united support of the Trump Administration and the US Congress for fuel cells is quite certain. The ITCs of the 2018 Bipartisan Budget Act offer a real chance that fuel cells will reach the economies of scale—and the affordability—that will enable them to take their rightful place as part of the green energy mix of that supplies US power needs..
If the 10 years following the Energy Policy Act of 2005, are any indication, the second decade of the 21st century may indeed be the breakout period for fuel cells.
Growth in U.S. electricity generation in terawatt-hours (TWh) from wind (left) and from solar PV (right). Solar PV includes two components: utility-scale PV (yellow) and distributed PV (orange; estimates only for 2014 and 2015).
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