FINANCING FRONTIER BEYOND GOVERNMENT SUBSIDIES

Electricity gas and energy storage subsidies

Our report on direct federal financial interventions and subsidies in energy markets continues a series of EIA reports1 that respond to congressional requests and the Energy Policy Act of 1992. In this update, we introduce multiple, sequential fiscal year2(FY) data for the first time from FY 2016 (the last fiscal year we. . This overview and key findings section is followed by three appendices: 1. Appendix A presents detailed tables 2. Appendix B presents our analytic approach 3. Appendix C provides a listing of select other subsidy reports. . Several key findings stand out. Beginning in FY 2016, tax expenditures rose rapidly and leveled off, but direct federal support remained steady until Congress recently enacted temporary. Table A1 summarizes total within-scope energy subsidies (in 2022 dollars) and selected U.S. energy system indicators (in physical units). Table A3 summarizes the allocation of federal direct financial interventions in U.S. energy markets by year and energy type, and it serves as the basis for Figures 1-7. [pdf]

FAQS about Electricity gas and energy storage subsidies

What are the different types of energy subsidies?

The most obvious subsidies are the direct expenditures and R&D support from the federal budget. Tax expenditure subsidies are targeted tax incentives that producers or consumers of specific forms of energy receive. In this case, the government does not spend money, but it loses revenue that it would have otherwise received.

Are fossil fuel subsidies a good idea?

However, fossil fuel subsidies for consumers remain elevated compared with their historical averages. While subsidies generally aim to make energy more affordable for consumers, many are poorly targeted and disproportionately benefit higher-income groups.

How much did renewable subsidies increase in FY 2022?

DOE=U.S. Department of Energy. Total renewable subsidies increased from $7.4 billion in FY 2016 to $15.6 billion in FY 2022. Tax and direct expenditures combined accounted for about 97% of total renewable subsidies over that period.

Which energy storage technologies qualify for the clean electricity investment credit?

The technologies recognized in today’s NPRM include wind, solar, hydropower, marine and hydrokinetic, nuclear fission and fusion, geothermal, and certain types of waste energy recovery property (WERP). The proposed guidance also clarifies how energy storage technologies would qualify for the Clean Electricity Investment Credit.

How does the IEA estimate subsidies to fossil fuels?

The IEA estimates subsidies to fossil fuels that are consumed directly by end-users or consumed as inputs to electricity generation (see explanation of the price-gap methodology). A time series of these estimates from 2010, by country and fuel, is available as a free download.

Which tax provisions provide more financial support to energy?

In FY 2016, the Internal Revenue Code (IRC)—with its 31 wide-ranging, energy-specific tax provisions—provided greater financial support to energy than direct expenditures, including R&D expenditures (Table A2 and Table A3). Total tax expenditures were 70% of the total federal financial support (Table 1).

Energy storage financing channels include

Energy storage projects with contracted cashflows can employ several different revenue structures, including (1) offtake agreements for standalone storage projects, which typically provide either capacity-only payments or payments for capacity plus variable O&M costs; (2) offtake agreements for renewables-plus-storage projects, which typically provide payments for delivered energy or energy plus capacity; and (3) build-transfer agreements, which typically provide payment for title to the energy storage project upon substantial completion and operation of the project (or after mechanical completion and prior to the project being placed in service for tax purposes if tax credits are involved). [pdf]

FAQS about Energy storage financing channels include

Why do energy storage projects need project financing?

The rapid growth in the energy storage market is similarly driving demand for project financing. The general principles of project finance that apply to the financing of solar and wind projects also apply to energy storage projects.

Can you finance a solar energy storage project?

Since the majority of solar projects currently under construction include a storage system, lenders in the project finance markets are willing to finance the construction and cashflows of an energy storage project. However, there are certain additional considerations in structuring a project finance transaction for an energy storage project.

Will a tax credit be available for energy storage projects?

However, with the passage of the Inflation Reduction Act of 2022, tax credits are now available for standalone energy storage systems, and thus lenders may be willing to provide bridge capital that is underwritten based on the receipt of proceeds from an anticipated tax equity investment, similar to renewable energy projects.

Should storage projects be funded?

One large missing piece has been funding. Storage projects are risky investments: high costs, uncertain returns, and a limited track record. Only smart, large-scale, low-cost financing can lower those risks and clear the way for a clean future.

What are the available revenue streams for merchant cashflows?

In particular, the available revenue streams for merchant cashflows in the United States differ significantly based on the location of the energy storage projects and the applicable market forecasts. Developers may seek a portfolio financing as an alternative to a single-project financing.

Is CIF funding the next frontier in energy storage?

CIF is also fueling the next frontier in energy storage: $70m in CIF funding is set to help kick-start a $9 billion energy revolution in Brazil, which includes substantial investments in energy storage, such as pumped hydro and green hydrogen development.