American Recovery and Reinvestment Act of 2009: Summary of provisions
ARRA, signed into law in mid-February 2009, provides significant new Federal
funding, loan guarantees, and tax credits to stimulate investments in energy
efficiency and renewable energy. The provisions of ARRA were incorporated
initially as part of a revision to the AEO2009 Reference case that was released
in April 2009 [5], and they also are included in AEO2010. However, provisions
that require
funding appropriations to be implemented, whose impact is highly uncertain,
or that require further specification by Federal agencies or Congress,
are not included. Moreover, AEO2010 does not include any provision that
addresses a level of detail beyond that modeled in NEMS.
This section provides a summary of the ARRA provisions and highlights those
specific provisions incorporated in AEO2010, including:
- Weatherization and assisted housing programs
- Energy efficiency and conservation block grant programs
- State energy programs
- Tax credits for plug-in hybrid electric vehicles (PHEVs)
- Tax credits for electric vehicles
- Updated tax credits for renewables
- Loan guarantees for renewables and biofuels
- Support for carbon capture and storage (CCS)
- Smart grid expenditures.
The following discussion provides a summary of the ARRA provisions included
in AEO2010 and some of the provisions that could be included if more complete
information were available about their funding and implementation. This
discussion is not a complete summary of all the sections of ARRA.
ARRA end-use demand provisions
Residential and commercial buildings
Many of the provisions of ARRA target energy efficiency and renewable energy
use associated with residential and commercial buildings. Federal funding
is provided to assist State and local governments in implementing energy
efficiency programs; to improve energy efficiency and renewable energy
use in Federal buildings and facilities; and to encourage renovations of
schools and college facilities. ARRA also includes provisions that expand
and revise tax credits for renewable and energy-efficient property purchased
and installed in residential and commercial buildings.
Weatherization, assisted housing, and energy efficiency and conservation
block grants
ARRA Title IV, Energy and Water Development, allocates a total of $9.45
billion to weatherize and/or increase the energy efficiency of low-income
housing and assist local governments in implementing energy efficiency
programs, with a total of $4.75 billion specifically for weatherization.
The regional impacts of weatherization funds are estimated on the basis
of DOEs State allocation formula [6] and Oak Ridge National Laboratorys
weatherization impact analysis. Local governments also are allowed, and
assumed, to use some of the Conservation Block Grant funding for PV and
wind turbine installations.
State energy programs
ARRA Title IV, Energy and Water Development, allocates $3.1 billion for
States to implement or enhance energy efficiency programs. Although the
money can be spent on a variety of programs, Section 410 specifically mentions
the adoption of building codes, citing the International Energy Conservation
Code (IECC) 2009. To account for the impact of the funding in AEO2010,
it is assumed that States will adopt and enforce the IECC 2006 code by
2011 and the IECC 2009 code by 2018. Likewise, States are assumed to adopt
and enforce the ASHRAE 90.1-2007 standard for nonresidential construction
by 2018. States and local governments also are assumed to use the 10-year
Treasury Note rate (3.7 percent in 2011) when purchasing energy-using equipment
for government-owned facilities during years when ARRA funding is available.
It is also assumed that part of the funding for State energy programs will
be used for PV and wind turbine installations.
Federal buildings and green schools
ARRA Division A allocates $4.5 billion to the U.S. General Services Administration
(GSA) for measures to convert GSA facilities to high-performance green
buildings, $2.3 billion for military construction, and $4.3 billion for
U.S. Department of Defense (DOD) energy efficiency projects and modernization
of facilities. Additional DOD funding is provided for energy efficiency
technology demonstrations and research. Under the various titles included
in ARRA, money is also allocated to virtually every major Federal agency
for construction, repair, and/or modernization of facilities. To account
for the funding in AEO2010, schools and Federal facilities are assumed
to use the 10-year Treasury Note rate as a hurdle rate for new construction
and replacement of equipment in years when ARRA funding is available. The
10-year Treasury Note rate already was assumed for new construction of
Federal facilities, based on earlier legislation. ARRA funding also broadens
its use to include replacement equipment as well. Photovoltaic installations,
wind turbines, and fuel cells also are added where specified in expenditure
plans.
Updated tax credits for renewables and energy-efficient technologies
ARRA Division B expands and revises tax credits for the purchase of renewable
and energy-efficient property purchased and installed in residential and
commercial buildings. Section 1103 removes the cap on the 30-percent business
ITC for small wind property that was established in EIEA2008. Sections
1121 and 1122 extend by 1 year the tax credits for energy-efficient nonbusiness
property while increasing the tax-deductible amount to $1,500. For renewable
technologies, such as geothermal heat pumps and solar water heaters, the
tax deductible amount is unlimited, up to 30 percent of the cost.
Transportation sector
ARRA contains several changes to the PHEV tax credit originally included
in EIEA2008. Title I, Tax Provisions, Section 1141, allows a $2,500 tax
credit for the purchase of qualified PHEVs with battery capacity of at
least 4 kilowatthours. Starting at a battery capacity of 5 kilowatthours,
PHEVs earn an additional battery credit of $417 per kilowatthour, up to
a maximum of $5,000. The maximum total PHEV credit that can be earned is
capped at $7,500 per vehicle.
The PHEV tax credit eligibility and phaseout are tied to the sales of individual
vehicle manufacturers. The credits are phased out once a manufacturers
cumulative sales of qualified vehicles reach 200,000. The phaseout period
begins two calendar quarters after the first date in which a manufacturers
sales reach the cumulative sales maximum after December 31, 2009. The credit
is reduced to 50 percent of its total value for the first two calendar
quarters of the phaseout period, and then to 25 percent for the third and
forth calendar quarters, before being phased out entirely thereafter. The
credit applies to vehicles with gross vehicle weight rating (GVWR) less
than 14,000 pounds. To capture the phaseout period in AEO2010, the PHEV
tax credit has been incorporated across representative manufacturer groups.
ARRA Title I, Tax Provisions, Section 1142, also allows a tax credit
of 10 percent against the cost of a qualified electric vehicle with a battery
capacity of at least 4 kilowatthours, subject to the same phaseout schedule
applied to PHEVs. The new electric vehicle tax credit has also been incorporated
in AEO2010 by manufacturer group.
ARRA electricity provisions
ARRA establishes Federal loan guarantees for certain renewable fuel, biofuel,
and electricity transmission projects. The provisions for renewable projects
are included in the electricity modeling for AEO2010. ARRA also extends
and modifies Federal tax credit incentives for new renewable generation
capacity. The NEMS electricity module also represents the funding provided
in ARRA for smart grid demonstration projects.
Extension of renewable production and investment tax credits
ARRA Division B, Title 1, Tax Provisions, extends and significantly modifies
the Federal tax credits for new renewable generation capacity. Before enactment
of ARRA, wind, geothermal, landfill gas, and certain hydroelectric and
biomass technologies were eligible to receive a PTC of up to 2.1 cents
per kilowatthour generated over the first 10 years of plant operation [7];
wind was eligible to receive the PTC for plants constructed before January
1, 2010; and other eligible plants received the PTC if construction was
completed before January 1, 2011. ARRA Section 1101 extends those in-service
deadlines to January 1, 2013, for wind and January 1, 2014, for other eligible
technologies.
In addition, under Section 1102, ARRA allows projects that are eligible
for the PTC to instead receive a 30-percent ITC on plant investment costs.
Section 1603 also allows the owners of projects choosing the ITC to receive
the payment in the form of an after-tax grant of equivalent value rather
than as a tax credit, which presumably will allow project owners with limited
tax liabilities to claim the full value of the credit.
Solar technologies are not eligible for the ARRA PTC, but EIEA2008 established
a 30-percent ITC for solar projects built through 2016, and the Energy
Policy Act of 1992 provided a permanent 10-percent ITC.
AEO2010 incorporates the ARRA provisions cited above and generally assumes
that renewable electricity projects will claim the more favorable tax credit
or grant option available to them during the eligibility period. Provisions
extending tax credits for marine-based technologies are not reflected in AEO2010, because EIA assumes that those technologies will not be in significant
commercial use by 2035. ARRA also extends funding for Clean Renewable Energy
Bonds (CREBs) used to fund renewable energy projects at publicly owned
utilities that do not pay taxes and cannot take advantage of tax credits.
Because AEO2010 assumes that all new renewable capacity is developed and
owned by taxable entities, CREBs are not included in NEMS.
Loan guarantees for renewables and transmission projects
ARRA Title IV, Energy and Water Development, Section 406, provides $6
billion to pay the cost of guarantees for loans authorized by the Energy
Policy Act of 2005 (EPACT2005). The purpose of the loan guarantees is to
stimulate the deployment of conventional renewable technologies, conventional
transmission technologies, and innovative biofuels technologies. To qualify,
eligible projects must be under construction by September 30, 2011, meaning
that projects with a long-term construction horizon are unlikely to qualify.
The face value of the loans that may be guaranteed by the appropriation
will depend on the subsidy costs assigned to the projects eventually selected.
For example, if the average subsidy cost were 10 percent of the face value
of the loans, the $6 billion appropriated would support loan guarantees
on $60 billion of debt financing. The Section 406 provision is represented
in AEO2010 by a lower cost of financing (by 2 percentage points) for all
eligible renewable projects brought on line by 2015. The 2015 date, 4 years
after the September 30, 2011, cutoff date for start of construction, was
chosen to allow for the construction period associated with most renewable
generating technologies.
Smart grid expenditures
ARRA Title IV, Energy and Water Development, Section 405, provides $4.5
billion to modernize, secure, and improve the reliability of electric energy
and storage infrastructure and to develop a Smart Grid. While somewhat
difficult to define, smart grid technologies generally include a wide array
of storage, measurement, communications, and control equipment employed
throughout the generation, transmission, and distribution system to enable
real-time monitoring of the production, flow, and use of power from generator
to consumer. Among other things, smart grid technologies, once deployed,
are expected to enable more efficient use of the transmission and distribution
grid and lower line losses, facilitate greater use of renewables, and provide
information to utilities and their customers that will lead to greater
investment in energy efficiency and reduction of peak load demands. The
funds provided will not cover the cost of widespread implementation of
smart grid technologies but could stimulate more rapid investment than
otherwise would occur.
Several changes were made throughout NEMS to represent the impacts of the
smart grid funding provided in ARRA. For the electricity module, it was
assumed that line losses would decrease slightly, peak loads would fall
as customers shifted their usage patterns, and customers would be more
responsive to price signals. Historically, line losses (expressed as the
percentage of electricity lost in transmission) have fallen as utilities
have made investments to expand the grid or replace aging or failing equipment.
That trend was incorporated in previous AEO Reference cases. After passage
of ARRA, the time period for improvements was extended, allowing for greater
declines in line losses. AEO2010 assumes that line losses will be reduced
from roughly 6.9 percent in 2008 to 5.3 percent in 2025.
Smart grid technologies also have the potential to reduce peak demand through
the increased deployment of demand response programs. AEO2010 assumes that
efforts stimulated by Federal expenditures on smart grid technologies will
reduce peak demands in 2035 by 3 percent from what they otherwise would
be. Because the load shifted to off-peak hours is not eliminated, net energy
consumed remains largely constant.
It is also assumed that increased investment in smart grid technologiesparticularly,
smart meters on buildings and homeswill make consumers more responsive
to changes in electricity prices. Accordingly, the price elasticity of
demand for residential and commercial electricity is increased for certain
uses.
Coal
ARRA Title IV, Energy and Water Development, provides $3.4 billion for
additional research and development of fossil energy technologies, including
$800 million to fund projects under the Clean Coal Power Initiative program
focusing on capture and sequestration of GHGs [8]. In July 2009, a total
of $408 million was allocated to two projectsthe Basin Electric Power
Cooperatives Antelope Valley Station in North Dakota and the Hydrogen
Energy Project in Californiato demonstrate the capability to capture 3 million
tons of CO2 per year. In December 2009, two additional project awards were
announced through the Clean Coal Power Initiative program, which will be
funded in part through ARRA. The projects include American Electric Powers
Mountaineer plant in West Virginia (235-megawatt flue gas stream) and a
new plant to be built by Summit Texas Clean Energy in Texas. To reflect
the impact of this provision, the AEO2010 Reference case assumes that an
additional 1 gigawatt of coal-fired capacity with CCS will be built by
2017.
Other ARRA provisions
Additional appropriations under ARRA Title IV, totaling $2.6 billion, are
not included in AEO2010, because the activities funded have only indirect
or unknown impacts on energy use, or because insufficient program detail
has been provided. The additional appropriations include $1 billion for
research and development projects to be established by the Secretary of
Energy; $80 million for geologic sequestration projects covering site characterization,
training, research grants, and other administrative costs; and $1.52 billion
for industrial carbon capture and energy efficiency projects or those developing
innovative uses for CO2. As of October 2009, $112 million of the $1.52
billion had been allocated to 14 industrial projects demonstrating various
combinations of carbon capture technologies, CO2 transport activities,
sequestration, and EOR.
Footnotes:
5. See U.S. Energy Information Administration, An Updated Annual Energy Outlook 2009 Reference Case Reflecting Provisions of the American Recovery and Reinvestment Act and Recent Changes in the Economic Outlook, SR-OIAF/2009-03 (Washington, DC, April 2009), web site www.eia.gov/oiaf/servicerpt/ stimulus/pdf/sroiaf(2009)03.pdf.
6. U.S. Department of Energy, “Weatherization Assis-tance Program,” web site http://apps1.eere.energy. gov/weatherization/recovery_act.cfm and M. Schweit-zer, Oak Ridge National Laboratory, Estimating the National Effects of the U.S. Department of Energy’s Weatherization Assistance Program with State-Level Data: A Metaevaluation Using Studies from 1993 to 2005, ORNL/CON-493 (Oak Ridge, TN, September 2005), web site http://weatherization.ornl.gov/pdf/ CON-493FINAL10-10-05.pdf.
7. Certain types of biomass, municipal waste, and hydro-electric generation are eligible for only one-half of the 2.1-cent credit. The ITC alternative is not limited in value for those technologies.
8. For information on the U.S. Department of Energy’s implementation of ARRA through the Office of Fossil Energy, see web site www.energy.gov/recovery. |