Contributed by Gabe Phillips, Founder & CEO, Catalyst Power
The tragedy playing out in Ukraine has roiled energy markets, spiked prices, and renewed the potential for major energy legislation here to move in Washington D.C.
The disruption in the energy markets caused by the war is yet more proof of the fact that fossil fuels are extremely vulnerable to outside events–whether those are natural or manmade. Moving towards renewable energy has many benefits, but a big one is that it’s predictable, reliable, and American.
The faster we accelerate the clean energy transition–the sooner we’ll protect our economy and businesses from these huge price spikes. Europe is doing just that, rapidly moving their economies away from Russian natural gas and towards wind and solar. Decision-makers in Washington can do the same by moving forward with the energy provisions in Build Back Better (BBB), the major infrastructure bill that has had what feels like nine lives. Reports indicate that the Senate is considering doing just that.
One of the main levers to move the economy quickly is small and mid-sized businesses. There are 31.7 million small businesses in the U.S.–utilizing this huge market could be the engine that turbocharges the transition toward energy independence. There are exceptions, but, in general, the millions of small- and medium-sized commercial and industrial businesses are not yet leading the move towards clean energy. This isn’t a criticism. These companies don’t have the time, money, or expertise to take advantage of the opportunities in renewable energy.
Including this part of our economy in climate action should be a no-brainer. Commercial and industrial consumption accounts for 60% of the electricity usage in the United States and electricity generation produces 25% of our country’s carbon emissions. Shifting commercial and industrial electricity usage toward renewables would make a significant dent in our national carbon footprint, and focusing our energy on mid-sized companies in this sector would offer a much stronger rate of return than individual efforts or further appeals to huge corporations. So why are these businesses being left out?
One reason is that most clean energy companies lack the appropriate incentives to offer innovative products and solutions to this customer segment. That’s something that could be fixed if Build Back Better gets another chance.
Right now, the biggest financial incentive for businesses to utilize solar power is the investment tax credit (ITC). The ITC grants a 26% tax credit to the owners of any solar project in the United States with a gradual phasedown. That should mean that any business or individual that installs solar panels on their property or invests in solar projects elsewhere should be able to use the credit. But that’s not how the ITC currently works.
As it stands, the credit from commercial solar projects is only available to individuals and organizations with the exact right kind of taxable income and/or corporate structure, making it way too much of a headache for smaller and mid-sized companies to even consider making the switch to renewables on their own. This makes clean energy companies that work with commercial organizations entirely dependent upon a very small group of financial institutions that can take advantage of the ITC. That group becomes even smaller when we consider that only institutions with a specific type of investment structure would find smaller commercial and industrial projects worth the logistical headache.
Congress and the Biden Administration can still change that.
The solution is for all privately held businesses, no matter what their corporate structure or income classification, to also have access to the ITC and be able to use it against all their income, full stop. In addition, if solar developers were able to effectively lower their costs using the ITC, a third-party ownership model for renewables like solar would be much more viable and less dependent on the small clique of tax equity investors currently picking and choosing the industry’s winners.
By tapping into the strength of small- and mid-sized businesses, we will marshal this huge part of our economy to drive forward the clean energy transition. It’s a small policy change, but one that will have a massive impact. By making the solar tax credit that already exists, more accessible to everyone Congress will incentivize all American businesses to invest in clean energy— and with it, unleash the power of tens of millions of businesses.
The tragedy in Ukraine has already taken a terrible toll. The lives lost or ruined and the resulting humanitarian crisis will be with us forever–but we shouldn’t allow the energy-related vulnerabilities to our national security, economy, or planet. Reliance on fossil fuels not only means reliance on other countries, but it means reliance on bad actors and unreliable trade partners. Renewables represent a clean, morally and environmentally positive, and economically American energy option.
About the author
Gabe Phillips began his career trading electricity and gas at Sempra Energy Trading. He went on to found and ultimately sell GP Energy Management, a comprehensive outsourced trading, risk, and energy management platform for the electricity, gas, and renewables markets. Today, Gabe uses his unique outlook on the inefficiencies of the energy industry to run Catalyst Power as a brand new type of power company.