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Published in Energy
DTE Energy’s Pinnebog Wind Park in Huron County. DTE Energy’s Pinnebog Wind Park in Huron County. COURTESY OF DTE ENERGY

Inflation Reduction Act a ‘great tailwind’ for utility clean energy plans

BY Monday, October 31, 2022 05:11pm

Michigan’s two largest investor-owned utilities say tax credit provisions in the Inflation Reduction Act will speed up their investments in solar, wind and battery storage and could lead them to owning more facilities that earn a return on those investments.

In their third-quarter earnings reports last week, executives at both Detroit-based DTE Energy and Jackson-based CMS Energy — the parent company of Consumers Energy — said the federal legislation will be an overall boon to their business and also potentially drive down costs for ratepayers. 

“The recently passed Inflation Reduction Act is another catalyst for our clean energy transformation, supporting deployment of renewables and lowering costs for our customers. We see a lot of benefits in this new legislation,” Consumers President and CEO Garrick Rochow said during an earnings call with analysts.

In particular, the Inflation Reduction Act expands production tax credits and investment tax credits, and also includes provisions that allow for the transferability of those credits. 

By effectively driving down the cost of new investments by 15 percent, Consumers Energy could save $60 million under current spending estimates to build 8,000 megawatts of solar power by 2040, according to company executives. The utility has estimated that its long-term solar build-out could cost about $4 billion, and $1 billion over the next five years.

Consumers Energy also does not expect a “material impact” from the 15 percent corporate alternative minimum tax included in the Inflation Reduction Act that applies to companies with an average adjusted income of more than $1 billion.

“All of this helps our customers with more savings,” Rochow said during the call. “It supports our commitment to grow Michigan. It drives the transformation to clean energy and our growing voluntary green pricing program. Bottom line, this legislation is a great tailwind across the board.”

As well, the Inflation Reduction Act allows for the transferability of those new and expanded renewable energy tax credits that could reduce or eliminate the need for tax equity financing. Instead of forming partnerships necessary to monetize tax credits from the federal government, large-scale renewable energy project developers can convert the credits into payments themselves by selling them to other corporate entities. Until now, regulated utilities have needed third-party management of the credits.

While Consumers Energy is still analyzing the transferability component and awaits more guidance from the Internal Revenue Service: “We certainly do have credits we can monetize at some point,” said Consumers CFO Rejji Hayes.

DTE CFO David Ruud said transferring tax credits would eliminate the need for tax equity partners on projects, allowing DTE to retain an additional 40 percent of the investment of its projects.

While the two utilities are still analyzing the potential for transferring tax credits from existing projects, major utilities across the region and country are already taking advantage. S&P Global reported recently that a subsidiary of Wisconsin utility Alliant Energy was among the first utilities to opt for full ownership instead of a tax equity partnership. The utility has asked state regulators for permission to dissolve tax equity partnerships for multiple solar projects.

Eliminating the tax equity partnerships could create up to $1.3 billion in “additional capital opportunities” for the utility, S&P reported.

DTE executives also noted that the tax credits will apply to other technologies beyond wind and solar, such as renewable natural gas, nuclear energy and carbon capture and storage. Company officials said during last week’s earnings call that the tax credits will benefit both its regulated and non-regulated subsidiaries.

“The credits make more projects economically attractive, which enhances our business development opportunities and enables us to better help our industrial customers achieve their environmental goals,” Ruud told analysts, adding that carbon capture and storage credits would support the utility’s “future baseload generation.”

“Overall, we view the (Inflation Reduction Act) as beneficial for customers and supportive of the transition to cleaner energy while maintaining affordability,” Ruud said.

DTE officials also noted the utility recently signed a 400 MW renewable energy power purchase agreement that it expects to announce soon. As well, the company said it will release its updated long-term energy plan, or Integrated Resource Plan, in early November.

DTE President and CEO Jerry Norcia said the Inflation Reduction Act “improved the outlook for carbon capture and storage in our (Integrated Resource Plan), so a very positive benefit to affordability, which allowed us to accelerate our transition.”

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