On Friday, November 19, 2021, the U.S. House of Representatives passed the President’s roughly $2 trillion budget reconciliation package, voting 220 to 213 in favor of H.R. 5376 the Build Back Better Act (“Reconciliation Bill”), kicking the bill over to the Senate. While the bill is not final, it demonstrates a clear commitment for clean energy, aligning with the clean energy commitments in the recently enacted $1.2 trillion Infrastructure Investment and Jobs Act (“Infrastructure Act”), which was signed into law on November 15, 2021.
What happens next? The draft Reconciliation Bill is now in the Senate where revisions to the House-passed bill are expected and passage is not certain. Democrats are using the “reconciliation” procedure that would permit the bill to be approved in the Senate with just 50 votes, which would eliminate the need for support from Republicans. But Democrats have no room for dissent—with exactly 50 Democratic Senators, every Senator and the Vice President, with her tie-breaking vote in the Senate, will need to support starting debate on the draft Reconciliation Bill and ultimately passing it. A few Democrats have voiced concerns about various provisions in the bill and have not yet indicated their support.
The Democrats hope to bring the bill to a vote before Christmas, but it will likely go through some further revisions before that happens. If the Senate makes changes, the legislation will be sent back to the House for a “take it or leave it” review.
What clean energy provisions are in the draft Reconciliation Bill? Generally, the latest version of the draft Reconciliation Bill includes roughly $550 billion for climate and clean energy programs to curb fossil fuel emissions, more than $320 billion in green energy tax incentives, close to $41 billion in energy-related programs, and covers a spectrum of spending from clean electricity production credits, eligible to facilities with carbon emissions at or below zero, to a federal “Green Bank,” a national greenhouse gas reduction fund meant to assist state banks contributing to clean energy.
And like the Infrastructure Act, which we discussed in a prior blog post (available here), the House-passed draft Reconciliation Bill contains substantial nuclear fission and fusion related provisions.
The proposed nuclear and fusion provisions in the draft bill are summarized below:
- New production tax credit (PTC) for operation nuclear power plants. The bill creates a new PTC recognizing the zero-emissions benefits of nuclear power and intending to keep existing nuclear plants running. The bill adds a new provision to the Internal Revenue Service Code of 1986, as amended (IRS Code), section 45W, titled “Zero-Emission Nuclear Power Production Credit.” (Section 136108; pages 1402-1409). Generally, this new PTC credit rate is equal to a base credit of 0.3 cents/kWh produced at a qualifying nuclear facility and sold to an unrelated person during the taxable year (with the credit decreased by 16% of excess gross receipts as power sale prices increase). (Pages 1403-1404).
The credit is available for nuclear facilities that have not already claimed a credit for advanced nuclear power facilities under the existing IRS Code section 45J and that were placed in service before the date that the legislation is enacted.
- Funding for the availability of fuel for advanced reactors. The draft bill appropriates $500 million for the Department of Energy’s (“DOE”) advanced fuel availability program for high-assay low enriched uranium (“HALEU”), as was authorized by section 2001 of the Energy Policy Act of 2020, which initially allocated $33 to $39 million in annual funding. (Section 90002; page 942). This program enables DOE to support HALEU for advanced nuclear reactors. The bill directs DOE to use a competitive process, to the maximum extent possible, to carry out the program. (Page 943). We discussed the HALEU provisions in the Energy Policy Act of 2020 in a prior blog post (available here).
- Fusion funding. The draft Reconciliation Bill also appropriates significant funds to support fusion R&D and demonstration. As explained in a prior blog post, the Energy Policy Act of 2020 authorized a number of programs to support fusion commercialization. The draft bill provides roughly $885 million for fusion R&D spending, with $325 million for a new milestone-based public-private partnership program, previously authorized by the DOE Research and Innovation Act (42 U.S.C. 18645(i)), $200 million for fusion materials R&D, $140 million for research and technology development in inertial fusion for energy applications, $200 million for alternative and enabling fusion energy concepts, and $20 million to initiate fusion reactor system design activities. (Section 90001; pages 940-941). The goal of the milestone-based program is to incorporate best practices from other cost-share partnerships, and for private companies to build demonstrations in partnership with government entities to establish a new clean energy source.
A number of U.S. startup companies have made significant announcements pertaining to private sector investment in the past couple months, including Helion Energy, which announced the close of its $500 million Series E, with an additional $1.7 billion of commitments after that tied to specific milestones totaling $2.2 billion, and Commonwealth Fusion Systems (CFS), which said it has raised more than $1.8 billion in investment. Helion is building a prototype that it intends to demonstrate net positive electricity by 2024, a key milestone to commercializing fusion. CFS intends to complete its prototype facility in 2025.
- Support for transitioning energy communities. The draft bill includes $1 billion, authorized by section 209 of the Public Works and Economic Development Act of 1965 (42 U.S.C. 3149), to provide economic support for development and job creation in distressed markets and communities. (Section 110009; page 1036). Of that amount, $240 million is for providing assistance, including grants for technical assistance, planning, and predevelop activities, to energy and industrial transition communities, including oil, gas, coal, nuclear, and biomass transition communities, and manufacturing transition communities.. (Section 110009; pages 1039-1040).
While the climate spending promised in the draft Reconciliation Bill is less than the $600 billion in the original draft, its current structure still makes up the largest spending category in the bill.
For more information, please contact the blog authors, Amy Roma, Partner, and Stephanie Fishman, Associate.