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A new report from the Clean Air Task Force casts shade on “levelized cost of energy.”
Forgive me, for I have cited the levelized cost of energy.
That’s what I was thinking as I spoke with Kasparas Spokas, one of the co-authors of a new paper from the Clean Air Task Force that examines this popular and widely cited cost metric — and found it wanting.
Levelized cost of energy, or LCOE, is a simple calculation: You take a generator, like a solar panel (with a discount for future costs), and add up its operating and capital expenditures, and then divide by the expected energy output over the life of the project (also discounted).
LCOE has helped underline the economic and popular case for renewables, especially solar. And it’s cited everywhere. The investment bank Lazard produces an influential annual report comparing the LCOE of different generation sources; the latest iteration puts utility-scale solar as low as $29 per megawatt-hour, while nuclear can be as high as $222. Environmental groups cite LCOE in submissions to utilities regulators. Wall Street analysts use it to project costs. And journalists, including me, will cite it to compare the cost of, say, solar panels to natural gas.
We probably shouldn’t, according to Spokas — or at least we should be more clear about what LCOE actually means.
“We continue to see levelized cost of electricity being used in ways that we think are not ideal or not adequate to what its capabilities are,” Spokas told me.
The report argues that LCOE “is not an appropriate tool to use in the context of long-term planning and policymaking for deep decarbonization” because it doesn’t take into account factors that real-world grids and grid planners also have to consider, such as when the generator is available, whether the generator has inertia, and what supporting infrastructure (including transmission and distribution lines) a generator needs to supply power to customers.
We see these limitations and constraints on real-life grids all the time, for instance in the infamous solar “duck curve.” During the middle of the day, when the sun is highest, non-solar generation can become essentially unnecessary on a solar-heavy grid. But these grids can run into problems as the sun goes down but electricity demand persists. In this type of grid, additional solar may be low cost, but also low value — it gives you electricity when you need it the least.
“If you’re building a lot of solar in the Southwest, at some point you’ll get to the point where you have enough solar during the day that if you build an incremental amount of solar, it’s not going to be valuable,” Spokas said. To make additional panels useful, you’d have to add battery storage, increasing the electricity’s real-world cost.
Looking for new spots for renewables also amps up conflict over land use and provides more opportunities for political opposition, a cost that LCOE can’t capture. And a renewables-heavy grid can require investments in energy transmission capacity that other kinds of generation do not — you can put a gas-fired power plant wherever you can buy land and get permission, whereas utility-scale solar or wind has to be where it’s sunny or windy.
“The trend is, the more renewable penetration you have, the more costly meeting a firm demand with renewables and storage becomes,” Spokas said.
Those real-world pressures are now far more salient to grid planners than they were earlier this century, when LCOE became a popular metric to compare different types of generators.
“The rise of LCOE’s popularity to evaluate technology competitiveness also coincided with a period of stagnant load growth in the United States and Europe,” the report says. When there was sufficient generation capacity that could be ramped up and down as needed, “the need to consider various system needs and costs, such as additional transmission or firm capacity needs was relatively low.”
This is not the world we’re in today.
Demand for electricity is rising again, and the question for grid planners and policymakers now is less how to replace fossil generators going offline, and more how to meet new electricity demand in a way that can also meet society’s varied goals for cost and sustainability.
This doesn’t always have to mean maxing out new generation — it can also mean making large sources of electricity load more flexible — but it does mean making more difficult, more considered choices that take in the grid as a whole into account.
When I asked Spokas whether grid operators and grid planners needed to read this report, he chuckled and said no, they already know what’s in it. Electricity markets, as imperfect as they often are, recognize that not every megawatt is the same.
Electricity suppliers often get paid more for providing power when it’s most needed. In regions with what’s known as capacity markets, generators get paid in advance to guarantee they’ll be available when the grid needs them, a structure that ensures big payouts to coal, gas, and nuclear generators. In markets that don’t have that kind of advance planning, like Texas’ ERCOT, dispatchable generators (often batteries) can get paid for providing so-called “ancillary services,” meeting short term power needs to keep the grid in balance — a service that batteries are often ideally placed to provide.
When grid planners look at the entirety of a system, they often — to the chagrin of many renewables advocates — tend to be less enthusiastic about renewables for decarbonizing the energy system than many environmental groups, advocates, and lawmakers.
The CATF report points to Ontario, Canada where the independent system operator concluded that building a new 300-megawatt small modular nuclear reactor — practically the definition of high LCOE generation, not least because such a thing has never been deployed before in North America — would actually be less risky for electricity costs than building more battery-supported wind and solar, according to the Globe and Mail. Ontario regulators recently granted a construction license to the SMR project, which is part of a larger scheme to install four small reactors, for a total 1.2 gigawatts of capacity. To provide the equivalent supply of renewable energy would require adding between 5.6 and 8.9 gigawatts of wind and solar capacity, plus new transmission infrastructure, the system operator said, which could drive up prices higher than those for advanced nuclear.
None of this is to say that we should abandon LCOE entirely. The best use case, the report argues, is for comparing costs for the same technology over time, not comparing different technologies in the present or future. And here the familiar case for solar — that its cost has fallen dramatically over time — is borne out.
Broadly speaking, CATF calls for “decarbonization policy, industry strategy, and public debate” to take a more “holistic approach” to estimating cost for new sources of electricity generation. Policymakers “should rely on jurisdiction-specific system-level analysis where possible. Such analysis would consider all the system costs required to ensure a reliable and resilient power system and would capture infrastructure cost tradeoffs over long and uncertain-time horizons,” the report says.
As Spokas told me, none of this is new. So why the focus now?
CATF is catching a wave. Many policymakers, grid planners, and electricity buyers have already learned to appreciate all kinds of megawatts, not just the marginally cheapest one. Large technology companies are signing expensive power purchase agreements to keep nuclear power plants open or even revive them, diving into the development of new nuclear power and buying next-generation geothermal in the hope of spurring further commercialization.
Google and Microsoft have embraced a form of emissions accounting that practically begs for clean firm resources, as they try to match every hour of electricity they use with a non-emitting resource.
And it’s possible that clean firm resources could get better treatment than theycurrently get in the reconciliation bill working its way through Congress. Secretary of Energy Chris Wright recently called for tax credits for “baseload” power sources like geothermal and nuclear to persist through 2031, according to Foundation for American Innovation infrastructure director Thomas Hochman.
“It’s not our intention to try to somehow remove incentives for renewables specifically, but to the extent that we can preserve what we can, we’re happy if it would be used in that way,” Spokas said.
When I asked Spokas who most needed to read this report, he replied frankly, “I think climate advocates would be in that bucket. I think policymakers that have a less technical background would also be in that bucket, and media that have a less technical background would also be in there.”
I’ll keep that in mind.
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If the Senate reconciliation bill gets enacted as written, you’ve got about 92 days left to seal the deal.
If you were thinking about buying or leasing an electric vehicle at some point, you should probably get on it like, right now. Because while it is not guaranteed that the House will approve the budget reconciliation bill that cleared the Senate Tuesday, it is highly likely. Assuming the bill as it’s currently written becomes law, EV tax credits will be gone as of October 1.
The Senate bill guts the subsidies for consumer purchases of electric vehicles, a longstanding goal of the Trump administration. Specifically, it would scrap the 30D tax credit by September 30 of this year, a harsher cut-off than the version of the bill that passed the House, which would have axed the credit by the end of 2025 except for automakers that had sold fewer than 200,000 electric vehicles. The credit as it exists now is worth up to $7,500 for cars with an MSRP below $55,000, and, under the Inflation Reduction Act, would have lasted through the end of 2032. The Senate bill also axes the $4,000 used EV tax credit at the end of September.
“Long story short, the credits under the current legislation are only going to be on the books through the end of September,” Corey Cantor, the research director of the Zero-Emissions Transportation Association, told me. “Now is definitely a good time, if you’re interested in an EV, to look at the market.”
The Senate applied the same strict timeline to credits for clean commercial vehicles, both new and used. For home EV chargers, the tax credit will now expire at the end of June next year.
While EVs were on the road well before the 2022 passage of the Inflation Reduction Act, what the new tax credit did was help build out a truly domestic electric vehicle market, Cantor said. “You have a bunch of refreshed EV models from major automakers,” Cantor told me, including “more affordable models in different segments, and many of them quality for the credit.”
These include cars produceddomestically by Kia,Hyundai, and Chevrolet. But of course, the biggest winner from the credit is Tesla, whose Model Y was the best-selling car in the world in 2023.
Tesla shares were down over 5.5% in Tuesday afternoon trading, though not just because of Congress. JPMorgan also released an analyst report Monday arguing that the decline in sales seen in the first quarter would accelerate in the second quarter. President Trump, with whom Tesla CEO Elon Musk had an extremely public falling out last month, suggested on social media Monday night that the government efficiency department Musk himself formerly led should “take a good, hard, look” at the subsidies Musk receives across his many businesses. Trump also said that he would “take a look” at Musk’s United States citizenship in response to reporters’ questions about it.
Cantor told me that he expects a surge of consumer attention to the EV market if the bill passes in its current form. “You’ve seen more customers pull their purchase ahead” when subsidies cut-offs are imminent, he said.
But overall, the end of the subsidy is likely to reduce EV sales from their previously expected levels.
Harvard researchers have estimated that the termination of the EV tax credit “would cut the EV share of new vehicle sales in 2030 by 6.0 percentage points,” from 48% of new sales by 2030 to 42%. Combined with other Trump initiatives such as terminating the National Electric Vehicle Infrastructure program for publicly funded chargers (currently being litigated) and eliminating California’s waiver under the Clean Air Act that allowed it to set tighter vehicle emissions standards, the share of new car sales that are electric could fall to 32% in 2030.
But not all government support for electric vehicles will end by October 1, even if the bill gets the president’s signature in its current form.
“It’s important for consumers to know there are many states that offer subsidies, such as New York, and Colorado,” Cantor told me. That also goes for California, New Jersey, Nevada, and New Mexico. You can find the full list here.
Excise tax is out, foreign sourcing rules are in.
After more than three days of stops and starts on the Senate floor, Congress’ upper chamber finally passed its version of Trump’s One Big Beautiful Bill Act Tuesday morning, sending the tax package back to the House in hopes of delivering it to Trump by the July 4 holiday, as promised.
An amendment brought by Senators Joni Ernst and Chuck Grassley of Iowa and Lisa Murkowski of Alaska that would have more gradually phased down the tax credits for wind and solar rather than abruptly cutting them off was never brought to the floor. Instead, Murkowski struck a deal with the Senate leadership designed to secure her vote that accomplished some of her other priorities, including funding for rural hospitals, while also killing an excise tax on renewables that had only just been stuffed into the bill over the weekend.
The new tax on wind and solar would have driven up development costs by as much as 20% — a prospect that industry groups said would “kill” investment altogether. But even without the tax, the Senate’s bill would gum up the works for clean energy projects across the spectrum due to new phase-out schedules for tax credits and fast-approaching deadlines to meet complex foreign sourcing rules. While more projects will likely be built under this version than the previous one, the basic outcomes haven’t changed: higher energy costs, project delays, lost jobs, and ceding leadership in artificial intelligence and manufacturing to China.
"This bill will hit Americans hard, terminating credits that have helped families lower their energy and transportation costs, shrinking demand for American-made advanced energy technologies, and squeezing new domestic energy production at a time of rising demand and prices,” Heather O’Neill, the CEO and president of the trade group Advanced Energy United, said in a statement Tuesday. “The advanced energy industry will endure, but the downstream effects of these rollbacks and punitive policies will be felt by American families and businesses for years to come.”
Here’s what’s in the final Senate bill.
The final Senate bill bifurcates the previously technology-neutral tax credits for clean electricity into two categories with entirely different rules and timelines — wind and solar versus everything else.
Tax credits for wind and solar farms would end abruptly with no phase-out period, but the bill includes a significant safe harbor for projects that are already under construction or close to breaking ground. As long as a project starts construction within 12 months of the bill’s passage, it will be able to claim the tax credits as originally laid out in the Inflation Reduction Act. All other projects must be “placed in service,” i.e. begin operating, by the start of 2028 to qualify.
That means if Trump signs the bill into law on July 4, wind and solar developers will have until July 4 of 2026 to “start construction.” Otherwise, they will have less than a year and a half to bring their projects online and still qualify for the credits.
Meanwhile, all other sources of zero-emissions electricity, including batteries, advanced nuclear, geothermal, and hydropower, will be able to continue claiming the tax credits for nearly a decade. The credits would start phasing down for projects that start construction in 2034 and terminate in 2036.
While there are some potential wins in the bill for clean energy development, many of the safe harbored projects will still be subject to complex foreign sourcing rules that may prove too much of a burden to meet.
The bill requires that any zero-emissions electricity or advanced manufacturing project that starts construction after December of this year abide by strict new “foreign entities of concern,” or FEOC rules in order to be eligible for tax credits. The rules penalize companies for having financial or material connections to people or businesses that are “owned by, controlled by, or subject to the jurisdiction or direction of” any of four countries — Russia, Iran, North Korea, and most importantly for clean energy technology, China.
As with the text that came out of the Senate Finance committee, the text in the final bill would phase in supply chain restrictions, requiring project developers and manufacturers to use fewer and fewer Chinese-sourced inputs over time. For clean electricity projects starting construction next year, 40% of the value of the materials used in the project must be free of ties to a FEOC. By 2030, the threshold would rise to 60%. Energy storage facilities are subject to a more aggressive timeline and would be required to prove that 55% of the project materials are non-FEOC in 2026, rising to 75% by 2030. Each covered advanced manufacturing technology gets its own specific FEOC benchmarks.
Unlike the text from the Finance Committee, however, the final text includes a clear exception for developers who already have procurement contracts in place prior to the bill’s enactment. If a solar developer has already signed a contract to get its cells from a Chinese company, for example, it could exempt that cost from the calculation. That would make it easier for companies further along in the development process to comply with the eligibility rules.
That said, these materials sourcing rules come on top of strict ownership and licensing rules likely to block more than 100 existing and planned solar and battery factories with partial Chinese ownership or licensing deals with Chinese firms from receiving the tax credits, per a BloombergNEF analysis I reported on previously.
Once again, the details of how any of this will work — and whether it will, in fact, be “workable” — will depend heavily on guidance written by the Treasury department. That not only gives the Trump administration significant discretion over the rules, it also assumes that the nTreasury department, which is now severely understaffed after Trump’s efficiency department cleaned house earlier this year, will actually have the bandwidth to write them. Without Treasury guidance, developers may not have the cost certainty they need to continue moving forward on projects.
Up until today, the Senate and House looked poised to destroy the business model for companies like Sunrun that lease rooftop solar installations to homeowners and businesses by cutting them off from the investment tax credit, which can bring down the cost of a solar array by as much as 70%. The final Senate bill, however, got rid of this provision and replaced it with a much more narrow version.
Now, the only “leasing” schemes that are barred from claiming tax credits are those for solar water heaters and small wind installations. Companies that lease solar panels, batteries, fuel cells, and geothermal heating equipment are still eligible. SunRun’s stock jumped nearly 10 percentage points on Tuesday.
Other than the new FEOC rules, which will have truly existential consequences for a great many projects, there aren’t many changes to the advanced manufacturing tax credit, or 45X, than in previous versions of the bill. The OBBBA would create a new phase-out schedule for critical mineral producers claiming the tax credit that begins in 2031. Previously, critical minerals were set to be eligible indefinitely. It would also terminate the credit for wind energy components early, in 2028.
One significant change from the Senate Finance text is that the bill would allow vertically integrated companies to stack the tax credit for multiple components.
But perhaps the biggest change, which was introduced last weekend, is a twisted new definition of “critical mineral” that allows metallurgical coal — the type of coal used in steelmaking — to qualify for the tax credit. As my colleague Matthew Zeitlin wrote, most of the metallurgical coal the U.S. produces is exported, meaning this subsidy will mostly help other countries produce cheaper steel.
It looks like the hydrogen industry’s intense lobbying efforts finally paid off: The final Senate bill is the first text we’ve seen since this process began in May that would extend the lifespan of the tax credit for clean hydrogen production. Now, projects that begin construction before January 1, 2028 will still qualify for the credit. This is shorter than the Inflation Reduction Act’s 2033 cut-off, but much longer than the end-of-year cliff earlier versions of the bill would have imposed.
The tax credits for electric vehicles and energy efficiency building improvements would end almost immediately. Consumers will have to purchase or lease a new or used EV before September 30, 2025, in order to benefit. There would be a slightly longer lead time to get an EV charger installed, but that credit (30C) would expire on June 30, 2026.
Meanwhile, energy efficiency upgrades such as installing a heat pump or better-insulated windows and doors would have to be completed by the end of this year in order to qualify. Same goes for self-financed rooftop solar. The tax credit for newly built energy efficiency homes would expire on June 30, 2026.
The bill would make similar changes to the carbon sequestration (45Q) and clean fuels (45Z) tax credits as previous versions, boosting the credit amount for carbon capture projects that do enhanced oil recovery, and extending the clean fuels credit to corn ethanol producers.
The House Rules Committee met on Tuesday afternoon shortly after the Senate vote to deliberate on whether to send it to the House floor, and is still debating as of press time. So far, Rules members Ralph Norman and Chip Roy have said they’ll vote against it.
On sparring in the Senate, NEPA rules, and taxing first-class flyers
Current conditions: A hurricane warning is in effect for Mexico as the Category 1 storm Flossie approaches • More than 50,000 people have been forced to flee wildfires raging in Turkey • Heavy rain caused flash floods and landslides near a mountain resort in northern Italy during peak tourist season.
Senate lawmakers’ vote-a-rama on the GOP tax and budget megabill dragged into Monday night and continues Tuesday. Republicans only have three votes to lose if they want to get the bill through the chamber and send it to the House. Already Senators Thom Tillis and Rand Paul are expected to vote against it, and there are a few more holdouts for whom clean energy appears to be one sticking point. Senator Lisa Murkowski of Alaska, for example, has put forward an amendment (together with Iowa Senators Joni Ernst and Chuck Grassley) that would eliminate the new renewables excise tax, and phase out tax credits for solar and wind gradually (by 2028) rather than immediately, as proposed in the original bill. “I don’t want us to backslide on the clean energy credits,” Murkowski told reporters Monday. E&E News reported that the amendment could be considered on a simple majority threshold. (As an aside: If you’re wondering why wind and solar need tax credits if they’re so cheap, as clean energy advocates often emphasize, Heatmap’s Emily Pontecorvo has a nice explainer worth reading.)
At the same time, Utah’s Senator John Curtis has proposed an amendment that tweaks the new excise tax to make it more “flexible.” The amendments are “setting up a major intra-party fight,” Politicoreported, adding that “fiscal hawks on both sides of the Capitol are warning they will oppose the bill if the phase-outs of Inflation Reduction Act provisions are watered down.” Senators have already defeated amendments proposed by Democrats Jeanne Shaheen of New Hampshire and John Hickenlooper of Colorado to defend clean energy and residential solar tax credits, respectively. The session has broken the previous record for most votes in a vote-a-rama, set in 2008, with no end in sight.
The Department of Energy on Monday rolled back most of its regulations relating to the National Environmental Policy Act, or NEPA, and published a new set of guidance procedures in their place. The longstanding NEPA law requires that the government study the environmental impacts of its actions, and in the case of the DOE, this meant things like permitting and public lands management. In a press release outlining the changes, the agency said it was “fixing the broken permitting process and delivering on President Trump’s pledge to unleash American energy dominance and accelerate critical energy infrastructure.” Secretary of Energy Chris Wright said the agency was cutting red tape to end permitting paralysis. “Build, baby, build!” he said.
Nearly 300 employees of the Environmental Protection Agency signed a letter addressed to EPA head Lee Zeldin declaring their dissent toward the Trump administration’s policies. The letter accuses the administration of:
“Going forward, you have the opportunity to correct course,” the letter states. “Should you choose to do so, we stand ready to support your efforts to fulfill EPA’s mission.” It’s signed by more than 420 people, 270 being EPA workers. Many of them asked to sign anonymously. In a statement to The New York Times, EPA spokesperson Carolyn Horlan said “the Trump EPA will continue to work with states, tribes and communities to advance the agency’s core mission of protecting human health and the environment and administrator Zeldin’s Powering the Great American Comeback Initiative, which includes providing clean air, land and water for EVERY American.”
At the fourth International Conference on Financing for Development taking place in Spain this week, a group of eight countries including France and Spain announced they’re banding together in an effort to tax first- and business-class flyers as well as private jets to raise money for climate mitigation and sustainable development. “The aim is to help improve green taxation and foster international solidarity by promoting more progressive and harmonised tax systems,” the office of Spanish Prime Minister Pedro Sanchez said in a statement. Other countries in the coalition include Kenya, Barbados, Somalia, Benin, Sierra Leone, and Antigua & Barbuda. The group said it will “work towards COP30 on a better contribution of the aviation sector to fair transitions and resilience.” Wopke Hoekstra, who heads up the European Commission for Climate, called for other countries to join the group in the lead-up to COP30 in November.
In case you missed it: Google announced on Monday that it intends to buy fusion energy from nuclear startup Commonwealth Fusion Systems. Of course, CFS will have to crack commercial-scale fusion first (minor detail!), but as The Wall Street Journal noted, the news is significant because it is “the first direct deal between a customer and a fusion energy company.” Google will buy 200 megawatts of energy supplied by CFS’s ARC plant in Virginia. “It’s a pretty big signal to the market that fusion’s coming,” CFS CEO Bob Mumgaard told the Journal. “It’s desirable, and that people are gonna work together to make it happen.” Google’s head of advanced energy Michael Terrell echoed that sentiment, saying the company hopes this move will “prove out and scale a promising pathway toward commercial fusion power.” CFS, which is backed by Bill Gates’ Breakthrough Energy Ventures, aims to produce commercial fusion energy in the 2030s.
All the public property owned by Britain’s King Charles earned a net profit of £1.15 billion ($1.58 billion) last year. The biggest source of income? Offshore wind leases.