Water Power Update: September 2022

The most significant development since our last update was passage of the Inflation Reduction Act (IRA), H.R. 5376, the tax and spending measure signed into law by President Biden on August 16, 2022. The IRA contained a substantial $369 billion climate and clean energy package, including several items to support water power project development, some of which SMI has lobbied on for years. These include:

• An extension of the existing Production Tax Credit (PTC) and Investment Tax Credit (ITC) for marine energy and certain hydropower resources through 2024.
• PTC parity for marine energy and hydropower resources (doubles the credit to the level equivalent with wind, solar, and other renewable resources).
• Amends the marine energy and hydrokinetic definition for eligibility to include pressurized conduit projects and lowers the project size limitation for all projects covered under the definition from 150kW to 25kW.
• Creates a technology-neutral energy storage ITC.
• Establishes a new clean energy tax credits program post-2024.
• Provides that any facility described in the clean electricity production credit and any qualified property or grid improvement property described in the clean electricity investment credit shall be treated as 5-year property under the modified accelerated cost recovery system (MACRS). This was one of the earliest tax policy goals for the marine energy community dating back to the founding of the Ocean Renewable Energy Coalition, forerunner to the Marine Energy Council.
• Includes funding for the qualified advanced energy project credit, an ITC for renewable energy equipment suppliers to re-equip, expand, or establish a manufacturing facility.

The package provides long-term certainty and a better, more equitable market for our water power clients. SMI will be monitoring the implementation of the provisions by the Treasury Department and the Internal Revenue Service, and will work in concert with NHA and other groups on responses.

The U.S. Department of Energy (DOE) Water Power Technologies Office (WPTO) is expected to soon announce support for a wide variety of R&D and demonstration activities to further commercialization opportunities for the domestic marine energy sector. We are hopeful that DOE will soon release multiple funding opportunities related to water power funding included in the bipartisan Infrastructure Investment and Jobs Act (IIJA) (over $146 million) passed last November and the Fiscal Year (FY) 2022 appropriations bill funding (up to $60 million) for marine energy industry-led R&D. The WPTO recently released a Notice of Intent for one small Funding Opportunity Announcement (FOA). Details are here.

The WPTO also released two Notices of Intent (NOI) on future funding opportunities under the office’s hydropower program. These included:

• Three Funding Opportunity Announcements (FOA) entitled “Bipartisan Infrastructure Law: Section 41006. Water Power Projects: Innovative Technologies to Enable Low Impact Hydropower and Pumped Storage Hydropower Growth”, “Bipartisan Infrastructure Law: Section 41006. Water Power Projects: Stakeholder Insight into Hydropower R&D Issues”, and “Section 40334. Pumped Storage Hydropower Wind and Solar Integration and System Reliability Initiative”.
• A Funding Opportunity Announcement (FOA) entitled “Advancing Fish Passage and Protection Technologies”.

Finally, comments were due on September 6, 2022 in response to the Grid Deployment Office (GDO) and WPTO Request for Information (RFI) on issues related to the development of hydroelectric incentive programs authorized under sections 243 and 247 of the Energy Policy Act of 2005 (EPAct 2005), as amended by sections 40332 and 40333 of the Bipartisan Infrastructure Law (BIL). SMI’s Jeff Leahey led the NHA efforts on its comment submission and also assisted several clients with their individual company responses. On September 9, the DOE released the calendar year (CY) 2020 awards under the Section 242 hydropower production incentive. As you will recall, SMI worked to amend the eligibility requirements under the program to allow new, small, greenfield projects to qualify, including both conventional hydropower and marine energy, as part of the Energy Act of 2020. SMI also worked to secure significant additional funding for the 242 program as part of the BIL in 2021, including raising the funding cap to $1 million per year. In its announcement, DOE, for the first time, was able to fully fund all 55 eligible applicants, totaling $13.5 million, including 5 newly eligible projects as a result of the Energy Act of 2020 amendments. We now expect DOE to follow-up in the coming weeks with an announcement opening the application process for CY 2021 awards.

Regarding additional IIJA funding, we are hopeful that the new DOE Office of Clean Energy Demonstrations will be ready to release up to $1 billion during the first half of 2023 for renewable energy projects in rural and remote areas. We continue to provide recommendations related to DOE implementation of the IIJA.

In addition, the new DOE Grid Deployment Office has released a Request for Information and draft FOA for a new $10.5 billion program for the Grid Resilience and Innovation Partnerships program. Details can be found here. We are hopeful that utilities can take advantage of these funds in support of water power projects.

We look forward to talking with you soon and hope to see you at POET’s Ocean Renewable Energy Conference (September 14-15), the International Conference on Ocean Energy in San Sebastian, Spain (October 18-20), and/or NHA’s Clean Currents 2022 in Sacramento, CA (October 18-20). Thanks for your ongoing interest and support for water power!

The SMI Water Power Team

P.S.

This is a unique time in our history when we have a tremendous tailwind of opportunity. With record amounts of U.S. Federal Government funding available and considerable dedication towards decarbonizing our economy, the potential to finance commercial projects is now a reality. Also, the significant rise in power prices, especially in Europe, means the economics of deploying new water power technologies are about as favorable as they can get. Please let us know how we can be helpful in engaging with potential federal and utility customers to get power from your technology.

The Inflation Reduction Act – a General Overview of Clean Energy Incentives and Funding

Last month, Congress passed and President Biden signed into law the Inflation Reduction Act of 2022 with the goal of bringing down consumer energy costs, increasing American energy security, while substantially reducing greenhouse gas emissions. The combined investments in the FY2022 Budget Reconciliation bill would put the U.S. on a path to roughly 40% emissions reduction by 2030, and would represent the single biggest climate investment in U.S. history, by far. Specifically, the Act will provide:

• Production Tax Credits for all forms of renewable energy generation, including water power technologies.
• A $10 billion Investment Tax Credit program for building clean energy technology manufacturing facilities
• $2 billion for DOE National Laboratory energy research.
• $30 billion for states and electric utilities to accelerate the transition to clean electricity.
• $9 billion for Federal procurement of American-made clean energy technologies.
• $27 billion clean energy technology accelerator to support deployment of technologies to reduce emissions, especially in disadvantaged communities.
• $40 billion loan authority for the Innovative Clean Energy Loan Guarantee Program.
• $250 billion loan authority for the Energy Infrastructure Reinvestment Program.

We will track implementation of this legislation and provide an update in our next news bulletin.

U.S. Navy Update

The Navy is still active in supporting the wave energy deployments at the Kaneohe Bay MCB Wave Energy Test Site and select R&D projects with university partners. The House FY2023 Defense appropriations bill included $20 million for marine energy R&D sponsored by the Naval Facilities Engineering Command. There was no funding provided in the Senate measure.

In addition, the Office of Naval Research is updating a Power and Energy Technology Roadmap and we are optimistic that marine energy technology solutions are included in their plans for tactical and utility-scale shore power options.

DOE WPTO 2023 Funding – Congressional Action

Congress has made substantial progress on the FY2023 appropriations bills. We are pleased with the results so far related to support for the DOE WPTO and industry priorities. The House and Senate report language for the DOE WPTO is copied further below.

First, the full House of Representatives passed a six-bill appropriations package on July 20, which included Agriculture-FDA, Energy-Water, Transportation-HUD, Interior-Environment, Financial Services, and the Military Construction-VA appropriations.

We were successful in lobbying Congress to include cost share waiver language which can potentially benefit future DOE awardees. We are also pleased that language was included related to foundational research and operations support for the marine energy centers. One hundred thirty million is the highest level of funding ever included for marine energy activities in a House energy and water development bill.

The Senate Appropriations Committee released all twelve of its versions of the annual appropriations bills on July 28. We are pleased that several programs and projects that are critical for industry success were specifically mentioned in the Senate report language with substantial funding levels for a variety of projects. One hundred forty two million matches the highest level of funding included for marine energy activities in a Senate energy and water development bill (FY2022).

Unfortunately, we do not expect see any more public progress on the bills until after the national elections in November. A Continuing Resolution (CR) will be necessary to fund the government beyond the beginning of the new fiscal year on October 1. We expect the CR to last until middle or late December when we hope Congress will wrap up its work on the final FY2023 funding bills.

In the meantime, our efforts will turn toward recommendations related to the final compromise water power conference report language between the House and Senate versions. However, we caution that we believe the overall level of funding for clean energy activities within DOE was much higher than will be feasible in a final agreement between the House and Senate. We will work to avoid a situation like last year when final funding for the marine energy program was $112 million, down from $142 million in the FY2022 Senate mark. Regardless, we believe there is substantial funding from the bipartisan infrastructure bill for water power activities to support a variety of R&D efforts.

House Water Power Language

“The recommendation provides not less than $50,000,000 for Hydropower Technologies and not less than $130,000,000 for Marine Energy.

The recommendation provides up to $10,000,000 to continue industry-led research, development, demonstration, and deployment efforts of innovative technologies for fish passage and invasive fish

species removal at hydropower facilities, as well as analysis of hydrologic climate science and water basin data to understand the impact of climate change on hydropower.

The recommendation provides up to $15,000,000 for small hydropower innovation, testing, and initiatives, including industry-led competitive solicitations for advanced turbine demonstrations; improved environmental performance; standardized or modular project deployment applications; and advanced manufacturing and supply chain innovations. The Department is encouraged to support

innovative analytics to optimize hydropower applications such as machine learning-based hydrologic forecasts and operations optimization technology advancement.

The Committee remains supportive of the Department’s ongoing scoping activities toward establishing a network of hydropower testing facilities. The recommendation provides up to $10,000,000 for design and engineering based on the outcome of the scoping analysis. The fiscal year 2022 Act directed the Department to provide a briefing on its strategy for establishing these facilities. The Committee is still awaiting this briefing and directs the Department to provide it not later than 30 days after enactment of this Act.

The recommendation provides up to $5,000,000 for irrigation modernization demonstration and deployment activities including physical sites and digital tools that advance energy, water, environmental, community, and agricultural benefits.

The recommendation provides up to $10,000,000 for the purposes of sections 242 of the Energy Policy Act of 2005.

Within available funds for Marine Energy, the recommendation provides not less than $50,000,000 for industry-led competitive solicitations to increase energy capture, improve reliability, and to assess and monitor environmental effects of marine energy systems and components at a variety of scales, including full-scale prototypes. The Committee recognizes the importance of consistent and timely funding opportunities to optimize the impacts of university-led foundational research and to develop the skilled workforce needed to accelerate development of the marine energy sector. Within available funds for Marine Energy, the recommendation provides up to $20,000,000 for continuation of foundational research activities led by universities and research institutions affiliated with the National Marine Energy Centers. Within available funds for Marine Energy, the recommendation provides up to $10,000,000 for operations at the National Marine Energy Centers in order to accelerate the transition of marine energy technologies to market.

Within available funds for Marine Energy, the recommendation provides up to $30,000,000 to address infrastructure needs at marine energy technology testing sites, including not less than $5,000,000 for the development and construction of an open water, fully energetic, grid connected ocean current energy test facility and not less than $5,000,000 for general purpose plant projects.

The Committee recommends up to $8,000,000 for continuation of the Testing Expertise and Access for Marine Energy Research initiative. The Department is directed to continue to coordinate with the U.S. Navy and other federal agencies on marine energy technology development for national security and other applications.

The Committee supports the Department’s engagement on research and workforce development with U.S. universities, particularly with its National Marine Renewable Energy Centers. The Committee encourages the Department to continue its Powering the Blue Economy efforts, including crosscutting initiatives within EERE and with other federal partners that integrate marine energy harvesting, energy storage, and continuous, wide area environmental monitoring.

The Department is reminded that it may use its cost share waiver authority under section 988 of the Energy Policy Act of 2005, when applicable and as appropriate, for water power technology research, development, demonstration, and deployment activities.

The Committee recognizes the emergence of Ocean Thermal Energy Conversion (OTEC) and Sea Water Air Conditioning (SWAC) systems in the United States and the potential to produce sustainable electricity, reduce carbon dioxide emissions, and diversify fuel options while creating job opportunities. The Committee also recognizes the Department of Defense’s investment in SWAC and OTEC technologies for Guam and other military bases in the Indo-Pacific region. The fiscal year 2022 Act directed the Department to report on the feasibility of incorporating engineering within SWAC and OTEC that would enhance open- ocean aquaculture and serve to stimulate biological productivity in nutrient-poor off-shore waters as a means of accelerating capture and sequestration of atmospheric carbon dioxide as well as stimulating offshore fisheries. The Committee is still awaiting this report and directs the Department to provide it not later than 30 days after enactment of this Act.”

Senate Water Power Language

The Committee recommends $196,000,000 for Water Power. The Secretary is encouraged to utilize existing authorities to waive cost share for water power technologies research, development, demonstration, and deployment activities.

The Committee recommends $69,000,000 for hydropower and pumped storage activities, including up to $10,000,000 for demonstration of a modular pumped storage project. The Committee recommends provides up to $35,000,000 to expand the HydroWIRES program to enhance the flexibility of America’s hydropower and pumped storage hydropower resources, including support for research, development, and demonstration to advance pumped storage hydropower projects. The Department is encouraged to continue efforts that support and demonstrate increased grid reliability and integration of other renewable energy resources, including applications to optimally integrate small hydropower with advancements in battery storage and other grid services.

The Committee recommends up to $15,000,000 for hydropower innovation, testing, and initiatives, including industry-led competitive solicitations for advances turbine demonstrations, improvement of environmental performance, standardized or modular project deployment applications, and advanced manufacturing and supply chain innovations. The Committee recommends $10,000,000 to continue research, development, demonstration, and deployment efforts of innovative technologies for fish passage and invasive fish species removal at hydropower facilities. The Committee recommends up to $5,000,000 for innovative analytics to optimize hydropower applications such as machine learning-based hydrologic forecasts and operations optimization technology advancement.

The Committee recommends up to $142,000,000 for marine energy. The Committee recommendation includes not less than $60,000,000 for industry-led competitive solicitations to increase energy capture, improve reliability, and to assess and monitor environmental effects of marine energy systems and components at a variety of scales, including full scale prototypes. The Committee recognizes the importance of consistent and timely funding opportunities to optimize the impacts of university-led foundational research and to develop the skilled workforce needed to accelerate development of the marine energy sector.

The Committee recommends $24,000,000 for the Powering the Blue Economy initiative and directs the Department to continue leveraging existing core capabilities at national laboratories to execute this work, in partnership with universities and industry. The Committee is invested in the Department’s Powering the Blue Economy efforts, and encourages the Department to continue focusing on cross-cutting initiatives within EERE and with other Federal partners that integrate marine energy harvesting, energy storage, and continuous, wide area monitoring. The Committee recommends up to $24,000,000 for foundational research activities led by the National Marine Energy Centers and affiliated universities and research institutions. Within available funds, the Committee recommends up to $20,000,000 to address infrastructure needs at marine energy technology testing sites, including general plant projects and planning activities for the staged development of an ocean current test facility and upgrades to facilities that provide cost effective open water access for prototype testing. The Committee recommends not less than $5,000,000 for the Department’s Marine and Coastal Research Laboratory. The Committee recommends $22,000,000 to complete construction of the grid connected wave energy test facility and recommends up to $8,000,000 for continuation of the Testing Expertise and Access for Marine Energy Research initiative. Within available funds, the Committee recommends not less than $5,000,000 to continue operations at the Atlantic Marine Energy Center to accelerate the transition of wave and tidal energy technologies to market.

The Committee recommends up to $10,000,000 for purposes of section 242 and section 243 of the Energy Policy Act of 2005.

The Committee directs the Department to coordinate with the U.S. Navy and other Federal agencies on marine energy technology development for national security and other applications.

The Committee recognizes the challenges of decarbonizing remote communities and the maritime sector. The Water Power Technology Office, in coordination with other relevant Energy Efficiency and Renewable Energy offices, is encouraged to continue to focus on activities addressing the integration of clean energy systems for remote communities and port electrification, including the demonstration of marine, distributed wind, solar, energy storage, improved microgrids, and local production of zero-carbon fuels.”

About – SMI Value Proposition

Our team at SMI has a proven and successful track record in supporting our clients as they navigate the processes and challenges in partnering with the U.S. Federal Government to develop and deploy new water power technologies. Please contact us if your company or organization could benefit from SMI’s federal marketing and lobbying services. We also encourage our readers to join the National Hydropower Association and the Marine Energy Council which play important roles supporting critical industry advocacy efforts here in Washington. If you are not yet a member of the NHA Marine Energy Council, please join! Growing MEC membership strengthens our ability to secure support from elected officials for increased federal investments in water power.