A quick CTRL+F on “energy” in the official Trump campaign platform renders what you would expect: a lot of all caps ENERGY DOMINANCE and a return to an “all of the above” approach to energy and power generation. To many in the industry, these are familiar terms. Natural gas will once again return to being a “bridge fuel” and the United States will focus efforts on being a “net energy exporter”.
What has changed is a newfound urgency brought about by domestic load growth for the first time in decades.
This makes the policy implications of the election worth considering for our corner of the market – folks who are developing large-scale energy infrastructure.
There are four policy areas we are tracking as we approach Trump 2.0.
TLDR; There are two versions of permitting reform that could pass, depending on when. Paired with the recent Chevron and CEQ rulings, there is uncertainty around the power and role of lead agencies in federal permitting.
There is a lot of excitement on both sides of the aisle on permitting reform, set to aid the deployment of both fossil and renewable energy resources. We are still waiting to see if the Manchin-Barasso Energy Permitting Reform Act of 2024 will pass before the end of the lame duck. This bill will do things like: expedite federal agency review timelines, reduce the statute of limitations for legally challenging a permit decision, and assign lead agencies to ensure better governance of processes (e.g. Improved FERC Authority to Permit Transmission Projects).
If the Manchin bill does not pass this year, the Republican congress is gearing up to come with its own version to put forth in the new year. This refreshed bill, strays farther from center, in introducing reforms like restricting courts’ ability to block projects just because of insufficient environmental analysis and limit the use of new science in environmental reviews.
Given the bipartisan momentum around permitting reform, this is likely to get done. The question becomes when. Do lawmakers honor Joe Manchin’s legacy and try to get this done before he leaves office at the end of the year?
While reform is welcomed, permitting still remains a high risk, high complexity project. This is primarily driven by a fragmented state and local permitting environment that is increasingly subject to the sentiment and politics of local communities.
TLDR; repeal of IRA is unlikely. ITCs and PTCs may be reformed on implementation. But none of these are top priorities for Trump 2.0.
There are three potential futures for the Inflation Reduction Act and related tax incentives through the Republican congress:
Because of the benefits already flowing to Republican represented communities, which has been well covered, contrasted with the campaign promise to repeal Biden’s legislative work, we think (2) is the most likely. In terms of outcome, this could mean many things. Many of the consumer tax credits (EVs, energy efficiency) will likely go. But for developers of large-scale infrastructure, the bigger concern is the production and investment tax credits (PTCs and ITCs) .
PTCs and ITCs are supporting businesses and jobs across red districts, so it will be hard to build consensus within congress for knocking out any of the tech-neutral tax programs. Powerbrief and Crux created a useful visualization of risk across the various IRA tax programs:
We believe the Republican congress will amend specific implementation measures like project eligibility criteria. These can and will have material impact on project valuations that are in the early-stage of development. Some of these eligibility criteria for programs include:
TLDR; Protectionist policies will lead to more expensive and less available equipment, increasing installed cost of energy infrastructure.
One of the big things we debate in this office is how much of the conversation on tariffs is posturing versus reality. All of us agree that more protectionist trade policies will persist, which will likely result in retaliatory policies abroad. This risks putting a damper on foreign demand for US-produced energy and further increasing the cost of foreign produced equipment and parts.
Stateside, equipment costs and timelines will continue to be adversely impacted by a turn away from China as a trade partner. Over 90 percent of solar module production capacity is in China. Even more interesting, Chinese companies have played a significant role in the build out of domestic solar module production. 47 percent of US solar panel manufacturing belongs to Chinese companies. But the election results may be bringing cold feet.
Trina Solar, a Chinese owned business, sold its one-million-square-foot solar module manufacturing facility in Wilmer, Texas just a week after opening at the beginning of November. This poses a continued challenge for many power project developers to procure timely, quality, domestically produced equipment. And we didn’t even mention transformers, inverters, and HVDC.
TLDR; DOE will refocus new major grants or loan guarantees on fossil energy, nuclear, domestic critical minerals or related.
The new Department of Energy leadership will bring about a change in funding allocation priorities across different categories of energy and power generation. Expect a renewed focus on fossil energy with Chris Wright, career fracking guy, at the helm.
Notably, Chris is not dogmatic in his views. He studied as an electrical engineer at Berkeley and MIT, built a subsurface modeling and monitoring company (in the Bay Area), and went on to start the frack services business, Liberty Energy. Along the way, he researched nuclear and geothermal as potential sources of baseload power generation and recognizes the role of renewables and storage alongside all other forms of generation. Chris Wright seems to be pro domestic energy production in all its forms.
Other thematic energy priorities within DOE, but across the administration will include: resuming of LNG terminal projects, weakening of tailpipe and energy efficiency standards, and support for colocation to bolster the AI and crypto boom.
We know you all are not panicking. Large capital projects survive multiple administrations and cycles. Regardless of the market segment you are in, whether it’s favored by the administration or not, this unique period of power demand growth offers the opportunity for all participants to ensure we have the resilient, secure, and clean power generation we need to support a thriving society.
To ENERGY DOMINANCE, and beyond.
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