Energy & Environment

How the Democrats’ inflation bill could cut consumer energy costs

Workman with Power Shift Solar put solar panels on a house Wednesday, Aug. 10, 2022, in Salt Lake City.
AP Photo/Rick Bowmer
Workman with Power Shift Solar put solar panels on a house Wednesday, Aug. 10, 2022, in Salt Lake City.

The Democrats’ Inflation Reduction Act is expected to cut prices that consumers pay for energy, according to recent modeling, though by how much remains less clear. 

The bill contains a mix of tax credits for renewable energy sources and incentives for household solutions, both of which could help bring down energy costs. 

But those benefits may not be evenly distributed, and factors like home ownership and the power landscape may determine who sees a benefit.

“Across most regions, I believe that it’s very likely that this will result in certainly lower electricity prices across the board, and eventually, this should lower overall demand of natural gas which will lower the prices for those homes that still use natural gas for heating or cooking,” said Harrison Fell, a senior research scholar at Columbia University’s Center on Global Energy Policy.

After the Senate passed the bill along party lines, Democrats touted what they described as savings to “everyday energy costs,” while Republicans complained the bill would punish some energy producers.

The legislation — poised to pass the House on Friday — contains a slew of tax credits that incentivize companies to deploy more carbon-free electricity, including from solar, wind and nuclear facilities.

It also contains incentives aimed at promoting residential clean energy use, like rooftop solar. And it includes other incentives aimed at helping homeowners use less energy overall, like by installing efficient heat pumps — an alternative to air conditioners and furnaces. 

While many of these provisions have been widely touted for their climate benefits — and are expected to help the U.S. get closer to its climate targets — new modeling shows they also may help consumers save money. 

Resources for the Future projects that it will bring down average electricity costs by between $170 and $220 annually, from both their electric bills and the lower costs of goods and services.

This analysis only looked at the impacts of tax credits geared toward the commercial deployment of clean electricity. It found that over the next decade, the average household will see between $170 and $220 in savings, as the cost of electricity sold to consumers drops by between 5.2 and 6.7 percent. 

Kevin Rennert, director of Resources for the Future’s Federal Climate Policy Initiative, told The Hill that the model accounts for two competing factors: new costs from building clean energy facilities and requirements in some markets to pass credits on to consumers to get its cost savings.  

A separate analysis from Rhodium Group found that the bill could save consumers an average of $16 to $125 per year on annual energy expenditures — also including the price of fueling their cars and using gas appliances — by the year 2030. 

“The savings ramp up over time as more households adopt electric vehicles, as they put in heat pumps so their electric bills go down,” said Ben King, an associate director with Rhodium Group’s energy and climate practice. 

He said many of these savings are expected to come from consumers who adopt electric vehicles but that people should also expect to see savings on their electric bills, too. 

But just because costs come down for producing these types of energy doesn’t necessarily mean those benefits will be evenly distributed. 

Fell said that in places where one company controls both the production and distribution of power, consumers may not see cost savings — at least not right away. Since the legislation promotes the deployment of additional energy infrastructure, some of the initial costs of building that infrastructure may get placed on consumers, he said. 

But he added that for most people, the savings are expected to outweigh the costs. “You’re really looking at a lot of low-cost generation coming online,” Fell said. 

Rennert added that in states with regulated power markets, consumers could expect to see more savings than in deregulated power markets because of requirements to pass savings on to consumers. 

“Some markets are regulated markets … and in those, effectively the value of tax credits that are picked up by an entity are required by regulators to flow through to consumers,” he said, adding that in other markets the benefit comes from “cheaper clean electricity changing what the wholesale price is.”

Christopher Knittel, a professor of applied economics at MIT, also raised concerns about the costs of new energy facilities falling on consumers. But, he said, the bill is expected to be a net positive for their wallets because of other provisions like those that increase energy efficiency. 

However, some of the benefits of the other provisions may not be equally distributed among consumers, either, as not every consumer can install solar panels on their roof — even with the government covering up to 30 percent of the cost — and not everyone can afford an electric vehicle, even if they get a tax credit. 

“It’s hard for subsidies to not be good for the average consumer,” Knittel said. 

“So the subsidies on the appliance side, the heat pump side, distributed renewable generation, is going to help the average consumer,” he said, “I still worry about more than just the average consumer, and that’s why we should pay particular attention to what it’s doing across the income distribution.”

Tags Climate change energy costs Inflation Reduction Act Nuclear energy Renewable energy solar panels wind energy
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