While the Inflation Reduction Act of 2022 (IRA), recently signed into law, has created a good deal of buzz in the nuclear community, the thought of wading through its 730 pages of legislative language can be a bit intimidating. Which is why, on August 26, the American Nuclear Society offered an hour-long, members-only webinar on the legislation and its key provisions for nuclear energy.
Moderated by John Starkey, ANS’s director of public policy, “Inflation Reduction Act: What’s in It for Nuclear” featured Benton Arnett, director of markets and policy for the Nuclear Energy Institute; Josh Siegel, energy and climate change reporter for Politico; Rory Stanley, staff member of the Senate’s Energy and Natural Resources Committee; Elina Teplinsky, partner at Pillsbury Winthrop Shaw Pittman; and James Wickett, partner at Hogan Lovells. (ANS members can view the full webinar here.)
Siegel: For a brief overview of the IRA’s history, Starkey turned to Politico’s Siegel, who noted that from his perspective, the legislation has been “a long time coming,” having evolved from climate policy debates among Democratic candidates during the 2020 presidential campaign. “Biden eventually adopted the most ambitious platform once he became the nominee—maybe pushed in that direction by more climate-hawkish people like Jay Inslee and Elizabeth Warren—and eventually put together this Build Back Better agenda, essentially making climate change one of the top four issues his administration planned to tackle,” said Siegel. “Eventually, the Democrats and Biden put forth a Build Back Better bill that devoted a record $555 billion to fighting climate change, along with other social policy goals.”
That bill, as those who followed Siegel’s reporting on it are well aware, was whittled down over the course of months, with a version finally passing the House along party lines in November 2021. In the 50-50 Senate, however, without any Republican support, the legislation stalled, mostly due to the opposition of Sen. Joe Manchin (D., W.Va.).
“In the Senate, Joe Manchin has a very powerful position,” Siegel said. “He’s chair of the Energy and Natural Resources Committee. He’s a centrist Democrat who represents a major, traditional energy state, and he couldn’t support it. His concerns were largely around inflation, just the timing and level of spending. So, at that point, as a reporter, I was not really expecting a comeback. I mean, it seemed dead. The words were pretty adamant from Sen. Manchin.”
Talks continued, however. “You have Sen. Chuck Schumer [D., N.Y.], the Democratic leader in the Senate, really taking on negotiations on a new package that is much more narrowly tailored,” Siegel said. “Talks are kept very quiet. But interestingly, . . . the climate pieces of this really stayed consistent throughout—from the original Build Back Better to what became the Inflation Reduction Act. And that was something every Democrat you spoke with said—Manchin is supportive of these clean energy tax credits and this idea that became this tech-neutral approach, where tax credits are available to all sorts of technologies . . . like advanced nuclear.”
At the same time, Siegel pointed out, Manchin’s support for the IRA required some compromises from climate hard-liners, such as requiring the government to auction oil and gas leases on federal land and in the Gulf of Mexico.
Wickett: The tax-benefit provisions of the IRA, according to Hogan Lovells’s Wickett, are “arguably more generous” than those in the bill passed by the House in 2021, despite the lower price tag. “What we're hearing over and over from clients is they can’t believe the size of the package and the number of various tax incentives,” he said. “And one thing I will say just as an aside—it doesn’t seem like really anybody in Congress, or very few anymore, are questioning the value and the importance of nuclear in terms of the nation’s power grid and our climate goals. I think you sort of really saw that demonstrated in the final debates on the Inflation Reduction Act.”
The IRA’s production tax credit (PTC) for existing nuclear, “long a priority for the industry,” Wickett noted, creates a new section of the IRS Code—45U. The base credit amount is 0.3 cents/kWh, which increases by a factor of five to 1.5 cents/kWh if prevailing wage and apprenticeship requirements are met. “The credit starts in 2024 and terminates at the end of 2031, so it gives existing nuclear facilities an eight-year production tax credit,” Wickett said, adding that “when we do analysis internally, we generally just assume for all these credits that everybody’s going to satisfy the requirements.”
The PTCs and investment tax credits (ITCs) available to advanced nuclear (they are offered to other clean energy technologies as well) fall under newly created IRS Code sections 45Y and 48E, respectively, Wickett said, adding that facilities that qualify for both PTCs and ITCs can only take advantage of one.
Like the IRA’s existing nuclear PTC, the advanced nuclear PTC is set at an initial base rate of 0.3 cents/kWh, multiplied by five (1.5 cents/kWh in 1992 dollars and 2.6 cents/kWh in full for 2022) should wage and apprenticeships standards be satisfied. “The PTC lasts for 10 years and goes into effect for projects placed in service after December 31, 2024,” Wickett said.
The advanced reactor ITC is also for facilities entering service in 2025 or later. It ranges from 6 percent for most generators to 30 percent for units that produce less than 1MWe, and it also phases out at the end of 2031, or once CO2 emissions from electricity production fall 25 percent below the 2022 level.
Both the advanced reactor PTC and ITC include a bonus of 10 percentage points for facilities sited in certain energy communities, including those with retiring coal plants. “For coal-to-nuclear conversions that a lot of developers are looking at, that’s going to provide a real boost, going from a 30 percent to 40 percent ITC,” Wickett said. “And then you can get yet another 10 percent if you satisfy domestic content requirements, which includes steel but also other components associated with the facility placed in service, so you have the potential of a 50 percent ITC on 48E.”
Arnett: NEI’s Arnett focused his remarks largely on those provisions of the IRA that, while potentially impactful, perhaps have not been the real headline grabbers, including the legislation’s loan guarantee program. “The Department of Energy has authority to issue loan guarantees,” Arnett said. “It’s capped at an amount that the Congress gets to set, and so those guarantees are a way to provide financing and available capital to firms that may have some issues reaching out into the private sector and getting that type of support. It’s a nice backstop, a nice way to incentivize these nascent technologies to get deployed and to help them along their commercialization pathway.”
Loan guarantees, however, have traditionally involved a loan subsidy cost—the government’s expected loss on the loan. “In order to keep these loan guarantees budget neutral in the past, that cost has been borne by the borrower,” Arnett said. “So if you go in for a loan guarantee, you need to put up the loan subsidy cost through what’s called self-pay, and you need to provide a payment to the government to cover that expected loss on the loan. But that creates a little bit of a mismatch. Typically, the kinds of firms needing these types of loan guarantees aren’t really the firms that are going to have that subsidy amount to go provide to the government to access the loan guarantees. And so the Inflation Reduction Act does two really cool things. One is it expands the amount of loan guarantees available. So there’s $40 billion in new loan guarantee authority under what’s called section 1703, which is available for nuclear facilities, and another $250 billion in loan guarantee cap available under what’s called 1706, which is also available for some nuclear-related facilities.”
Arnett’s really cool thing number two is that the IRA actually appropriates the loan subsidies. “On that $40 billion, there’s $3.6 billion in direct appropriations for the DOE to cover some of those borrowing costs,” he said. “And on the $250 billion, there’s another $5 billion that was directly appropriated in the bill to cover some of those subsidy costs. And so, not only did they expand the amount of loans that the DOE can do in this space, they also made it such that it’s going to be a lot cheaper and easier for potential borrowers to access. So we see that as a really great program.”
Among the other provisions of the IRA highlighted by Arnett were the Advanced Industrial Facilities Deployment program, a $5.8 billion program that provides up to 50 percent cost-share with advanced industrial facilities being built in the United States; a cost-recovery provision that allows for energy facilities that are eligible under 45Y or 48E to claim some accelerated depreciation; and $700 million for the production of high-assay low-enriched uranium. “So there was $500 million set aside for the [HALEU production] facility and two other tranches of $100 million set up for some supporting activities,” Arnett said. “That’s a really big down payment on getting HALEU production up and running in the United States.”
Teplinsky: “There is a lot going on in the global energy space and specifically in nuclear,” asserted Pillsbury’s Teplinsky, a member of the firm’s International Nuclear Projects and Hydrogen teams. “There have been two key drivers that have positively affected the position of nuclear in the global energy system, and the IRA is very much related to those. Those two key drivers are one, climate change, and two, energy security.”
Teplinsky reminded viewers of Intergovernmental Panel on Climate Change reports showing the world is likely to reach 1.5°C of warming much earlier than previously thought, and noted with concern that despite the significant amounts of nuclear being added to the grid over the past few years by such countries as China, Russia, and the United Arab Emirates, its share of total electricity supply has actually been decreasing. “Even more importantly for the global energy space, despite the growth of renewables, the overall share of clean energy sources in the total electricity supply has been about the same for the past couple of years, and that’s mostly because of the decline in nuclear as a proportion of total supply,” she said. “So that basically tells the world, one, we need to aggressively move away from fossil fuels, and we need to do that ASAP, and two, we need all the clean energy technologies, including firm baseload technologies like nuclear to be part of the solution in order to meet these climate goals.”
The issue of energy security has been brought to the fore by the Russian invasion of Ukraine this past February, according to Teplinsky. “A number of European states were relying on natural gas as a transition technology to renewables,” she said. “That reliance is no longer an option for most European states after the invasion, with Russia threatening to cut off gas to Europe, and Europe also taking measures to voluntarily move away from Russian natural gas.”
Teplinsky sees enthusiasm for nuclear in Europe in the decision by the European Union to add the technology to the EU taxonomy—the classification system used to steer private investment toward environmentally sustainable economic projects—as well as in new nuclear build commitments, or at least expressions of interest, from such countries as France, Poland, the Netherlands, the Czech Republic, Romania, and Bulgaria.
“And then going away from Europe, look at what’s happening in Asia,” she said. “China, of course, has always been big on nuclear, but South Korea recently reversed its policy and is investing a significant amount of money into expanding its nuclear industry. And very interestingly, Japan, which had been very unsure about what to do with its nuclear industry after Fukushima, announced just two days ago that its planning to build new nuclear in addition to reopening shut-down reactors. There’s also a whole world out there of developing nations that need clean energy. And those countries are very interested in nuclear—countries like Ghana, Kenya, Indonesia, Vietnam, and others that are looking to nuclear as a potential solution. So the market is really huge for nuclear, really almost everywhere.”
Bringing her talk back to the IRA, Teplinsky observed that more than 50 U.S. companies are pursuing new nuclear technologies, and that while a market for those technologies certainly exists in the United States, an international market also beckons. “In order for any of these companies to be able to export these technologies, they really have to build at home,” she said. “They not only have to demonstrate the technologies, they have to also show that they’re investing in them. They need to bring down the cost, basically create new fleets of these technologies that can be easily exported around the globe. . . . We need to really demonstrate this at home in order to be able to take these projects abroad or participate in projects abroad.
“The world is watching what’s happening in the United States. In the energy space, we’re sometimes the leader and sometimes not. I would argue that with the IRA this year, we are really placing ourselves as a leader and not as a follower on energy transition, and it's going to be important. What happens in the United States is going to drive what happens in other countries.”
Stanley: “It's been a phenomenal couple of years,” declared Senate committee staffer Stanley. “Entering this Congress, I knew my boss Sen. Manchin’s priorities were on the commercialization and deployment of advanced nuclear technologies, nuclear fuel, and, pretty much foremost on his mind, preservation of the existing fleet. And while I know the focus of this is on IRA, there has been so much important legislation on energy writ large, but also on nuclear, that has been passed in the past couple of years. We had a really good template just by virtue of having the Energy Act of 2020 passed and having those provisions providing direction to the DOE to advance the Advanced Reactor Demonstration Program, HALEU, all these really important R&D initiatives. And just one year after that was passed, we had enactment of the bipartisan Infrastructure Investment and Jobs Act, with actual money to fund pathway one of ARDP and hydrogen hubs—one of which was required to be powered through a nuclear power plant.”
Another key piece of legislation, according to Stanley, was this July’s Chips and Science Act. “That was kind of lost because soon after it was enacted into law, news came that an agreement had been reached on IRA,” he said. “The Chips and Science Act included the DOE’s Science for the Future, National Nuclear University Research Infrastructure and Reinvestment, and Fission for the Future.”
On the IRA itself, Stanley stressed the funding made available for national lab infrastructure. “It’s going to allow to expedite some really important Office of Science and other critical infrastructure projects across the across the lab system,” he said. “There’s $300 million for high energy physics, $280 million for fusion energy, $217 million for nuclear physics construction, $157 million for isotope research and development facilities, and $150 million to the Office of Nuclear Energy. So there’s lot of good stuff in there.”