LIHU‘E — Climate provisions in the federal Inflation Reduction Act, which passed both chambers of Congress last week, could lead to lower energy prices on Kaua‘i.
Included in the wide-ranging, $740-billion legislation are tax incentives that will have a direct impact on the Kaua‘i Island Utility Cooperative, which serves 70,000 island residents, 20,000 visitors and 5,000 businesses.
One feature of the bill, direct pay, would for the first time give nonprofit cooperatives like KIUC direct access to tax credits when they invest in renewable-energy infrastructure, which would assist KIUC in developing energy projects.
Currently, only for-profit utilities are eligible for these credits, so KIUC must purchase renewable power from third-party sources, including Tesla and AES.
“If this ultimately passes, we will have more options for project development, and that could to lead to lower total project costs,” said KIUC CEO David Bissell when testifying in favor of the measure last month. “Because we are a not-for-profit entity, any savings will be passed directly through to our members.”
Bissell said KIUC is currently in the process of purchasing another solar project for development in the next few years.
“Now that it looks like direct pay will be an option, we can explore developing the project ourselves versus engaging a third-party with access to the (tax credit),” said Bissell. “It’ll be a good exercise to determine which option brings the best value to our members.”
Bissell in his testimony focused on the introduction of direct pay and the extension of energy innovation tax credits.
The act would extend tax credits that are being used for the West Kauai Energy Project, a partnership between KIUC and AES.
These credits will be realized as long as the project becomes operational prior to Dec. 31, 2025. If the operational date slips into 2026, though, the benefit from the credit would be reduced without the extension included in the Inflation Reduction Act.
U.S. Rep. Kai Kahele, who voted Friday in favor of the bill, described the direct-pay provision as “a critical section” of the bill.
“In order for Hawai‘i to achieve its 100 percent clean energy goals by 2045, we must incentivize every sector to fast track their transition into renewables,” said Kahele in a statement to The Garden Island. “Kaua‘i is an electric co-op leader, and I am proud of this federal investment that will advance clean energy and lower costs for families on the Garden Island.”
Reaching 100% renewable
Since taking control of the island’s electric utility in 2002, KIUC has made big investments in renewables, going from powering 8% of its grid through hydropower (and 92% from foreign oil) to powering 70% through renewables this year.
These investments have paid off, lowering and stabilizing Kaua‘i’s energy prices. In 2002 Kaua‘i had the highest energy prices in Hawai‘i, but over the last three months they have posted the lowest energy prices statewide.
Kaua‘i energy prices have been less affected by shocks in the market from spiking oil prices. Since early 2021, rates for KIUC members have increased roughly 10% compared to increases of between 35% and 45% for all of the other Hawaiian islands.
Hawai‘i strict renewable portfolio standard mandates that all utility electricity sales come from renewable energy by 2045.
Once the WKEP becomes operational KIUC will be between 80% and 90% renewable, and will likely become 100% renewable soon after.
“We expect to be nearing or exceeding 90% renewable by 2030, a full 15 years before the state of Hawai‘i RPS 100% mandate,” said Bissell. “As much as we’d like to get to 100% as quickly as possible, we need to be strategic and mindful of cost, as well as evolving technologies that may become more feasible to employ as we get closer to 2045.”
A compromise bill
The Inflation Reduction Act was a compromise for Democrats and climate activists. It is not as robust as the Build Back Better Act that failed in the Senate last year, and includes significant fossil-fuel provisions alongside green-energy investment. These compromises were made largely to appease West Virginia Sen. Joe Manchin, a Democratic holdout in the Build Back Better negotiations.
The bill will be paid for largely with new corporate taxes, including a 15% minimum tax on big corporations that often use loopholes in the tax system to pay a low rate. Amazon, for instance, currently only pays 6% in federal income taxes, according to the Institution on Taxation and Economic Policy.
Almost half of the funding generated — $300 billion — will go toward paying down federal deficits.
Nearly $375 billion will go towards fighting climate change, including investments in renewable-energy production and tax rebates for consumers to buy new or used electric vehicles.
Included in this funding is $25 million for Native Hawaiian climate resilience and adaptation activities, which U.S. Sen. Brian Schatz described as “the first time ever…the federal government will directly support Native Hawaiian-led climate action.”
Native-Hawaiian-serving nonprofits may also be eligible to receive additional funding from the bill for coastal community climate resilience, forest restoration and conservation, deployment of zero-emission technologies and environmental and climate justice block grants.
In addition to the climate provisions, the bill includes a provision that would allow Medicare to negotiate prescription-drug prices for specific drugs, and a cap on out-of-pocket Medicare drug costs.
The bill passed the Senate Sunday in a 51-50 vote along party lines, and passed the House Friday 220-to-207.
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Guthrie Scrimgeour, reporter, can be reached at 808-647-0329 or gscrimgeour@thegardenisland.com.
