Sustainability

The recent US election results will undoubtedly impact the energy and sustainability landscape, setting the stage for potential shifts in policies, regulations, business investments, and social and environmental impact globally.

In the wake of President-Elect Donald Trump’s win on November 5th, it's crucial to examine how the new administration's plans and the new congressional makeup may impact organizational energy and sustainability strategies for the next several years. Understanding these potential shifts is essential for strategic planning, recognizing that potential changes in policy and stimulus programs could come over time.

One of the more prominent concerns is the potential for the US to withdraw from the Paris Agreement for a second time. This will have far-reaching implications on the ability to achieve the 1.5 degree Celsius target for global warming established by the Paris Agreement, with some raising fears that a US withdrawal at this critical moment could send demand signals to other countries wavering on their nationally defined contributions and commitments to decarbonization. However, it will be difficult for any geopolitical movement to slow the energy transition. For instance, the average levelized cost of solar energy globally in 2023 was 56% lower than power derived from fossil generation.¹

In recent days, President-elect Trump has given other signals that he means to make good on his campaign processes, such as relocating the Environmental Protection Agency (EPA) outside of Washington, D.C., and modifying the scale of national monuments in the Western U.S. to enable more oil and shale drilling on public lands. Trump is also expected to curtail current LNG export permitting and revoke waivers that have allowed California and other progressive states to have tighter-than-national-average pollution standards.

Immediate-term strategies still in play

While the election result could influence the ability of organizations to pursue their sustainable strategies, there are still opportunities in the current environment for action on renewable energy.

Tax Credit Transferability (TCT) under the existing Inflation Reduction Act (IRA) enables renewable energy project developers to sell their tax credits to third parties. This provision significantly broadens the investor base beyond traditional tax equity investors, to include a wider array of corporations that may have a tax appetite but previously lacked direct access to these credits. 

TCT can lead to an increase in project financing options, lower capital costs, and ultimately, more rapid deployment of renewable energy infrastructure. This flexibility is particularly advantageous for smaller developers or those newer to the market, who may find it challenging to utilize tax credits effectively. 

By facilitating a greater flow of capital into clean energy, TCT aligns with national goals of energy security and job creation. The solution is a strategic tool that can help bridge the gap between available tax incentives and actual investment, ensuring that the full potential of tax credits is realized to support the nation's transition to a sustainable energy future. 

Schneider Electric has collaborated with several leading multinational organizations to help them take advantage of TCT, including an agreement with ENGIE to accelerate progress toward Schneider’s own 100% renewable energy goal in North America. Other notable projects include the purchase of 45X tax credits from Silfab Solar to support American manufacturing of solar energy and work with Kimberly-Clark to advance grid resiliency for multiple battery energy storage projects in Texas, a total $237.5M investment for 480 MW. Read more on recent TCT advancements, here.

Schneider Electric experts weigh in:

John Powers, Vice President, Renewable Energy & Cleantech

Corporate commitments to sustainability and the need for business-friendly climate solutions have never been higher. The overall market trajectory points towards a lower levelized cost of energy for renewables, meaning that sooner or later all markets globally will move to renewable generation. We don’t anticipate that temporary policies will shift the large-scale economic reality. For our clients who are experiencing uncertainty in the market, we can help to address your concerns and achieve goals with a variety of solutions available in markets worldwide. Our expert team can help you strategize on your next step so that you can continue to drive towards your business objectives.

Robbie Fraser, Associate Director, Global Research Analysis

We see potential influence on the pace of growth, but not the direction, within energy markets. We anticipate that a repeal of the Inflation Reduction Act would have a far-reaching impact and face significant challenges. Conditions are expected to remain favorable for continued wind and solar development under a wide range of policy scenarios, with federal efforts likely to influence the pace of growth, but not the direction.

Anticipated changes in the US public sector

Public sector entities have greatly benefitted from both COVID-19 stimulus recovery investments and provisions of the IRA that have enabled the transition to lower-emissions public vehicles and greater onsite solar adoption.

Under the federal Investment Tax Credit (ITC), public entities such as schools can receive a dollar-for-dollar credit for expenses invested in renewable energy technologies. The IRA extended the benefit of the ITC through 2032 as a 30% credit for qualifying expenditures, a provision that is improving bottom-line energy expenses for schools across the country. The IRA also made qualified tax-exempt organizations eligible for direct payment of the tax credit regardless of tax-filing status.

The IRA also expanded the 179D commercial buildings energy efficiency tax deduction, which allows building owners to claim a tax deduction for installing qualifying energy efficiency systems in buildings. If the system or building is installed on federal, state, or local government property, the 179D tax deduction may be taken by the person primarily responsible for the system’s design. Should any changes to the IRA occur, these provisions may be impacted; and our experts are closely tracking how the incoming administration will treat the IRA in the coming months.

Performance Contracting: Smart Investments for states and shared savings investments.

A policy-neutral approach to making building improvements that reduce energy and water use and increase operational efficiency is Energy Savings Performance Contracting (ESPC). By partnering with an energy service company (ESCO), a facility owner can use an ESPC to pay for today's facility upgrades with tomorrow's energy savings—without tapping into capital budgets. Public entities such as K12 school districts and local governments can implement ESPC projects to improve their facilities, impact indoor air quality, and reach sustainability goals. Regardless of election results and/or potential policy changes, performance contracting will remain one of the most effective ways for public entities to improve their facilities and modernize their infrastructure in a cost-effective way.

Recommendations

We advise our clients to remain adaptable to respond to the potential scenarios that may arise under the new administration. Specifically, we recommend:

• Stay informed: Pay attention to policy announcements, regulatory changes, and proposed legislation related to energy and sustainability. Understanding the evolving landscape will be crucial for making informed decisions. Subscribe to receive our latest content and recommendations.

• Assess impacts and options: Evaluate how potential policy changes and regulatory shifts could directly affect your company's operations, investments, and long-term sustainability goals. Schneider Electric can partner with you to determine how changes might affect your strategy and help you develop scenarios that enable swift adoption of various possible futures.

• Invest in innovation: Explore opportunities for innovation in renewable energy, clean technologies, and sustainable business practices. Consider investments that align with potential policy directions and market trends, with both sustainable and economic benefits.

• Stay the course: Energy efficiency measures, renewable energy, and other forms of resource resilience have a positive impact on your bottom line, on domestic energy security, and our larger economy. We encourage our clients to continue to pursue their ambitions.

Continue to follow along with our team on Perspectives and our LinkedIn channel for additional updates.

Our markets team is also closely monitoring how the recent election is impacting and shaping global energy markets. For more information, follow our GEO Live series:

Nov 11th edition of Critical Energy News, Robbie Fraser, Associate Director, Global Research Analysis, addresses drilling in the US, Iranian supply, and Liquified Natural Gas (LNG). Follow Schneider Electric Sustainability Business on LinkedIn, for weekly updates.

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References:

1. https://www.irena.org/Publications/2024/Sep/Renewable-Power-Generation-Costs-in-2023