Signed into law on August 16, 2022, the Inflation Reduction Act (“IRA”) contains approximately $369 billion in climate provisions and is being hailed as the landmark piece of climate legislation in U.S. history. Among those provisions, the IRA includes significant benefits for the nuclear industry that will help preserve the existing fleet of U.S. plants, construct new plants, and develop nuclear technologies through production tax credits, investment tax credits, and loan guarantees.
At the end of 2021, the U.S. had 93 operating commercial nuclear reactors at 55 nuclear power plants in 28 states, although Georgia is the only state with a nuclear project currently under construction. The average age of U.S. nuclear reactors is about 40 years old. Twelve states currently have restrictions on the construction of new nuclear power facilities, while two states, West Virginia and Minnesota, have recently lifted moratoriums on new plants. The nuclear industry has maintained a consistent share of about 20% of total annual U.S. electricity generation from 1990 through 2021 and supports nearly half a million high paying jobs.
Production Tax Credit for Existing Reactors.
The zero-emission nuclear power production credit provides up to $15 per megawatt-hour for the electricity produced by the plants. The production credit will become available for operating facilities in 2024 and will continue through 2032. The credit will gradually decrease if the price of power rises above $25 per megawatt-hour, but it does not phase out completely until energy prices reach around $44 per megawatt-hour. This production credit will help existing plants compete with other power generators.
Production Tax Credit for Advanced Nuclear Reactors.
Advanced nuclear reactors (“ANRs”) represent the cutting edge of nuclear technology. These reactors are typically smaller, safer, and more efficient than their generational predecessors. Operators of ANRs could benefit from a technology-neutral production tax credit for at least $25 per megawatt-hour for the first ten years the plant is in operation, adjusted for inflation. The technology-neutral credit is reserved for emissions-free power generation that goes online after 2025 and the credit phases out in 2032, or when carbon emissions coming from electricity have fallen by 75% below the level of 2022. The credit includes a 10% bonus if the power plant is built at a brownfield site or a fossil energy community, such as a coal plant.
Investment Tax Credit for New Nuclear Plants.
Nuclear plants that go into service in 2025 or after will be eligible for a tax credit for 30% of the capital invested in constructing the facility. ANRs are eligible for this credit, but those facilities must choose between the investment credit and the production credit – they cannot benefit from both. The investment credit is also increased by 10% for facilities built on a brownfield site or a fossil energy community. The investment credit phases out when carbon emissions from the electricity-generating sector are 75% lower than 2022 levels.
The IRA creates a program called the Energy Infrastructure Reinvestment (“EIR”) Program, to guarantee loans to projects that retool, repower, repurpose, or replace energy infrastructure that has ceased operations. The IRA appropriates $5 billion through September 30, 2026, to carry out EIR, with a total cap on loans of up to $250 billion. Potential projects could include repurposing shuttered fossil energy facilities and retooling infrastructure from power plants that have ceased operations for new clean energy uses.
The IRA also provides an additional $40 billion of loan authority for projects eligible for loan guarantees under section 1703 of the Energy Policy Act of 2005, which establishes loan guarantees for entities that develop or use innovative technologies that avoid the by-production of greenhouse gases, including nuclear. The additional funding will remain available until September 30, 2026.
These programs and incentives will help reactor operators remain competitive with other energy producers and will likely result in the expansion of the nuclear energy industry beyond the 28 states with operating facilities. The Biden administration pledged that the U.S. will achieve a 50-52 percent reduction from 2005 levels in economy-wide net greenhouse gas pollution by 2030, and the IRA’s investment in nuclear energy could prove to be a key to achieving that goal.
Joseph C. Unger
Associate, Spilman, Thomas & Battle