2022 was an active year for the hydropower industry, and as 2023 begins, it’s appropriate to review last year’s highlights and forecast the anticipated trends to continue this year.
In 2021 and 2022, Congress passed two major legislative packages that are cornerstones of President Biden’s infrastructure and renewable energy agendas, the Inflation Reduction Act of 2022 (“IRA”) and Bipartisan Infrastructure Law of 2021 (“BIL”). As a reminder, the IRA allows certain hydropower facilities to take advantage of the Investment Tax Credit (“ITC”) for specified infrastructure improvements and the Production Tax Credit (“PTC”). The BIL provides $125 million in additional funding for the Hydroelectric Production Incentive Program, nearly $630 million for the Hydroelectric Efficiency Improvement Incentives Program and the Maintaining and Enhancing Hydroelectricity Incentives Program to enable facilities to improve efficiency, grid resiliency, dam safety, and environmental conditions.
In 2023, the benefits of these initiatives will begin to bear fruit for the hydroelectric industry as more owners and operators take advantage of these initiatives. Many of the BIL funding opportunities will begin seeking proposals in 2023.
Unlocking Benefits of Pumped Storage
In 2023, we expect to see continued strong interest in the development and operation of pumped storage facilities, which may also be able to take advantage of the benefits of the IRA and BIL. For example, the BIL offers the Pumped Storage Hydropower Wind and Solar Integration and System Reliability Initiative and began soliciting proposals in Q4 of 2022 for this procurement. However, even without these incentives, we are hearing continued industry interest in using this resource as utility-scale, zero-emitting storage service for grid stabilization.
Environmental and Social Justice
2022 began a new chapter in the relationship between environmental regulation, hydropower operation, and social justice considerations. FERC issued its Equity Action Plan (“EAP”), which focuses on: (1) building and staffing its new Office of Public Participation, (2) strengthening Tribal government consultation and engagement policies and processes, (3) reviewing key regulations within the hydropower project licensing process, and (4) implementing equity readiness for staff to understand the EAP mission. Moreover, the hydropower industry, Tribes, and environmental groups reached a consensus on hydropower licensing reforms that, if enacted by Congress, would represent the most sweeping amendments to the Federal Power Act (“FPA”) in over 75 years, with the intent of modernizing hydroelectric licensing and relicensing for licensees, Tribes, regulators, and stakeholders.
Many initiatives and tools developed in 2022 are poised to begin impacting FERC policy actions in 2023, including a roundtable discussion on environmental justice and equity that will occur on March 29. Thus, we anticipate social justice considerations to remain firmly on the agenda in 2023 as FERC begins to fulfill its commitments announced in 2022.
Shifting Federal Regulations
The Biden Administration continues pushing forward with its agenda to rescind and replace environmental regulations promulgated during the Trump Administration. Below are a few highlights of the Biden Administration’s 2022 regulatory activities:
- Threatened and Endangered Species:
- Proposed listing of the Tri-Colored Bat as Endangered and up-listing the Northern Long-eared Bat
- National Environmental Policy Act (“NEPA”)
- Clean Water Act (“CWA”)
In 2023, expect a continued regulatory push and for agencies to finalize many of the proposals listed above. Particularly, the Council on Environmental Quality is set to release Phase 2 of its NEPA rule, and we anticipate that the Environmental Protect Agency will finalize its CWA section 401 rule. We also expect litigation over regulatory actions to continue in 2023, which creates regulatory uncertainties for industry participants.