The federal government has set aside massive amounts of money in the past two years to speed the transition from an economy based on fossil fuels to one based on carbon-free energy.
It’s Pete Wyckoff’s job to make sure Minnesota gets its share of the cash.
Four months ago he was hired as Assistant Commissioner for Federal and State Energy Initiatives at the state Department of Commerce.
Prior to that he worked on energy and climate issues for senators Al Franken and Tina Smith. Wyckoff was in Washington, D.C. when the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) were passed, both of which contain enormous amounts of money intended to spur the transformation to a green economy.
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He spoke with MPR News’ Dan Kraker about his job, the IIJA, the IRA and the role federal funding can play to help Minnesota’s efforts to get to green.
Hear the conversation using the audio player above, or read a transcript of it below. Both have been lightly edited for clarity and length.
Dan Kraker: Could you help me and our audience understand the scale of what's out there? We've heard this funding being described as transformational. Is that the case? And could it really make a big difference here when we talk about transitioning to a clean economy?
Pete Wyckoff: So yes, between the two bills, there's just a lot of spending on the table, the bulk of which is in the IRA, which has most of the climate clean energy stuff.
But the [IIJA] has been out longer. We’re two years from the passage of that bill, as opposed to one year. And it does include a lot of grant-based spending for the energy sector, for building out transmission, for developing hydrogen and other alternative fuels that can be clean that we will need as we transition to a net-zero economy by the middle of the century. I think it comes to about $50-to-100 billion of nationally available grants for the energy sector.
The piece that is much bigger, and is just getting stood up is the Inflation Reduction Act. It’s all incentive-based. And it's three big pots of money.
The first pot, like the IIJA, it's in [$100 billion worth of] grants. Some of that is for energy sector transformation. There's $20 billion for grants to help farmers adopt practices that will lead to sequestered emissions or lower emissions. So that's front loaded, most of those are coming out pretty quick.
There is about a half a trillion dollars [$500 billion] in federal guaranteed loans for clean energy projects. So those are low interest loans. They can help ease the transition to a clean energy economy.
And Minnesota has an incentive, both the state as an entity and companies within Minnesota, to go after those loans. And those can be really transformational. Half a trillion dollars is nothing to sneeze at. And it will stimulate a lot of activity that is not just federal money, it's private sector money and state money.
Then the even bigger piece, and there's a debate about how much this third piece will come to, are what are called the clean energy tax credits. So the first two pools, the $100 billion or so in grants and the $500 billion in clean energy transition, are federally guaranteed low interest loans. We know how big that pot is.
[But] the tax credits are uncapped. So they are worth as much as there is demand to use them. These are not your grandfather's clean energy tax credits. They are souped up and can make potentially a revolutionary difference in how we look at the cost of energy.
For instance, there have been on-again, off-again production tax credits for wind energy, where basically the federal government says ‘You produce some wind energy, and we'll pay you for the unit produced.’ And that has offset some of the costs of wind energy and helped make the cost curve come down for wind energy quite a bit by encouraging deployment. We’ve had that for a long time.
For a shorter period of time we've had what's called an investment tax credit for solar. That's an upfront payment to offset the [cost of] solar. The bulk of the clean energy tax credits — the workhorses — are those two tax credits.
But now they're not just about wind and solar. Now, the production tax credit (PTC) and the investment tax credit (ITC) can be used for either [wind or solar], and they're expanded to include energy storage and basically any low or no-carbon source of energy. [In the past] those have been on and off-again, which through the years has made them hard for planning. But now they are on for 10 years or longer.
They’re pretty powerful. In the past, the ITC, for example, has peaked at 30 percent of the cost of installing a solar array. Now, they can go up to 70 percent of the cost if you get the basic tax credit, plus you are paying good wages, you're using apprenticeships [and meet other requirements]. There are a series of adders that make the tax credits more valuable.
So in theory, if you and I run a nonprofit, a one megawatt solar array would cost about a million dollars. If you were able to check all those boxes, we could get the federal government to write us a check for 70 percent of that.
They're calling it a tax credit. But in the case of nonprofits, or a church group or a local government or an NGO, a tribe or the state itself, those are all non-taxpaying entities that can get these tax credits as well, through what's called a direct pay option.
There are tax credits directed at the nuclear industry, tax credits for carbon capture and storage. There's tax credits for sustainable aviation fuels and biofuels, a slew of different things that can reduce climate impacts.
The initial Congressional Budget Office estimates, when this bill came out, were a couple billion dollars worth of tax credit utilization. Now we think there's going to be $700 billion of uses. And there are credible folks estimating that it’s 1.5 to $2 trillion. It keeps going up.
The numbers you hear for what it would cost to transition to a net-zero economy are in the many trillions. So we're still talking in the low trillions. But this is meant to stimulate activity. And this is basically a 10-year program. It’s not meant to get us all the way to net zero. It is meant to move us along on that pathway.
Dan Kraker: Is some of this money already flowing to Minnesota? The IRA is a year old now. Is any of this flowing yet?
Pete Wyckoff: Some of it is flowing. Most of what is flowing is in the money that came from the IIJA or the bipartisan infrastructure bill that's two years old. That gives you an idea of how much time it takes.
And what we're tracking at Commerce is the activity in terms of grants. The latest update is that there are $2.1 billion in grants in various stages of development or application. Those all won’t come through. And that’s just in the things Commerce is tracking. And people don’t have to tell us. So the number’s bigger than that.
For instance, Minnesota has a hydrogen hub proposal that we’re part of with North Dakota. So that's another big chunk. That’s just on the grant side. On the loan side, Minnesota doesn't have any completed loans through the DOE Loan Program, which is where most of the loan money is.
But there's a bunch of applications starting to roll out. It’s my job and others in government to do what we can to encourage applications for that money from Minnesota. So that's just starting.
Dan Kraker: That's a big question I have for you. Because it's going to be private entities, utilities, nonprofits, right, who are going to be applying for a lot of this stuff. So what's the state's role in that? Because I imagine, for instance, there are probably a lot of nonprofits that lack the expertise to apply for grants.
Pete Wyckoff: You’re correct, federal grants come with a lot of paperwork. Federal loans, there's a lot of different paperwork. There’s a need to make sure we are getting capacity built up for small nonprofits, for tribes, for small towns. And there are a lot of efforts on building out capacity.
A lot of them are coming through the Department of Commerce. We have grant applications in to help build out capacity for what we call ‘energy navigators’ that are helping groups find the money.
The state just had an extremely productive legislative session. The Department of Commerce has approximately 30 new programs to start up in the energy space. The biggest one is something called the state competitiveness fund. That fund is explicitly to help the state go after federal funding.
So we have just under $200 million where we can provide matching grants. We have a separate pool where we can provide support in terms of matching grants to folks who are going after loans and folks who are looking to utilize the tax credits and need some extra help. The first thing we're rolling out there are capacity grants, so that we can help groups in the state better prepare themselves for going after the money.
Dan Kraker: In your view, are there certain areas where you think getting as much federal money as possible is most important? Or is it just trying to get as much as possible in all these different sectors?
Pete Wyckoff: The state has two big goals. We are aiming towards net zero emissions economy-wide by the middle of the century, so 2050. That's going to take a lot of effort on a lot of different fronts. That includes some really hard to solve problems like industrial emissions and agricultural emissions.
But also, the easier to solve problems like transportation and the electric sector are still tough. And these federal funds will make them so that we can not only reduce the emissions, but to do them in a way that preserves affordability. And in the case of the electric sector, we're also never losing sight that you have to have reliability. No one's going to tolerate an electric system where if you turn on the light, the light doesn't come on.
Minnesota also just adopted into law [a requirement for a] 100 percent clean electric sector by 2040. So we have those two dates. And we are moving as fast as we can to get those emission reductions. And these federal incentives are going to be really important towards making sure that we can do those things affordably.
Dan Kraker: Do you have any final thoughts for our audience?
Pete Wyckoff: Be patient with us. We have new programs rolling out across the spectrum of clean energy. Some of that is for individual consumers. We will have an EV rebate program rolling out. We will have a rebate program aimed at helping people install heat pumps. And all the new state programs are piggybacking on or supporting these federal incentives as well.
And individual consumers can already use federal tax credits to help reduce the cost of home efficiency upgrades and help reduce the cost of buying an electric vehicle and help reduce the cost of putting solar on their roof. Those tax credits from the IRA are already out there for individuals. And folks can start using them. We are rolling out a bunch of complements to those that are at the state level. So it's really an exciting time.
One of the other things to keep in mind, as we're going forward, no matter whether we say we're fossil forward, or we're clean forward, we're going to need to make a lot of investments over the next few decades. These incentives help us do what we already were going to do, which is lead with the clean, and do as much clean as possible, as fast as makes sense. And with the incentives, we can go faster, without impacting cost.
But what you're gonna get as you move to clean is a system that's also just cheaper. We do not have any fossil fuels in Minnesota. But we have abundant biomass, we have abundant wind, we have abundant solar. The cost of wind and solar is always going to be zero. It's not dependent on some petro-dictator off someplace.
All the modeling that I've seen from my work at the federal level is that moving to clean is moving to a system that is also more affordable. There’s a transition, you have to build the infrastructure. The federal incentives can take that hump and reduce it. But what you look at if you take a 10, 20, 30-year perspective, is a system where energy is more affordable, not just cleaner. And that’s good for Minnesotans.