Imperfect foresight, Advocates vs Analysts and reactions to OBBA energy provisions

A lot of people are very upset about the energy provisions in the House and Senate versions of the reconciliation bill, and I understand why. It's as abrupt a U-turn in government policy that I have seen in 35 years, and is very disruptive to companies making long term capital expenditures. Joni Ernst (R-IA) and other Senate Republicans are reportedly trying to reverse some of the bill's harsher provisions, and we will know in a few days how that turns out. The excise tax on wind and solar as a function of China supply chain exposure appears to be really bizarre at a time of growing US power demand.

Even so, I remain unconvinced about all the projections I'm seeing regarding the impact on electricity prices by state out to 3 decimals from reversing IRA tax credits for wind, solar and EVs. There are two kinds of people that work on energy: advocates and analysts. Advocates are generally smart and well informed people, but they typically will only tell you the facts in their possession that conform to their views and fundamental beliefs, and will only highlight other people's work on the same basis. That has been my experience after writing our Eye on the Market energy paper for the last 15 years. Analysts are different; they often have the same set of data but are willing to give you the good, the bad and the ugly irrespective of the implications the data may have for a certain set of beliefs, whether that happens to be devout adherence to decarbonization at all costs (i.e., Rocky Mountain Institute, Green Tech Media, IEA) or devout opposition to renewables (Geologist Simon Michaux, Physicist Tom Murphy, Mark Mills of the Manhattan Institute, Geologist Walter Youngquist, Alice Friedemann, Bjorn Lomborg, etc).

As for the widely cited projected impact of IRA provision repeal on electricity prices, let's revisit and update the chart below from the time of the IRA's passage. An August 2022 article in the Atlantic by Robinson Meyer is a great example of the Advocate point of view: "First we got the bill. Now we have the numbers". Meyer was referring to projections by Princeton REPEAT, Energy Innovation and the Rhodium Group regarding the impact of the IRA on US GHG emissions (dotted lines in chart). Meyer's chart was titled "Three Studies, One Conclusion", and reported that Rhodium's worst-case forecast was a GHG decline of 31% by 2030, with upside to a 44% decline. Fun fact: at the time, I was unable to get the underlying assumptions from Energy Innovation and Rhodium that resulted in these massive GHG declines; only Princeton REPEAT was willing to share them, and some of their assumptions were pretty aggressive (Class 8 semi truck sales in 2030 would be 90% EVs!!). The September 6, 2022 Eye on the Market goes into all the details.

How did things turn out through 2024, a period in which the Biden Administration had broad latitude to interpret energy bill policies at its discretion (so much so that Joe Manchin published an open letter stating that the Administration was subverting his original intent to balance decarbonization with national security and supply chain concerns)? As shown below in the solid red line, US GHG emissions have barely declined from 2021 levels and are not conforming to any of the three forecasts. In fact, GHG emissions are actually higher than the "Current Policy" estimate that Rhodium made at the time.

Renewable energy and associated battery storage play an important role with respect to US electricity generation, and our annual energy paper goes into extensive detail on all the pros and cons of greater penetration (by the way, combined cycle gas turbine costs per kW have more than doubled since 2023 and Trump tariffs will only make that worse). But for a change I would like to see the renewable energy Advocacy community acknowledge the inherent uncertainty associated with forecasting electricity prices by state as a function of IRA provision repeal. Such posts might be effective talking points with constituents, but other than that, I'm not sure how much they're really worth.

Michael Cembalest, JP Morgan Asset Management