The Inflation Reduction Act makes renewables cheaper. But TVA is still pushing fossil fuels.

The Inflation Reduction Act has been called the most significant climate law in U.S. history, with promises to radically shift electricity from fossil fuels to clean sources. 

In Tennessee, the legislation could shape a new wave of clean energy manufacturing, but it has been absent in the state’s electricity plans. 

The Tennessee Valley Authority, a federal utility that serves 10 million people across seven states, is planning possibly the largest fossil fuel buildout in the nation this decade. TVA proposed three new gas plants and more than 150 miles of pipelines in Tennessee this year and is in the process of building three other gas projects, together totaling about 6 gigawatts of new generation from extracted methane. 

As a government entity, TVA is legally required to pick energy sources with the lowest overall cost. But experts, Nashville officials and even a federal agency are saying the proposed gas plants are unlikely the cheapest options, partially because of how the new legislation is affecting the competition.

The IRA aims to lower the costs of clean energy through tax credits, which have historically been available to the tax-paying private sector, with a new twist: The legislation carved out a special provision for public utilities to get equivalent financial incentives and explicitly names TVA as an eligible entity.  

“Congress solved that problem by creating direct pay provisions, which allow TVA to take those same tax credits that private entities would get as a direct payment from the United States Treasury,” said Trey Bussey, an attorney at the Southern Environmental Law Center, which has sued TVA over its gas plans. 

Here is a look at one project — and why the math leans towards renewables.

‘Clean energy wins every time’

In May, TVA proposed new gas facilities and a 122-mile pipeline to replace coal at the Kingston Fossil Plant, the site where the nation’s worst coal ash spill occurred in 2008. In a draft environmental review for the project, TVA said that the effects of the IRA are “unknown” and might not be available to build a renewable project under the utility’s preferred deadline of 2027. 

The gas project would be a big win for Enbridge, the company that makes billions each year primarily through the operation of pipelines, and it may benefit TVA executives, which TVA has previously denied as motivation. But the project could cause more expensive monthly bills for Tennessee Valley residents over its multi-decade timeline. 

Earlier this summer, the Environmental Protection Agency questioned the Kingston project’s costs, its contributions to climate change and the potential for alternative options, including wind, in a formal response. 

“The EPA remains concerned that the analysis does not fully account for expected cost decreases of renewable energy and higher future natural gas prices. The costs of renewable energy production and battery storage will continue to fall along the timeline of this project due to subsidies from the IRA,” the agency wrote, pointing to the new guidance for TVA’s available incentives that the Internal Revenue Service proposed in June.

From the perspective of building and running a new power plant, wind and solar are currently the cheapest sources. Renewables got more expensive this past year, but energy costs for all source types have increased due to supply-chain issues and inflation, according to financial group Lazard. 

Courtesy Bureau of Land Management

Natural gas plants require continuous drilling, often in the form of fracking, to extract methane gas from subsurface rock. Methane warms the planet 80 times faster than carbon dioxide in a 20-year time frame.

There are a lot of other factors that influence the price of energy, such as transmission, fuel costs and the social costs, which consider the tolls of pollution and climate change. A solar farm may require more transmission upgrades but does not have fuel costs. For the Kingston project, TVA calculated that the total social costs for gas would be about $6 billion more than with a solar project — though EPA says TVA needs to show its methodology for this estimate. 

Regulations also matter. Earlier this year, EPA proposed a rule that would require large gas plants to capture 90% of their carbon emissions, have 30% hydrogen use by 2035, or close early. TVA did not budget for these regulations in its recent gas project proposals. 

“The lifespan of the proposed plants undermines any cost-based argument made by the TVA,” Nashville Mayor John Copper’s office said in comments last month. “Leaving Nashvillians on the hook to pay for further pollution is unacceptable.” 

And then there is the IRA. 

“Once you calculate it in those Inflation Reduction Act benefits, clean energy wins every time against fossil fuels,” Bussey, the attorney, said. 

Will TVA change course on fossil fuels?

TVA will incorporate comments from EPA into its final environmental review for the Kingston project, review guidance from external sources and consider bids that it received on its recent procurement requests for up to 5-GW of carbon-free power by 2029.  

“TVA will update the cost assumptions used in the alternatives analysis included in the Kingston retirement and replacement Environmental Impact Statement utilizing the latest available information,” the utility said in a statement.

The law is complicated, so it would make sense that it would take some time to figure out, said Jim Rossi, a professor of energy law at Vanderbilt University. 

“This is a pretty new thing,” Rossi said. “The direct pay provisions haven’t been extended to tax-exempt entities before.” 

But Rossi said the utility should not dawdle in tapping into the funding as the law offers new opportunities for TVA and its customers, including local power companies like the Nashville Electric Service. 

In April, TVA created a Federal Funding Project Management Office to help various business units, customers and partners to gain access to federal funding opportunities created by both the Infrastructure Investment and Jobs Act and IRA, according to TVA. 

“Every utility across the country in the wake of this legislation should be ripping up their plans and starting to build wind and solar themselves,” Leah Stokes, a utility expert and professor at the University of California, Santa Barbara, told WPLN last year.

But it is unclear how recent developments will affect the Kingston project, based on a recent precedent. In January, TVA pushed forward with a different gas project, at its Cumberland site, despite similar warnings from EPA about long-term costs and climate change. 

TVA’s final analysis for the Cumberland project did not disclose the costs of the plant, did not consider the costs of carbon capture or hydrogen and did not consider potential savings from the IRA. The decision was made by TVA CEO Jeff Lyash alone. 

Courtesy Peter Beukema/Unsplash

The Inflation Reduction Act allows public utilities to invest in renewables with tax credits.

Clean electricity could double in the U.S. 

Last year, TVA sourced nearly half of its power from fossil fuels. The system was 48% coal and gas, 39% nuclear, 8% hydro and 5% wind and solar, according to TVA, which is now in the process of preparing a new study of its system. 

In the U.S., clean energy sources accounted for about 40% of electricity generation in the U.S., split between renewables and nuclear, and fossil fuels filled the other 60% in 2022. (Looking at the entire energy sector, including transportation, the latest data shows about 80% of energy came from fossil fuels and 20% came from clean sources.) 

By 2030, clean electricity generation could double to 80%. The projected shift is “driven in large part by IRA tax credits,” according to a new report by the U.S. Department of Energy, aligning with President Biden’s renewable goals and broader target of reaching carbon-free electricity by 2035. 

Tennessee is not on this trajectory. TVA has an “aspirational” goal of net-zero carbon emissions by 2050 and is planning on adding 10-GW of solar capacity by 2035. But the utility is replacing coal “nearly one-for-one” with gas, according to a new report by the Southern Alliance for Clean Energy. 

Fossil fuels are the main cause of climate change, and their social costs have been vividly apparent this year between fires, floods and marine heatwaves. 

Under the current path, TVA might not cut much climate pollution this decade.