A level playing field saves taxpayer money!

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Governments can be great at providing policy frameworks, but are usually not so great at picking winning technologies. Government attempts at picking winners actually tends to extend the life of losing technologies, at great cost to taxpayers. Instead, picking winners is best left to the markets, once a level policy framework has been set. If the government was providing EV rebates only for Porsche Taycans and Tesla Cybertrucks, but not for cheaper Model 3s or Chevy Bolts, it is obvious why this approach would drive up costs for taxpayers. Unfortunately, this is the situation we are in for industrial heat applications. A simple amendment to tax rules could fix the issue: extending the applicability of Investment Tax Credits (ITCs) to include Electro-Thermal Energy Storage (ETES) Technology. 

This is what we are advocating for in our recent work on the competitiveness of said ETES technology. On an unsubsidized basis, ETES beats Carbon Capture & Storage (CCS) and Hydrogen-based technologies in most heat & steam related applications. Unfortunately, ETES has been excluded from the support (mainly in the form of ITCs) available to both CCS and hydrogen-based technologies in Canada. 

This distortion drives up costs for the taxpayers and reduces our industrial competitiveness. Technology-agnostic incentives can overcome this problem by treating technologies equally.

This blog post summarizes the key points, but if you are interested in more details, please don’t hesitate to contact us!

Summary

We have evaluated the relative efficiency and cost effectiveness of various decarbonization options for industrial heat and steam applications. Significantly, industrial heat and steam accounts for more emissions than the entire transportation sector, both globally and in Canada. Finding cost-effective, scalable solutions for industrial heat is an imperative if Canada, and Alberta, are to maintain industrial competitiveness in a net-zero world. 

The significantly superior economics of ETES solutions in many applications is demonstrated, making it one of the least expensive decarbonized sources of industrial heat. However, development of ETES solutions are economically disadvantaged by a lack of access to Investment Tax Credits (ITCs) that have been provided to other technologies such as Carbon Capture and Storage (CCS) and Hydrogen-based technologies. This distorts the competitive landscape which should instead be a level playing field between alternative, competing technologies. ITCs should be designed to incent the most suitable technology with the lowest competitive costs for systems capable of delivering rapid, scalable decarbonization solutions.

 We argue that a 30% Investment Tax Credit should be extended to ETES applications to reduce the economic and fiscal distortions that currently exist for decarbonization technology incentives in Alberta and Canada  The recommended level of ITC required to incent ETES is equivalent to that provided for Battery Electric Storage Systems but significantly less than ITC credits currently in place for CCS and Hydrogen technologies.

What’s wrong with CCS and Hydrogen? Nothing - they can be great tools for the right applications. They are just far too expensive for simple use cases like generating steam. Most industrial steam generation is not “hard to decarbonize”. This calls for simple solutions. Generating steam by burning hydrogen is like heating a house by burning scotch - possible, but probably not a financially wise idea. And capturing CO2 out of a low-concentration effluent stream is like combing the beach for coins - not exactly efficient. Just because something can be done doesn’t mean it should be done. In contrast, converting electricity, only when it is cheap & plentiful, into heat, and storing it in a battery made out of cheap bricks and using that heat to generate steam with an industry standard steam generator is simple, robust, cheap, scalable and >95% efficient. It just needs to reach a critical size to generate economies of scale. 

We have calculated that per unit of heat output, extending the 30% ITC to ETES would be about half as expensive as existing ITCs for blue hydrogen and gas + CCS, and over 86% cheaper than the ITC for green hydrogen.

And in addition to the ITC savings, there are several key advantages that accrue from ETES technologies that warrant their inclusion in a fair competition:

1.  ETES units do not generate any Scope 1 emissions. 

2. The charging process for ETES units is interruptible, making the technology uniquely compatible with intermittent renewable power generation. 

3. By providing a dispatchable demand-sink for non-dispatchable electrical generation, ETES not only electrifies heat and steam generation, but it also stabilizes the electricity grid by matching demand to supply.

ETES is concluded to be one of the most cost-effective and efficient ways to decarbonize material parts of industrial heat and steam generation in the near-term. ETES could provide Alberta, and Canada, with a material technological and economic advantage for decarbonized industrial heat and steam generation.

Let’s keep the playing field level and let the market pick the winner - and keep energy affordable to keep our country competitive!