New tax credits empower heat-strained U.S. cities

Tens of millions of  Americans are baking in extreme heat, part of an alarming global trend that’s threatening human health and infrastructure at the peak of summer. Some parts of the U.S. Southwest have hit 110 degrees F or higher for 24 consecutive days, and the forecast calls for the heat wave to spread across the United States.

The heat wave has put climate change into sharp focus for many communities across the country, underscoring the importance of investing in resilient infrastructure before conditions worsen. Through the Inflation Reduction Act (IRA), the federal government has recently unlocked a dozen new “direct-pay” tax credits for local climate and resilience investments. Our latest Alliance for a Sustainable Future report, Cities Advancing Climate Action: Unlocking the Potential of the IRA, explains how city and local governments can use these new incentives for key investments like clean-energy microgrids.

Microgrids can play an important community role when climate extremes like heat waves stress the electric grid. While extreme heat poses a direct threat to human health, particularly to outdoor workers, unhoused people, and young and elderly populations, a potential regional electric grid overload, under massive demand for power, looms large as a threat multiplier. The U.S. Energy Information Administration reports that as much as two-thirds of North America is at elevated risk for energy supply shortfalls at peak summer demand.

Widespread power outages would threaten lives and critical services at hospitals, community cooling centers, and wastewater treatment plants. Power supply disruptions at wastewater treatment plants, for example, can knock out critical services and cause wastewater spills, which can harm natural habitats and human health.

Clean-energy microgrids can provide dedicated energy to critical community buildings and infrastructure when the surrounding electric grid fails. This can reduce power failure risks for important public services and save lives during an extreme heat wave.

Microgrids have a variety of applications across the country (there are more than 680 in the continental United States), but they are not cheap solutions. A 2018 study by the National Renewable Energy Laboratory found that U.S. microgrid costs range from about $4 million per megawatt for large commercial and industrial customers to about $2.1 million/MW for a community microgrid.

In the new Alliance report, we show how the direct pay provisions are creating a significant opportunity to fund clean-energy microgrids that can directly power critical public infrastructure. The report outlines two examples of how city and local governments could capitalize on the IRA tax credits to shave millions of dollars off the cost of local microgrid projects.

While the new funding opportunity won’t reduce risks from the current heatwave, this unique support can help cities and localities access and invest in a critical tool to build resilience for a future with recurring and high-risk climate extremes.