Published December 12, 2022 | Version v5
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Cleaner, Faster, Cheaper: Impacts of the Inflation Reduction Act and a Blueprint for Rapid Decarbonization in the PJM Interconnection

  • 1. Energy Internet Research Institute, Tsinghua University
  • 2. Department of Systems Science and Industrial Engineering, Binghamton University
  • 3. Department of Mechanical and Aerospace Engineering and ZERO Lab, Andlinger Center for Energy and the Environment, Princeton University
  • 4. Institute of Energy, Peking University
  • 5. Department of Mechanical and Aerospace Engineering and the Andlinger Center for Energy and the Environment and Principal Investigator, ZERO Lab, Princeton University


This study employs an electricity system capacity panning model with detailed economic dispatch and unit commitment decisions/constraints to quantitatively answer two key questions:

  1. How does the enactment of the federal Inflation Reduction Act of 2022 impact the cost of electricity, greenhouse gas emissions, and investment in electricity capacity in the PJM Interconnection over the 2023-2035 period?
  2. Given new and expanded federal subsidies for clean electricity resources in the Inflation Reduction Act, what additional capacity investments and resource deployment would be required and at what cost for the PJM region to reduce greenhouse gas emissions 80-90% by 2035 while maintaining an affordable and reliable electricity supply?

Executive summary:

In August 2022, Congress passed and President Biden signed the Inflation Reduction Act (IRA), which enacts a comprehensive set of financial incentives (tax credits, grants, rebates, loans) that support all sources of carbon-free electricity, promote vehicle and building electrification and efficiency, and subsidize carbon capture and storage (CCS). The implementation of IRA means that the full financial weight of the federal government is now behind the clean energy transition. This will have transformative effects on the economics of decarbonization in the PJM Interconnection (and across the United States).

IRA will spark a new, sustained period of growth in PJM electricity consumption, which could rise ~19% from 2021 to 2030. The law also subsidizes the cost of deploying new renewable energy capacity and maintaining the region’s existing nuclear fleet. As a result, this study finds that clean electricity could supply 60% [58-66% across sensitivities] of PJM demand in 2030, up from 48% [43-61%] without enactment of IRA. However, realizing this potential will require a dramatic acceleration in the pace of wind and solar interconnection and transmission expansion in the PJM Interconnection.

The growth of lower-cost, carbon-free electricity under IRA will significantly reduce CO2 emissions from PJM power generation, which could fall 37% [3-66%] from 2019/2021 levels. In contrast, PJM emissions would increase 12% [0-15%] from 2021 levels without IRA. However, PJM emissions may rebound after 2032 when a production tax credit for existing nuclear reactors established by IRA is set to expire. Unless equivalent policy support is extended beyond 2032, our modeling finds 12 GW [0-33 GW] of the PJM nuclear fleet is likely to retire by 2035, with new natural gas capacity and generation increasing to fill the resulting gap and meet growing demand, reversing some of the emissions progress achieved through 2030.

In addition to driving down greenhouse gas emissions, IRA also lowers the cost of electricity supply in the PJM region. We find the average cost of bulk electricity supply for PJM load serving entities (LSEs), including transmission expansion and state policy requirements, will be about $42/MWh [~$40-45/MWh] in 2030, about 5-10% lower than without IRA, and well below costs paid in 2019 ($50.2/MWh) and 2021 (~$61/MWh). The primary sources of cost savings are reduced wholesale energy prices, lower costs to meet state clean energy policy goals (due to federal subsidies), and growing demand (which spreads fixed costs over more MWh).

While IRA puts the PJM region on a path to lower-cost electricity and lower greenhouse gas emissions, the new federal policy is not sufficient to drive deep decarbonization of the PJM interconnection on its own.

Fortunately, by subsidizing the cost of all new carbon-free electricity resources, IRA also makes it cheaper and easier for PJM states to reduce emissions further while preserving affordability.

Part 2 of this study presents a cost-optimized blueprint of the additional capacity investments and resource deployment required for the PJM region to deeply decarbonize over the 2023-2035 period.

Specifically, we apply two stylized policy constraints and model the evolution of the PJM capacity mix and operations to meet those constraints:

  1. A clean electricity standard (CES) requiring increased shares of carbon-free electricity generation in the region (55% clean share by 2025, 70% by 2030, 85% by 2035), and;
  2. A CO2 emissions cap and trading scheme (cap & trade) requiring decreasing region-wide emissions (58% below 2005 emissions by 2025, 80% by 2030, 95% by 2035)

This study finds that, due to passage of IRA, the PJM region could cut CO2 emissions from power generation by 80-90% by 2035 while keeping average bulk electricity supply costs for LSE’s comparable to or lower than levels experienced in recent years (2019 & 2021).

However, deep decarbonization in the PJM region will require much more rapid expansion of low-carbon electricity resources and supportive transmission expansion above and beyond the rates of deployment made economical by IRA. By 2035, the region will also likely deploy more advanced ‘clean firm’ resources like gas power plants with carbon capture and storage (CCS) or long-duration electricity storage technologies (LDS), to replace coal- and gas-fired power capacity. We also identify and map several affordable resource portfolios and spatial patterns for clean electricity resource siting across the PJM region, demonstrating that the region has some flexibility to address local priorities and concerns.



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