Elective Pay: Why Kirkwood Electric Should Go Bold

Kirkwood is the only municipality in Greater St. Louis with its own electric utility, Kirkwood Electric. This setup has several advantages: it ensures more accountability and higher levels of responsiveness than a natural monopoly like Ameren might provide. Kirkwood Electric also operates at a profit, thus allowing the city to reinvest the dividends into other city services (Ameren, meanwhile, would be under no obligations to reinvest their profits into the community).

Still though, managing an electric utility is hard work for a city of our size and there are reasons why no one else has does it. It requires a tremendous amount of historical contingency and up-front capital (you’re not just going to build electric lines where Ameren already has them and expect to out-compete them on price), and you have to pay high salaries for experienced civil servants who can manage something that has no local precedent. But if you have those things in place, our own utility managed by someone as knowledgeable and competent as Director of Kirkwood Electric Mark Petty is, then you might as well take full advantage and pursue the types of things that other municipalities wouldn’t be able to pursue. There’s a new law on the books that gives us an opportunity to do just that.

Elective Pay

A year ago this month, Congress passed the Inflation Reduction Act, which featured substantial funding to boost the production of American energy of all sorts (amongst other provisions like allowing Medicare to negotiate down the price of prescription drugs) . Much of this funding comes in the form tax credits, which allow entities to deduct a percentage of the cost of energy-related projects from their tax bill. The only problem is that there are many entities (like local and state governments, or, say, electric utilities) that don’t have a tax bill and thus are ineligible from receiving any direct benefit.

One of the provisions included in the IRA called “Elective Pay” (formerly known as Direct Pay) changes that. Elective Pay allows public entities to receive a direct rebate on the projects themselves for 30% of the cost of the project (40% if you qualify for the “domestic content bonus” by using American made steel, iron, and other manufactured products). That means if Kirkwood had an eligible million dollar project, the federal government would essentially mail us a check for $300,000 or $400,000. And this rebate is stackable with a whole host of other tax credits, including:

1. Alternative Fuel Refueling Property Credit (§30C)
2. Production Tax Credit (§45, §45Y)
3. Credit for Carbon Oxide Sequestration (§45Q)
4. Zero-Emission Nuclear Power Production Credit (§45U)
5. Credit for Production of Clean Hydrogen (§45V)
6. Credit for Qualied Commercial Clean Vehicles (§45W, tax-exempt entities only)
7. Advanced Manufacturing Production Credit (§45X)
8. Clean Fuel Production Credit (§45Z)
9. Investment Tax Credit (§48, §48E)
10. Advanced Energy Project Credit (§48C)

Bundle some of these together and you can get a lot of the way towards fully funding projects that would otherwise be inconceivable. And in terms of what kind of project we wanted to pursue, I think going big on solar makes the most sense.

A Brief Overview of Solar in Kirkwood

In Kirkwood, solar is synonymous with the rooftop panels that have slowly proliferated on the roofs of private homes for the past ten or so years. In the not-too-distant past, I was a big proponent of these private panels, going so far as to bemoan how stingy Kirkwood’s Architectural Review Board was in issuing permits (during the pandemic, my dad called a local solar company to see if we were a candidate and they told us ARB wouldn’t issue a permit for panels on a street-facing roof —the part of our roof oriented towards the South— so it wasn’t even worth their time to try). But after talking to Petty and reading more on these domestic solar installations, I’ve soured a bit on them. The main problems are two-fold:

First, having a bunch of small-scale solar panels is a pretty inefficient way to generate energy as compared to the output and construction/maintenance costs of large utility arrays. Trying to put a bunch of little solar panels on a bunch of weirdly angled and hard-to-access rooftops where a bunch of people live just doesn’t make as much sense as putting an efficiently designed array on a low productivity piece of land and the bringing the massive quantity of power from that array into high-population areas on higher efficiency high-voltage transmission lines.

The second problem is that there’s a pretty strong case to be made that private domestic solar weakens the grid at a time when the grid is becoming increasingly important as we electrify everything from stovetops to cars. That argument, outlined well at around the 17-minute mark of this video, goes a little like this: Domestic solar operates by way of net-metering; when you use power your electric meter spins forward and when you generate power it spins backwards, thus reducing your bill, and occasionally —maybe in a really sunny month while you’re away on vacation— even providing you with a rebate. The issue is that only about 25% of your power bill in any given month is derived from the amount of electricity you actually use, the rest is going to grid maintenance. That means that any discount on your bill from net metering beyond that 25% is effectively shifting the cost of the maintenance of the electric grid onto others and leaving the whole system weaker in the long run.

A Better Way

Still though, solar power is a modern miracle and just because rooftop arrays aren’t a great way to generate it doesn’t mean that solar, more broadly, isn’t worth exploring. To get a sense of our solar potential, let’s take a look at the following map:

Now, perhaps 4.25-4.5 kWh per square meter of land per day doesn’t look great by US standards, but it is better than places like New York, Philly, Chicago, Detroit, Cincinnati, Indianapolis, Milwaukee, Minneapolis, Seattle, or Portland have access to, and it is much better than nearly all of Europe and the most economically developed portions of East Asia.

So I don’t really know what to make of Kirkwood’s solar potential, and I’ll leave that to the experts to determine. But even if solar in particular doesn’t work great for us, there are lots of other kinds of projects that could qualify for these tax incentives: geothermal, biomass, even a processing center for our top-notch recycling center could all work in roughly the same way and by roughly the same logic.

Let’s Flesh It Out

So if we wanted to do a large-scale project, what would it look like and where would it go? I have two ideas.

Meramec

The first is that we partner with STLCC to develop a clean energy project on the Meramec Community College campus. As part of that project, Meramec could develop several complimentary technical programs providing training on the installation, maintenance, and management of clean energy infrastructure and appliances that stand to become an increasing large portion of our economy for the next few decades. This would help to fulfill the apprenticeship requirements of Elective Pay eligibility and revitalize a cornerstone of our community that is facing and uncertain future as a demographic slump in the number of college aged kids and a hot labor market (that tempts many high school graduates to forego college altogether) contribute to a decline in enrollment. Further, Meramec’s electricity would get cheaper and they’d find a productive use for land that (even after the coming campus overhaul) is likely to remain underutilized.

Marshall Fields

The other large tract of underutilized land we should explore is that of the former Marshall Fields. The Kirkwood Athletic Association recently deeded the flood-prone baseball fields to the City and the City is now soliciting ideas for what to do with it, having already decided to tear down all the dilapidated buildings and fences on the property. Now obviously the site floods all the time and water and electricity does not make for a great combo, but I have to imagine there are workarounds for such issues. The site is otherwise perfect: large, flat and currently completely vacant. It’s also right next to the old water treatment plant. I’m unsure of the status of that plant, but if it’s still operational, water treatment is one of the most energy intensive activities out there thus closing the loop on what we should do with our newly abundant energy. Additionally, Marshall Fields is still near enough to Meramec’s campus that you could probably still make a version of the aforementioned partnership work.

What Would We Do With It?

So why go through all the trouble of figuring out how to pull any of this off? Well, for two reasons. The first is that as we phase out gas-powered stoves and gas-powered cars and natural gas-powered furnaces, we’re going to have to replace that gas with a lot more electricity than we currently have. Ideally that electricity will come from clean sources like hyrdo, wind, geothermal, nuclear, and solar rather than simply from burning more coal and natural gas.

Even more fun to ponder, however, are the uses for electricity that we don’t even know about yet because it’s not yet cheap enough for them to be viable. Take, for example, the City of Phoenix, which is famously short on water. Well, it turns out that Phoenix actually sits very close to a whole lot of water. The only problem is that it’s salt water and unfortunately desalination is incredibly energy intensive (much like treating wastewater) and so despite the immense demand for water in the area, taking on that desalination still doesn’t make sense at current energy prices. Abundant cheap energy, however, immediately changes that paradigm and suddenly you’re off to the races. High-powered computing like that that AI runs on is also incredibly energy intensive, but has incredible economic potential for communities that figure out how to provide it. The bottom line is that cheap energy is world changing and if we build it, I’m confident enterprising minds will figure out how to put it to good use.