BIDEN SIGNS THE INFLATION REDUCTION ACT INTO LAW

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By Christian Roselund

On 16 August 2022, President Biden signed into law the Inflation Reduction Act of 2022 (IRA), which includes robust incentives for both deployment and domestic manufacturing of solar, wind, energy storage, and a variety of other clean energy technologies. The bill represents a breakthrough for clean energy policy, eight months after U.S. Senator Joe Manchin killed the previous Build Back Better bill. The bill passed the Senate on August 7 with Vice President Kamala Harris providing the tie-breaking vote. In the Senate all Democrats and Independents voted in favor, and all Republicans voted against the legislation.

The IRA both extends and expands existing tax credits for clean energy deployment and manufacturing, as well as including significant new measures. Following the 29 July U.S. Energy Transition Report special edition CEA has examined the bill in more detail, and what follows is an updated assessment of the provisions in the bill and their potential market impacts for solar and wind (energy storage provisions will be addressed in the following article).

Solar, wind, and energy storage deployment

IRA includes extensive measures designed to boost solar, wind, and energy storage deployment. These include:

• Section 48 Investment Tax Credit (ITC) extension at 30% for projects starting construction before the end of 2024

• Section 45 Production Tax Credit (PTC) extension at $15/MWh (adjusted for inflation, estimated $26/MWh for 2022) for projects starting construction before the end of 2024

• Optionality for solar projects to take the ITC or the PTC • A new technology-neutral ITC (Section 48E)

• A new technology-neutral PTC (Section 45Y) • Direct pay of the ITC and PTC for non-profits, state & local governments, tribes, and the Tennessee Valley Authority

• Transferability of the ITC and PTC The above incentives are all contingent on meeting labor provisions, which include the requirement that all workers are paid prevailing wage and that a minimum number of apprentices are utilized. If not met, the incentives drop to 20% of the above levels; i.e., a 6% ITC and $3 per megawatt-hour PTC.

Additionally, there are bonuses for use of domestic content, projects in communities that formerly hosted fossil fuel jobs, and low-income areas. All told, these bonuses can potentially increase the ITC to 60% and the PTC to $19.5/MWh (before adjustment for inflation).

Clean energy manufacturing

In addition to the deployment tax credits, the IRA features the most robust incentives for clean energy manufacturing implemented in the United States to date. This includes both a revival of the Section 48C credit for advanced energy manufacturing and a new Section 45x tax credit based on the output of clean energy factories, based on Senator Ossoff’s Solar Energy Manufacturing for America (SEMA) Act. Solar and wind components whose domestic manufacture are subsidized under the Section 45x credit include:

Solar Components

  • Polysilicon
  • Ingots
  • Wafers
  • Cells
  • Modules
  • Backsheets
  • Torque tubes (for trackers)
  • Fasteners (for trackers)

Wind Components

  • Blades
  • Nacelles
  • Towers
  • Offshore Wind Foundations
  • Inverters

Additionally, there are incentives to produce more than 40 critical materials, including aluminum, cobalt, lithium, nickel, manganese, zinc, and others used in the manufacture of solar panels, wind turbines, and batteries. While the Section 45 production incentives phase down starting in 2030, the incentives for critical materials do not.

The IRA also funds the Section 48C Advanced Energy Project Credit with $10 billion. This credit allows manufacturers to claim a 30% credit for building clean energy factories and was first introduced under the Obama Administration but quickly ran out of funding. The IRA further expands this credit to recycling facilities, but like the deployment incentives the full 30% is only available if the workers who build the factory are paid prevailing wage and apprentices are utilized. CEA’s analysis shows that when measured against a benchmark for manufacturing in Southeast Asia the 45X production incentives more than offset the higher cost of U.S. manufacturing at the wafer, cell, and module levels.

In addition to the above, the IRA includes incentives for induction stoves, heat pumps, electrical upgrades, and insulation.

Market impacts

CEA’s assessment is that the sum of the deployment measures will provide additional demand in the U.S. solar, wind, and energy storage markets, but that this will not in all cases necessarily translate to equivalent deployment. We see a bigger push for domestic manufacturing, and we expect construction of new wafer, cell, and module factories in the United States. Ingot facilities may or may not be co-located with the wafer slicing, as the incentive applies only to the wafering.

Several solar manufacturers announced plans to build U.S. factories in 2021, pending the passage of the Build Back Better Bill. Given that the manufacturing incentives in IRA are similar, some of these and other new projects may move forward. Local government filings show that Hanwha is looking for locations for a 9-gigawatt integrated ingot, wafer, cell, and module plant in the United States. This may be one of the first factories to claim these incentives.

Per CEA’s estimated timelines, even if construction were to begin at the end of 2022, the first IRA-supported solar module factories would not be fully ramped until mid-2024, and the first solar cell factories at the end of 2024. Ingot and wafer factories will not be ramped until mid-2026.

And while the IRA’s deployment incentives are generous, for solar deployment a larger concern is supply, particularly until more U.S. factories come online. Roth Capital has recently suggested that as many as 3 gigawatts of solar modules may currently be detained under the Uyghur Forced Labor Prevention Act (UFLPA), and that 9 – 12 gigawatts of shipments may not arrive in 2022. If suppliers and importers are unable to navigate Customs and Border Protections requirements under the UFLPA, the U.S. market could be severely supply constrained until this issue is resolved and/or substantial new manufacturing comes online, blunting the benefit of deployment incentives.

Source: Text: H.R. 5736, Inflation Reduction Act of 2022 (U.S. Congress)