By Anjali Joshi

The U.S. Inflation Reduction Act (IRA) is expected to boost multiple EV battery-related sectors in Canada, ranging from exploration & production of critical minerals like lithium, cobalt, and graphite, to EV manufacturing. Under the IRA, consumers who buy EVs can access a US$7,500 tax credit for new EVs and US$4,000 tax credit for used vehicles, but only if EVs meet certain criteria. First, the IRA requires 40% of an EV’s battery metals to be produced in North America, or from countries that have a free-trade agreement with the U.S. This percentage will increase to 80% by 2027. Second, 50% of the battery components: anode, cathode, electrolyte components, and modules need to be made in the United States. This will rise to 100% by 2027. Finally, these vehicles must be assembled in North America.

This is a welcome news for Canada who is receiving a lot of investments across the EV battery supply chain. In August 2022, Volkswagen AG and Mercedes-Benz Group signed cooperation agreements with the Canadian government to secure access to battery materials, including lithium, nickel, and cobalt. In July 2022, Umicore announced its plans to invest US$1.5 billion to build a cathode active battery material (CAM) and their precursor materials in Ontario. South Korean company POSCO Chemical is also planning to open a CAM production factory in Canada to supply General Motors.

The Canadian government is also introducing incentives and measures for the development of the domestic EV battery supply chain. Canada is home to North America’s only battery-grade cobalt refinery, which is owned by Electra Battery Material (formerly known as First Cobalt Corp.). Electra Battery Material recently received a CA$5 million investment from Canada’s Federal government, CA$5 million from Ontario’s provincial government, and a loan commitment of CA$45 million from Glencore to refurbish and reopen the refinery. In October 2022, Nouveau Monde Graphite entered into an agreement with Mitsui & Co. and Panasonic Energy to develop its ore-to-battery-market integrated graphite project in Québec.

The localization of EV battery supply chain has become a focal point for Western countries. This helps to reduce their reliance on other countries, especially China and Russia, where there are national security concerns. Canada has also recently taken a major action to remaining on the same page as the United States and reduce China’s dominance in the global battery supply chain. Canada and the United States finalized a Joint Action Plan on Critical Minerals Collaboration in January 2020.

Additionally, on 28 October 2022, the Government of Canada released a policy providing more additional clarity about the applicability of the Investment Canada Act (ICA) to investments in Canadian entities and assets in critical minerals sectors from foreign state-owned enterprises (SOEs). The policy indicates that SOEs in Canadian critical mineral sector will face high levels of scrutiny under the country’s foreign investment review regime. Under the authority of the ICA, Canada recently ordered three Chinese companies to divest their investment from Canada’s mining companies due to national security concerns. The three companies – Sinomine Rare Metals Resources Co Ltd., Chengze Lithium International Ltd., and Zangge Mining Investment (Chengdu) Co Ltd. – are required to divest their investment within 90 days from November 3, 2022.

CEA expects the IRA to be an unprecedented driver of Canada’s EV battery supply chain. We expect more capacity expansion plans and investment, both public and private, as battery makers are not only focusing on meeting the IRA bill requirements, but also looking to shorten the EV battery supply chain for EV makers in the North American region.

Source: CEA Research

By Christian Roselund

A diplomatic rift is opening between the European Union and the United States over preferential U.S. subsidies to domestic industries in the Inflation Reduction Act (IRA). Meetings between the two parties held in early November do not appear to have resolved tensions and EU Trade Commissioner Valdis Dombrovskis has threatened a complaint to the World Trade Organization.

The IRA contains generous subsidies for domestic wind, solar, and battery manufacturing, as well as bonuses to clean energy deployment tax credits if domestic content is used. Additionally, the law changed the electric vehicle tax credit for consumers so that only the purchase of vehicles with a high portion of domestic content qualifies for the credit.

In comments to the U.S. Treasury on implementation of the IRA provisions, the delegation of European Union to the United States expressed concerns about the “discriminatory nature” of these provisions and their “cumulative, potentially adverse effects on the EU’s industry.” The EU complaint named nine specific provisions with the IRA where there are concerns. The complaint further singled out several of these as potentially violating World Trade Organization Rules:

• The domestic content bonus in the Section 45 Production Tax Credit (PTC) and the Section 45Y technology-neutral PTC
• The domestic content bonus in the Section 48 Investment Tax Credit ITC) and the Section 48E technology-neutral ITC
• The Section 26 Clean Vehicle Tax Credit (multiple provisions)

For the domestic content provisions in the ITC and PTC as well as the Clean Vehicle Tax Credit, the EU has requested that EU goods be treated the same as U.S. goods when qualifying for the credit.

In an interview with CNBC, German Finance Minister Christian Lindner stated that he would prefer to see this conflict resolved amicably. “We should do everything we can to avoid a tit-for-tat situation and a trade war,” stated Lindner. “We need more partnership between the United States and the European Union, not less.”

News coverage: Why America’s climate law is causing rifts at COP 27 (E&E News)

News coverage: EU says it has serious concerns about Biden’s Inflation Reduction Act (CNBC)

Source: Comment from the Delegation of the European Union to the United States of America (Internal Revenue Service)

By Christian Roselund

Q3 2022 was the slowest quarter for solar and wind installations that the United States has seen in three years, according to a report by American Clean Power Association (ACP). The Clean Power Quarterly Market Report finds that the United States installed only 1,877 megawatts-ac of solar and 356 megawatts of wind during the quarter, attributing this slowdown to a combination of policy and supply chain challenges. However, the report also finds that 1,195 megawatts / 2,774 megawatt-hours of battery storage was installed, and that 2022 is looking to be yet another year of growth for the battery storage market.

For solar, the 1,877 megawatts-ac installed is a 23% decline year-over-year, and the smallest quarterly volume since the third quarter of 2020. The first two quarters of 2022 also saw depressed installation volumes, and only 7,071 megawatts have been installed during the year to date. Even with a strong fourth quarter, it would be essentially impossible for solar installations to catch up and reach the level installed in 2021.

ACP cites an inability to source PV modules as the main cause of the slowdown in solar installations, noting that both the withhold release order (WRO) on Hoshine Silicon and detentions under the Uyghur Forced Labor Prevention Act (UFLPA) have limited module supplies.

It is unclear when UFLPA detentions will be resolved. U.S. Customs officials detained modules from at least three major suppliers (Jinko, LONGi, and Trina) starting in late June 2022. Despite the detention of more than 1,000 shipments of PV modules, CEA has only in the last week learned of the first release of a detained solar shipment. And beyond the direct impact of detentions, UFLPA has also caused suppliers to divert modules away from the U.S. market. In its recent quarterly results Jinko estimated that over the full year 2022 it will have deferred shipping roughly 2,000 megawatts of PV modules that were intended for the United States.

For wind, only two projects came online during the second quarter with a total capacity of 356 megawatts, a 78% year-over-year decline. ACP says that this slowness was expected, and attributes this to the phase-down schedule of the Production Tax Credit prior to its re-instatement at $15 per megawatt-hour (adjusted for inflation) under the Inflation Reduction Act. However, the organization also notes that “lingering supply chain challenges” and delays in interconnection approval also played a role.

Many of the solar and wind projects that did not come online in the third quarter may be installed in future quarters. ACP estimates that 14,167 megawatts-ac of wind, solar, and battery projects were delayed beyond the third quarter; after nearly 20 megawatts were delayed in the second quarter. ACP counted 36,240 megawatts of projects that were delayed at the end of the third quarter.

The only sector that saw installation growth in the third quarter was battery storage, where the 1,195 megawatts coming online represents a 227% growth over the third quarter of 2021. In the first three quarters of 2022, 3,059 megawatts / 7,952 megawatt-hours of battery storage have been installed.

Solar, wind, and battery storage have healthy pipelines, with 22,543 megawatts of wind, 78,181 megawatts of solar, and 14,265 megawatts / 36,965 megawatt-hours of battery storage under development. However, given trade policy challenges and increasing delays in interconnection approval, it is unclear when all this capacity will come online.

Source: Clean Power Quarterly Market Report Q3 2022 (American Clean Power Association)