In just one year, the IRA has spurred investment, created jobs, and placed the US at the forefront of the global green transition.
It has enabled over $USD 271 billion in domestic utility-scale investments, supporting a wide range of projects such as solar and wind farms, electric vehicle charging stations, and energy efficiency upgrades.
The solar sector has been particularly strong, with the IRA helping to support the installation of millions of new solar panels as well as domestic manufacturing facilities.
August 16th marked the first anniversary of the Inflation Reduction Act (“IRA”).
This ground-breaking piece of legislation set aside $USD 369 billion for climate spending and energy security in the form of tax credits, grants and loan guarantees. It was broad in scope and targeted a wide range of innovative environmental technologies including fuel cells, solar, heat pumps, electric vehicles, energy storage and carbon capture, to name a few.
The impact of the IRA has been remarkable
A year later, the legislation is already paying huge dividends for Americans. It has spurred investment, created jobs and placed the US at the forefront of the green transition. The rapid movement on large-scale, capital-intensive projects has been quite remarkable.
According to American Clean Power1, in the past 12 months the U.S. Cleantech industry has announced:
$271 billion in domestic utility-scale investments
29,780 new manufacturing jobs
184,850 MW of projects
83 new manufacturing facilities
$4.5bn estimated in customer savings
IRA references are ubiquitous for US environmental companies
References to “Inflation Reduction Act” in earnings calls for environmental companies are now ubiquitous as revenues and earnings have benefited from this legislative tailwind.
Earnings Call Statements
Energy storage solutions company focusing on advancing grid-scale battery systems for efficient renewable energy integration.
“We expect to see some initial project awards in the second half of this calendar year that are directly attributed to the Inflation Reduction Act.2”
Engineering and infrastructure firm that offers comprehensive professional services in design, consulting, construction, and management across various industries.
“Activity is increasing from the Infrastructure Investment and Jobs Act, Inflation Reduction Act and robust state and local infrastructure investment, which are expected to accelerate in fiscal 2024 and beyond. Our pipeline of proposals and bids submitted continues to expand.3”
Provider of photovoltaic solar energy solutions, specializing in innovative thin-film solar panel technology.
“The passage of the Inflation Reduction Act of 2022 has firmly placed America on the path to a sustainable energy future. This facility, along with its sister factories in Ohio, will form part of the industrial foundation that helps ensure this transition is powered by American innovation and ingenuity.4”
So what about the impact on industry? Let’s take a look at some examples of how US industry has benefited.
The future for US solar was bright, now it is even brighter!
The chart below shows forecasts for annual US solar instalments both before and after the IRA. As we can see the IRA has caused a significant upward revision in estimates.
In fact, since the IRA was announced, companies across the solar supply chain have made more than 40 domestic manufacturing announcements valued at more than $13 billion.5
Georgia, South Carolina, and Ohio are quickly becoming hubs for solar manufacturing and communities in these states are beginning to feel the positive economic impacts.
The IRA is driving US solar capacity expansion
Following China, the US claims the position of the world’s second-largest solar energy producer, boasting a total installed capacity of 113GW as of 2022.6 Solar was the dominant new source of US electricity generation capacity that year, with a total installed capacity of 113GW accounting for 50% of all new electricity-generating capacity in the US.7 What was particularly interesting in 2022 was the resilience of the residential segment which was less affected by supply chain issues that pervaded the economy. Around 700,000 homeowners installed nearly 6GW of solar capacity in 2022, 40% higher than in 2021. The latest forecasts now project total US solar capacity to surge to 393GW by 2027 – a 5-year CAGR of 28.32%.8
Installed Solar Capacity (2020)
Installed Solar Capacity (2021)
Installed Solar Capacity (2022)
Installed Solar Capacity (Expected 2027)
5 Year CAGR (2022-2027)
Source: EIA/Wood Mackenzie Power & Renewables U.S. Solar Market Insight 2022 Year in Review
The IRA has blown wind in America’s sails
Ranked second only to China, the US stands as the world’s second-largest contributor to wind energy production. Demonstrating its commitment, the US has installed a substantial 23GW of wind energy within the past two years, solidifying its position as the runner-up in the global wind energy market.
Installed Wind Capacity (2020)
Installed Wind Capacity (2021)
Installed Wind Capacity (2022)
Source: World Wind Association, August 2023
Looking ahead, ambitious projections indicate that the US will continue its stride by installing an estimated 150GW of fresh wind energy capacity by 2030.9 While China claims the forefront with an impressive 400GW of new capacity,10 the US holds a notable second place, outpacing India, the subsequent contender, by more than threefold in terms of anticipated new capacity. Needless to say this supports a promising outlook for the future of wind energy in the US.
The IRA is powering the US electric vehicle transition
Electric car sales in the US surged by 55% in 2022 with BEVs (battery electric vehicles) leading the growth at 70%.11
This is even more impressive when you consider the backdrop of 8% declining total car sales that year.12 Globally, the US accounted for 10% of global sales growth and held a 10% share of the worldwide electric car stock. It’s therefore unsurprising that around 25% of Americans anticipate their next car to be electric.13
The outlook for the EV market is positive. The federal EV tax credit that provides consumer tax credits for both new and used electric vehicles has been extended through 2032 to ensure the long-term growth of the EV market in the US with additional incentives introduced for manufacturing and supply chains.
Between August 2022 and March 2023, major EV and battery makers announced cumulative post-IRA investments of USD 52 billion in North American EV supply chains.14 Overall, company announcements including tentative commitments for US investments for future battery and EV production add up to around USD 75-108 billion.15
The IRA could quintuple US battery energy storage system capacity
The IRA is propelling the market for battery energy storage systems (BESS). Battery storage is an essential enabler of renewable-energy generation, helping alternatives make a steady contribution to the world’s energy needs despite the intermittent character of the underlying sources. For example, solar power can only generate energy during daylight, so BESS technology allows this to be stored and released into the grid at a time that is desired.
The impact of the IRA on BESS has been significant. More than $5 billion was invested in BESS capacity in 2022 —almost a threefold increase from the previous year.16 The global BESS market is forecast to reach $120-$150 billion by 2030, more than double its size today. Notably, utility-scale BESS, which already accounts for the bulk of new annual capacity, is forecast to grow around 29% per year for the rest of this decade—the fastest of the three segments. The 450 to 620 gigawatt-hours (GWh) in annual utility-scale installations forecast for 2030 would give utility-scale BESS a share of up to 90% of the total market in that year.
At a recent event for local business leaders in Milwaukee, Chuck McGinnis of Johnson Controls, a conglomerate that manufacturers Heating, ventilation, and air conditioning (HVAC) technology celebrated the IRA, remarking: “Fuel cells, solar, heat pumps, clean vehicles, vehicle charging—there’s something in there for everybody”17 It is precisely this broad scope together with huge amounts of capital that has enabled the IRA to reshape US environmental industry. It continues to lure foreign investment to the benefit of the US economy and its trajectory remains transformational.
Acknowledging that the IRA as a game-changer, the EU responded by launching its own Green Deal Industrial Plan for the Net Zero Age. Other economies have also made similar announcements to try and lure foreign green investment. Despite this, we are yet to see anything that matches the $369 billion of capital on offer by the IRA and some estimates forecast that figure could even rise to over $1 trillion in fiscal spending.18 It seems for now, the US is firmly at the very epicentre of the green transition.