Tag: Inflation Reduction Act

Has the Solar Industry Improved Under Inflation Reduction Act?

Posted on by bop-admin

When President Biden signed the Inflation Reduction Act (IRA) into law on August 16, 2022, it opened the door for a clean energy renaissance. 

Since then, a flurry of activity has occurred, especially in the burgeoning solar industry. Many new manufacturers and solar installations are cropping up across the country, but has the IRA had the intended effect we thought it would? 

What Did the Inflation Reduction Act Do? 

From the get-go, the Inflation Reduction Act laid out several ambitious goals. 

  • Make solar adoption more affordable 
  • Increase domestic manufacturing 
  • Create solar jobs 

In theory, the IRA would deliver the best of both worlds. The IRA instituted billions of dollars in programs, tax incentives, and development projects to bolster renewable energy production. Manufacturers also lined up, investing billions of their own dollars, with government support, to reshore solar development and production. 

But beyond the basics, the IRA has given the industry and government several things to cheer about. 

Solar Costs Drop 

When the IRA took effect, the inflation rate was over 8%, making it harder for businesses to fund projects. Despite the high cost of borrowing, the Inflation Reduction Act enhanced and extended programs to make solar more affordable. 

Among them were a series of tax credits, including Investment Tax Credits (ITCs) and Production Tax Credits (PTCs). Solar EPCs can claim ITCs upfront based on system costs. PTCs, meanwhile, are based on the amount of electricity produced over the project’s first 10 years. 

Every project is different, but deciding which credit makes more sense depends on project size, power output, and eligibility. 

Other credits encourage investments in low-income areas, rural communities, and abandoned sites like brownfields. These projects create jobs in underserved communities, add formerly abandoned sites to the tax rolls, and improve access to low-cost electricity. 

At the same time, utility-scale solar costs have leveled out in recent years, according to the National Renewable Energy Laboratory. Other costs, including labor and permitting, have also been resilient.  

Meanwhile, several tax credits tied to prevailing wages and brownfield development have helped lower costs. 

Domestic Manufacturing Blossoms 

As part of the IRA, the Biden administration pushed for more domestic solar manufacturing. So far, the Inflation Reduction Act has done what it intended to do. 

The IRA introduced Advanced Manufacturing Production Tax Credits for solar energy, which ties incentives to producing renewable components. Also known as 45X MPTC, manufacturers receive the credit per unit produced and sold. Eligible products include solar photovoltaic (PV) modules, inverters, batteries, trackers, and critical minerals. 

Another tax credit helping manufacturers is the Advanced Energy Project Credit (48C ITC). Like the previously mentioned credit, this applies to manufacturers building or upgrading facilities. However, it incentivizes companies to outfit their buildings or facilities with greener installations. These installations must reduce greenhouse gas emissions by 20% through low- or zero-carbon heat systems. 

Although the two credits cover different aspects of solar energy, companies cannot take both. 

Spurring Investment 

Beyond tax credits, the IRA allows more public/private investments to produce renewables. 

According to the White House, companies have announced about $265 billion in clean energy projects since August 2022. Many of those projects are in areas living below the median household average, bringing high-paying jobs and low-cost energy to underserved communities. 

Other information from the Clean Investment Monitor tells a similar story. In the first half of 2024, companies invested $147B into clean energy manufacturing and deployment. The amount has increased dramatically each year since 2022 as companies find ways to incorporate renewables into manufacturing, energy production, and operations. 

From opening new manufacturing facilities to upgrading critical infrastructure, solar and other renewables are thriving under the IRA. 

Bringing Back Jobs 

One of the most attractive features of the IRA was its ability to create manufacturing and skilled labor jobs. 

Since August 2022, the IRA has helped launch 330,000 new clean energy jobs. Manufacturing jobs are also coming home as the U.S. attempts to wean itself from overseas solar panels from Asia. 

Facts and Figures: Assessing the IRA’s Impact 

One way to analyze how well the Inflation Reduction Act has performed so far is to look at the metrics. 

What have we seen over the past 24 months, and is it enough to call the law successful? 

Clean energy investments are taking off. Source: Clean Investment Monitor (Tallying the Two-Year Impact of the IRA (cleaninvestmentmonitor.org))

Renewable Investments are Way Up 

Clean energy investments totaled about $147 billion through June 2024. 

Though the number is impressive, it’s more exciting when compared to investment figures before the IRA. In 2021, clean energy only garnered about $141 billion for the entire year. Seeing the number eclipsed in half the time is wildly impressive. 

All told, clean energy projects have pulled nearly $500 billion in investments. Some of the most welcome growth came from the manufacturing and transportation technology industries, with $89 billion invested. The total was more than four times the amount in the two years leading up to the IRA. 

More Projects Coming Online 

Officials have announced hundreds of projects across at least 40 states, with many tied to solar, wind, electric vehicles (EVs), and battery storage. 

According to RMI Analysis, the government has only disbursed about $66 billion in funds through the first half of 2024. More projects will come online in the next few years, including an estimated 320 GW of clean energy projects. 

More importantly, as new manufacturers and clean energy projects launch, added jobs will become available. RMI expects the solar industry alone will need 500,000 workers by 2033, doubling the number of jobs available today. As a result, we need more educational and certification programs today to develop tomorrow’s workers. 

Better Grid Resilience 

What good is generating a ton of renewable energy if the current electrical grid can’t support it? 

The IRA has provided a lifeline for grid operators to improve the grid. As more green energy comes online, including wind farms and utility-scale solar power, the grid must support it. That means investing in efficient power plants and transmission and distribution lines to move electricity effectively. 

Grid resilience could take several forms. One choice is to add to the grid to help it accommodate more electricity. Expanding the grid is not popular, as substations and massive transmission lines cause problems for communities. 

Another possibility is to improve transmission lines with new conductors. Most conductors crisscrossing the United States are aluminum wrapped around a steel core. The conductor design is over a century old (the patent is from 1908), so minor improvements could go a long way. 

A third option is to add more microgrids. Microgrids are small community grids that can run independently. If a storm takes down the larger grid, a microgrid can disconnect to still provide power to homes and businesses. 

The goal is to equip rural communities with microgrids powered by renewables and energy storage. Residents get reliable, low-cost energy produced close to home, and utilities can use microgrids to quickly pinpoint and correct problems during an emergency. 

Because the grid is such a critical piece of infrastructure, the government is stepping up to help. Luckily, the IRA and Bipartisan Infrastructure Law combine to create the largest investment in the power grid’s history. The laws will upgrade and rebuild infrastructure to accommodate new technology, expand service, and increase resiliency. 

Not All Sunshine 

No legislation is perfect, and the Inflation Reduction Act has shortcomings. 

Though the law does a lot for the green energy community, there are several holes, including some outside its control. 

The Rules Can Be Murky 

No government initiative would be complete without endless confusing and difficult rules. 

Between understanding how to qualify for the ITC and PTCs, navigating community, county, state, and federal regulations, and chasing down funding, getting projects off the ground is slow. Worse yet, the ITC and PTC dollars are sometimes not easy to qualify for and will only get harder to reach in later years. 

Despite the occasional trouble, companies have invested billions of dollars into developing a vibrant solar energy industry. 

Interest Rates Are Still High 

The long-term solar industry is growing by leaps and bounds, but high interest rates temper some investments. 

High interest rates make projects, facilities, and infrastructure upgrades more expensive. Everything comes with an extra added cost, potentially leading to delays or cancellations for builds. 

High interest rates have also resulted in a sharper increase in solar LCOE compared to fossil fuels. Though solar is experiencing an uptick in cost, fossil fuels still have a higher LCOE, making solar and other renewables more cost-efficient over the long run. 

Additionally, anticipated rate cuts in the coming months may kickstart investments in other projects, keeping the good times rolling. Investments are booming dramatically under the IRA despite currently high interest rates. 

We Still Rely on Others for Panels 

In June 2022, the Biden administration issued a two-year moratorium on solar panels from four Asian countries to keep projects going while domestic manufacturers caught up. 

The temporary pause is over, and new tariffs have been added to overseas solar products.  

Why? To protect a bevy of new manufacturers in the U.S. Without tariffs, cheap solar panels could flood the U.S. market, driving domestic manufacturers out of business. 

While solar manufacturing is making headway in the U.S., the industry cannot compete with low-cost panels. Tariffs keep the playing field even until U.S. manufacturers can sufficiently meet demand. 

Despite the tariffs and occasionally frosty relationship with China, the United States relies on many solar products. China controls roughly 80% of the global solar supply, from raw material sourcing to finished goods. 

Prices could skyrocket if solar EPCs and other installers lose access to overseas solar panels. American-made products are high quality but come at a high cost – sometimes too high for a budget to absorb. 

Spiking prices could cripple U.S. solar expansion until the domestic manufacturing supply chain catches up. 

Looking to the Future 

All things considered, renewable energy is moving in the right direction. 

Domestic manufacturing is increasing, and public/private investments are pouring in. Under the IRA and other initiatives, the industry should reliably expand over the next decade. Costs are stable, the government has incentivized expansion and development, and consumers are saving money in the long run. 

Though the long-term prospects look good, the upcoming 2024 election could affect the future of renewables. Depending on who assumes office and what agendas are announced, portions of the IRA could be rolled back or scrapped entirely. 

Overall, the IRA has done its job. Solar and renewable investments are exploding, the industry is vibrant, and there is real hope for a carbon-neutral future.

What Happens If the U.S. Reinstates Solar Panel Tariffs?

Posted on by Mike Zimm

For the most part, this has been a good year for the solar industry. 

The Inflation Reduction Act of 2022 (IRA) supercharged the industry, creating billions of dollars in investments. It also led to announcements of more than two dozen solar manufacturing facilities and 10 utility-scale battery storage manufacturing plants across the United States. 

The IRA isn’t the only thing adding fuel to the solar industry’s fire. Growth can also be attributed to the Biden administration’s 24-month moratorium on solar panels coming from four Asian counties. The move allows Cambodia, Malaysia, Thailand, and Vietnam to sell low-cost solar panels to U.S. companies and gives stateside producers time to ramp up production. 

A Bumpy Road 

While everything seems fine on the surface, solar installers face rising uncertainty from Congress. A bipartisan effort to reinstate the tariffs has moved through the House and Senate but was vetoed by Biden in mid-May. 

According to lawmakers, overturning the moratorium would be a rebuke of the Chinese government, spurring domestic production and investment. The problem is that reinstating the tariffs would potentially derail solar installations and investments without guaranteeing U.S. manufacturers can fill the void. 

What does reinstating tariffs mean for the rapidly expanding solar industry? Based on earlier experience, there are several things we can expect. 

Market Uncertainty 

When something changes in the market, everyone has to adjust. 

From a supply chain standpoint, reducing the flow of low-cost solar panels from Asia can delay projects. It also forces manufacturers to source materials elsewhere or jumpstart domestic production to keep shipping panels. 

Meanwhile, distributors must scramble to get the products they need for installers, who, in turn, struggle with having the right amount of labor available. The labor aspect is especially important. According to Abigail Ross Hopper with the Solar Energy Industries Association (SEIA), Congress’ move to overturn the moratorium could affect up to 30,000 jobs. 

Since the tariff decision was made last year, there has been a drastic increase in solar projects across the country. During COVID, supply chain issues created delays for many projects. With a wave of new panels, those installations have picked up again. It’s also encouraged other companies to make announcements for upcoming solar projects. 

The problem is reinstating the tariff. In a burgeoning industry like solar, market uncertainty can halt new investments. When companies can’t plan or forecast, they struggle to find the budget to complete projects. Then, they get delayed or shelved until market conditions improve. 

Strained Geopolitical Relationships 

One of the main reasons the solar panel tariff was introduced was due to an ongoing trade war with China. 

On several occasions, the U.S. has accused China of “dumping” materials into the American market, creating conditions that make it hard for domestic producers to compete. Dumping, as the name implies, occurs when a country sells raw materials, products, or other goods in another market at a low price, sometimes less than the cost to produce it. 

When dumping occurs, domestic producers are forced to sell their products at a higher price and potentially lose market share or lower prices to compete. In either case, it can hurt competition in the buying country’s market and disrupt the economy. 

U.S. officials believe China is going through Malaysia, Thailand, Cambodia, and Vietnam to skirt anti-dumping regulations and get solar panels into the U.S. market. Reinstating the solar panel tariff may not directly impact China, but could cause a rippling effect, further hurting the relationship between the two superpowers. 

There is one positive aspect to this situation, though. With tariffs on solar panel imports, domestic producers will have room to ramp up production to meet clean energy demand. 

Higher Short-Term Pricing 

When there’s less product to go around, prices naturally rise. 

Shortly after President Biden suspended solar panel tariffs, companies jumped at the opportunity to buy low-cost panels from overseas. Prices dropped because there was enough supply to meet growing demand in the U.S. Unfortunately, that would change if tariffs were reinstated. 

Think of it this way: eggs are typically cheap and don’t often fluctuate in price because demand is generally constant, as is supply. But earlier this year, prices skyrocketed after avian flu reduced the number of eggs produced while demand was unchanged. As egg producers fought to catch up, the cost of eggs exploded by double digits, with people sometimes paying $5 or more per dozen. Today, prices are slightly higher than last year, but we’re nearly back to equilibrium. 

So, let’s use the same supply and demand lens on the solar panel situation. What would happen if the steady supply of low-cost panels became severely restricted? In the short term, prices would spike as supplies dwindled and demand stayed high. Prices will jump if domestic producers and manufacturers in other countries don’t fill the immediate void. 

Once manufacturers in the U.S. increase their output, costs will come down until reaching an equilibrium price. 

More Domestic Investment 

Although having an influx of solar panels is great for the burgeoning solar industry, Congress has a good reason for reinstating the tariffs; legislators want to see domestic producers in control. 

For all intents and purposes, the White House has promoted green energy economic development across the board, not just solar. The Inflation Reduction Act (IRA) has been a boon for solar and other renewables, resulting in $150 billion in capital investments across many clean energy projects. 

It’s about more than simply making more panels and parts, though. Every investment in renewable development in the U.S. is an opportunity to create thousands of high-paying jobs in an expanding industry. Without a steady stream of utility-scale solar products, companies can’t predict labor needs. 

More production also gives the U.S. a chance to meet its high-level sustainability goals. According to the White House, the U.S. wants to reach 80% renewable energy generation by 2030 and 100% carbon-free electricity by 2035. They’re lofty goals, especially when nearly 80% of our energy was generated by fossil fuels in 2021. 

With more investment in renewable energy, there is a chance to turn the tide. According to the EIA (Energy Information Administration), total solar generation share could double from 3% in 2022 to 6% by 2024, thanks to lower production and installation costs combined with tax credits and other incentives. 

Where Do We Go from Here? 

No matter what happens with the tariffs, it’s important to remember the moratorium was only temporary. 

The stay was meant to give solar installers, companies, and utilities time to complete projects, increase production, and build a thriving U.S. solar market. Two years may not cover a manufacturer’s ramp-up timeline, but it gives installers time to work on projects while they get up to speed. 

It’s also worth noting that although tariff relief supports low-cost solar panels, the IRA has been doing the heavy lifting to create investment and manufacturing opportunities for companies. 

Repealing tariff relief on solar panels now may be a minor setback, but it shouldn’t cloud our view of what has been done so far. American manufacturing is growing, with companies like Sun-Pull producing critical infrastructure like bundled PV wire. Other companies are coming online soon, joining manufacturers who have found footing in the space, making panels and Balance of System (BOS) items. 

Renewable energy, including solar, is the future, but how we approach the coming years depends on our commitment to green energy and divesting from fossil fuels.  

Anything is possible, but we need to move quickly.