In April, Vice President Kamala Harris visited Qcelles, a solar panel manufacturing facility in Dalton, Ga. to announce An early win for the Inflation Reduction Act: Summit Ridge Energy, one of the nation’s largest developers of utility-scale solar projects, will buy 2.5 million US-made solar panels.
Subsidies under the new law brought prices in line with imported panels, allowing companies to fight climate change and boost American manufacturing at a stroke.
A month later, the Treasury Department issued guidance that would functionally require solar cells — not just panels — for Summit Ridge to be made in the United States in the belief that it would receive a 10 percent tax credit on those installations. who use them. Qcells won’t be able to produce the cells until the end of 2024, leaving Summit Ridge scrambling to find cheaper components for the projects currently in its pipeline.
“There’s not a single solar manufacturer that fully qualifies for this at this point in time, which makes it tough and really starting to cool off to investment,” said Leslie Elder, Summit Ridge’s vice president of political and regulatory affairs. “Now we have to reevaluate based on the pencil.”
On paper, the Inflation Reduction Act is transformative for electricity generation in the United States.
The law provides tax credits that can cover up to 70 percent of a renewable energy project’s cost if it checks several boxes to support American workers and communities. a new analysis finds that those incentives more than offset the additional expense associated with using domestically produced goods and paying prevailing wages.
But issued guidance from the Biden administration – setting out formal rules – has raised alarm among energy companies that some credits could be difficult if not impossible to access, at least in the near term. The resulting desperation is emblematic of the current stage of climate action: an eye-straining haze of technical rule-making that reflects the tension between urgency and ensuring that the benefits of the energy transition are widely shared.
Wally Adeyemo, deputy secretary of the Treasury, expressed confidence that in combination, the rules would strike that balance.
“We have great clarity about the strategic objectives, and we are already seeing the impact in terms of the economy,” Mr. Adeyemo said. “This is not about any one rule, it is about an ecosystem of rules created under the IRA that positions us to go from a country that has made little progress in the clean energy transition to being at the head of the pack. Invested.”
analysis, supervised by professors princeton And Dartmouth Experiential in modeling the effects of climate policy, finds that incentives aimed at US manufacturers make domestic solar panels more than 30 percent less expensive to produce than imports. With incentives claimed by clean energy developers who meet labor standards and use household materials, the overall cost of generating utility-scale solar power could be reduced by 68 percent and onshore wind power by 77 percent.
The study was funded by the BlueGreen Alliance, a partnership of unions and environmental groups. The organization has supported elements of the Biden administration’s climate agenda that support domestic manufacturing, particularly in places hurt by globalization, automation and the decline of fossil fuels.
“Until now, the ethical matter and the business matter didn’t always align,” said Ben Beachy, the organization’s vice president for industrial policy. “The IRA changes this by offering developers an airtight business case to create high-paying jobs and support a strong and fair American manufacturing base.”
The impact of the climate law is already clear, with the announcement of 47 new plants to manufacture batteries, solar panels and wind turbines since its passage. According to American Clean Power, a trade association. other analyses, including a paper The finding, by economists and engineers at the Electric Power Research Institute, the Federal Reserve Bank of Minneapolis and the University of California, Berkeley, would encourage projects with lower emissions than anticipated to be eligible for uncapped tax credits, potentially costing will reduce The government is much higher than the earlier estimates.
But the BlueGreen Alliance study shows significant uncertainty about the impact of rising material costs as demand for aluminum, steel and concrete rises domestically, and manufacturers’ profits may not be accounted for before more competition enters the market. Could It also projects that more than four million jobs would be available in wind and solar power by 2035 if the IRA had not been passed – eight times more than the current employment base – but it does not model whether that will measure up to labor supply.
“I think some of their key results are overly optimistic, and they underestimate some of the costs to the economy associated with this scale of clean energy deployment,” said Daniel Raimi, a fellow at the think tank Resources for the Future. Analysis.
At the same time, clean energy companies are digesting the administration’s guidance on how the tax credits will be allocated, and some are unable to act in ways that could slow deployment.
Receive a bonus of up to 20 percent for developers who locate projects in low-income communities (which is separate from the 10 percent bonus for locating in zoning areas) Battling the transition away from fossil fuels, The Treasury Department, wanting to ensure that the credits lead to projects that would not otherwise, rewards them only to projects that have not yet been completed. Solar installers have to sell the system and then wait to see if they get the credit before they can start working.
“I think we will lose some growth in low-income communities this year because of the way the credits have been built up,” said Sean Gallagher, vice president of policy at the Solar Energy Industries Association. “Either the developer is going to absorb that difference, or they are going to have to go back to the client to renegotiate the price, or the project is not going to happen.”
another thorny issue Additional 10 per cent for use of domestically manufactured components,
Manufacturers are concerned that while effectively needing to make solar cells in the United States to qualify for the credit, the Treasury Department has not required them. basic components – Wafer, a thin piece of silicon that conducts energy – for home production. This could allow Chinese factories to dominate a major part of the supply chain.
“The prices they’re ultimately getting from developers are undervalued because Chinese wafer makers can crash pricessaid Mike Carr, executive director of the Solar Manufacturers for America Coalition.
Developers are troubled because getting the credit, in most cases, requires a complex calculation of the cost of each component to reach the 40 percent U.S.-made content limit, and for manufacturers to disclose sensitive pricing information. are reluctant. Many also expected a more gradual phase-out that would allow some current US factory production to qualify for the credit while planning for more stringent requirements.
Brett Bouchy is chief executive of Freedom Forever, a residential solar installation company that did more than $1 billion last year. He had plans to build a solar module and cell manufacturing plant in Arizona that would cost $100 million and employ 1,000 people to supply his own operations. After the guidance came in, he put those plans on hold – he didn’t believe his panels would qualify for the domestic content credit at the top. 7 cents per watt available to manufacturers,
“We can’t make it work,” Mr. Bouchi said. “There’s no profit, because that 7 cents is eaten up with an increase in US labor costs. Why would you invest $100 million when you can’t really get a return?”
Those who support the administration’s approach stress that bonus tax credits are just that: bonuses, not requirements, to offset the costs associated with going the extra mile. Developers already get a 30 per cent base incentive – and a certainty of at least 10 years – for paying prevailing wages and employing apprentices, which is not considered too difficult.
Todd Tucker, director of industrial policy and trade at the Roosevelt Institute, said higher standards were necessary to assure investors that new US factories would have enough orders to stay in business. “Once you start signaling that you’re going to allow some flexibility, then by definition, the market softens,” he said.
The Treasury Department is still commenting on the rules for all credits, and industry trade associations are inclined to change them. Still, most companies say the Inflation Reduction Act is a powerful force for decarbonization overall, and companies have a strong incentive to allow every credit.
Sheldon Kimber, chief executive of clean energy developer Intersect Power, said, “It’s amazing how much it shifts focus to the mind when people start throwing these kinds of dollars around.” “We’re being asked to do a tough job, but there’s a lot of money in it for us.”