| Battery storage is at the center of the U.S. energy transition and could be a big beneficiary of federal legislation. Source: Salt River Project |
The leaders of America's clean energy revolution have resoundingly applauded the fast-moving Inflation Reduction Act, a Senate bill packed with $369 billion in energy security and climate change spending, including lucrative tax credits for renewable energy and energy storage companies.
But as they digest the complex matrix of new and expanded incentives — which is an altered and abridged version of the abandoned Build Back Better Act — their exuberance remains tempered with caveats, questions and concerns over just how much of a jolt the legislation could deliver.
"When it comes to this Inflation Reduction Act, you're finally unshackling us by creating an investment tax credit that is not tied to solar," said Blake Richetta, chairman and CEO of Sonnen Inc., a Los Angeles-based battery storage and virtual power plant affiliate of oil giant Shell PLC.
That is because the legislation, which cleared the Senate Aug. 7, includes a long-sought investment tax credit, or ITC, for stand-alone storage projects, at 30% of project cost, independent of whether batteries charge through solar energy or grid power. Under the current 26% ITC, homeowners can qualify batteries for the credit only when charging 100% from an onsite solar array, while businesses must use solar for at least 75% of their battery power.
For Richetta and other energy storage and renewable energy executives, a stand-alone ITC is among the key proposals that can open the door to deeper levels of the U.S. energy transition.
"If I can swarm-charge 10,000 [home] batteries when there's a ton of wind ... I can actually enable a renewable energy future and tons of renewables to come into the grid as utility scale," the Sonnen CEO said in an interview. "I have not been able to do that in the United States of America because you lost your tax credit if you charged from the grid."
Episodes of Energy Evolution are available on iTunes , Spotify and other podcast platforms.
While Sonnen expects "substantial growth" for its remote-controlled "swarms" of batteries at thousands of homes and apartments, "for a lot of companies it won't be so substantial," Richetta added.
Much will depend on the final version of the bill, which will now be considered by the U.S. House of Representatives, as well as on subsequent regulations and strategic corporate decisions.
"It's a little bit more complex than it has been, but also more targeted to the outcomes ... Congress is looking to incent," Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association, said during an Aug. 8 media briefing. "This bill alone does not solve everything," Hopper added when asked whether sufficient transmission capacity would be built to support massive new volumes of renewable energy and energy storage capacity.
But the overall legislation, which includes long-term tax credit certainty for solar, energy storage, wind and green hydrogen, represents a "historic moment" with local, national and global impacts. "The largest economy in the world ... has finally taken major action on climate change," Hopper said.
New jobs, few workers
The bill's energy and climate provisions could create 550,000 new clean energy jobs and stimulate more than 500 GW of new clean power while reducing economy-wide emissions 40% by 2030, according to the American Clean Power Association.
"This is a generational opportunity for clean energy after years of uncertainty and delay," Heather Zichal, CEO of the trade group, said in an Aug. 7 statement after the Senate advanced the bill with energy and climate measures intact.
One potential challenge, at least for some companies, relates to the legislation's prevailing wage and apprenticeship rules. The ITC, for instance, could drop to just 6% if certain labor standards are not met.
"In other words, if you don't use union labor, it's 6%," Sonnen's Richetta said, noting that many solar companies use non-union contractors.
There are exceptions to that rule, however, including for smaller facilities sized less than 1 MW, according to attorneys at Morgan Lewis & Bockius.
Regardless of whether workers are unionized, it could prove difficult to find hundreds of thousands of new employees in coming years.
"Obviously, in this tight labor market, that's a challenge," Hopper said.
There are bonus incentives for some project elements, including a 10% to 20% increase for projects located in low-income communities. There is also a 10% boost for facilities located in either a designated "energy community" or that rely on higher volumes of domestically sourced materials, as defined by federal requirements, according to Morgan Lewis & Bockius.
U.S. solar panel production could rebound if Congress passes incentives currently under consideration. |
Currently, the nation's batteries, solar panels and wind turbines reflect a vast shortage of domestic content, with supply chains largely linked to China. The bill seeks to change that with its local content emphasis and separate incentives for manufacturers, totaling over $60 billion for domestic manufacturing "across the full supply chain of clean energy and transportation technologies," according to a summary of the legislation's energy and climate investments.
Solar panel producers First Solar Inc., Maxeon Solar Technologies Ltd. and Hanwha Solutions Corp., wind turbine blade-maker TPI Composites Inc. and battery upstart Freyr Battery are among the companies considering expanding, accelerating or reviving their U.S. manufacturing plans.
Clean energy investment analysts at Roth Capital Partners anticipate roughly 25 GW of new solar module manufacturing could result if the bill passes in its current form. Filling in other parts of the supply chain, including crystalline cells, wafers and ingots, could take several years to reach significant levels, industry experts caution.
Freyr, which has a lithium-ion battery joint venture with industrial giant Koch Industries Inc., is in the final stages of site selection for one or more manufacturing sites in the U.S., modeled on its inaugural full-scale factory under construction in Norway, according to Freyr CEO Tom Jensen.
"This [bill] will enable, to a large extent, an accelerated electrification of the United States. And we will be there to be a big part of that equation," Jensen said in an interview.
Leveraging a technology license with Massachusetts-based 24M Technologies Inc., Freyr plans to make batteries for energy storage and electric vehicle applications.
"Frankly, the supply chain is underdeveloped in Europe [and] even more underdeveloped in the U.S.," Freyr CFO Oscar Brown added. But the proposed manufacturing incentives and flexibility around monetizing tax credits could prove valuable, Brown said. "We'll have to evaluate exactly how it works," the CFO noted.
Investors encouraged
Mary Powell, CEO of Sunrun Inc., the largest U.S. residential solar installer, believes the passage of the Inflation Reduction Act would "turbocharge" home solar while boosting demand for battery storage and electric vehicles.
Investors also appear encouraged. As of midday Aug. 8, the iShares Global Clean Energy Index ETF was up 16.5% compared to July 27, when U.S. Sen. Joe Manchin, D-W.Va., said he reached a deal with Senate Majority Leader Chuck Schumer, D-N.Y., to fight inflation and invest in clean energy. Sen. Kyrsten Sinema, D-Ariz., also agreed to move forward with the bill, paving the way for passage in the Senate
Some companies have seen bigger jumps. First Solar, which has factories in the U.S. and abroad, was up 45% in that period. Solar component and energy storage system supplier Enphase Energy Inc. was up nearly 24%.
The legislation is "a meaningful positive for nearly every company in our universe with U.S. exposure," analysts at Roth Capital Partners noted after the proposal emerged.
"I think it's a great catalyst," added Paul Gaynor, CEO of U.S. renewable energy and storage developer Longroad Energy Holdings LLC.
Longroad, which relies on First Solar for modules, believes developers will prioritize domestic content more if the bill passes, even if it takes time for renewable energy and battery storage supply chains to fill in.
"Is there going to be enough momentum to build out the U.S.' entire annual needs [for clean energy] in the next 10, 15, 20 years? I don't know. I hope so," Gaynor said. "But does it at least get us on the map and moving? Absolutely."
S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.