According to Wood Mackenzie, the Inflation Reduction Act (IRA) will increase annual investment in renewables in the US from $64 billion in 2022 to nearly $114 billion by 2031.
The market analyst’s report, “Boom time: what the Inflation Reduction Act means for US renewables manufacturers,” gives an initial evaluation of how the legislation will aid in the growth of US renewables equipment manufacturing, though opportunities will differ by segment.
Daniel Liu, principal analyst at Wood Mackenzie and lead author of the report, said: “The IRA will completely reshape the renewables supply chain in the US, incentivising the reopening of shuttered facilities as well as providing opportunities to build entire equipment supply chains from scratch.”
The IRA includes two significant provisions that could greatly benefit manufacturers of renewable energy equipment. The first provision is the Advanced Manufacturing Production Credits (AMPC), which offers a tax credit for equipment made in the US. The second provision incentivizes developers of renewable energy projects in the US to buy domestically produced equipment by offering an additional tax credit if they meet certain domestic content requirements.
For projects installed before 2025, 40% of all equipment must be made in the US to qualify, and 20% for offshore wind projects. After 2026, this requirement increases to 55% for all projects and 2027 for offshore wind projects.
“It is high stakes for US equipment sales, as the IRA provides incentives that cut the manufacturing cost of solar panels, storage equipment and wind towers in the US by anywhere from 4% to 30%. This, along with tariffs on some imports, potentially puts domestic manufacturing on a cost-competitive footing with imported equipment,” Liu said.
According to Wood Mackenzie, the US onshore wind manufacturing sector is expected to take full advantage of the Advanced Manufacturing Tax Credit (AMPC) as it will help original equipment manufacturers (OEMs) improve equipment sales margins in the short term and encourage investment in manufacturing capacity.
Additionally, offshore wind manufacturers are expected to benefit greatly from the AMPC, due to the limited capacity of US manufacturing, the cost advantages of domestic production over imports, and the need to invest in domestic manufacturing capacity.
However, the outlook for utility solar PV is less clear, as the US currently has a small solar manufacturing base, despite the forecasted growth in solar additions. Meeting US solar needs with domestic equipment will be more challenging than other sectors, according to Wood Mackenzie.
The IRS will provide guidance on how to access support through tax credits, which will be a key factor for manufacturers’ investment decisions.
