The Inflation Reduction Act (IRA), flagship legislation focused on accelerating decarbonisation in the US, will boost annual investment in renewables from $64bn (€59bn) in 2022 to nearly $114bn by 2031, according to Wood Mackenzie.
The market analyst’s latest report, “Boom time: what the Inflation Reduction Act means for US renewables manufacturers”, provides an initial assessment of how the legislation will support the expansion of US renewables equipment manufacturing capacity, though specific opportunities will vary per 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.”
Two key provisions of the IRA are likely to be game-changing for renewables equipment manufacturers.
First, it provides a tax credit, known as the advanced manufacturing production credits (AMPC), for US-made renewable equipment.
Second, the act incentivises developers of US renewable projects to purchase domestically produced equipment by providing an additional tax credit if they meet domestic content requirement (DCR) thresholds.
To qualify, 40% of all equipment must be US-manufactured on projects installed before 2025, 20% for offshore wind.
This rises to 55% after 2026, 2027 for offshore wind.
“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.
Wood Mackenzie expects the US onshore wind manufacturing sector to take “full advantage” of the AMPC as the credits will help original equipment manufacturers (OEMs) reverse declining equipment sales margins in the short term and incentivise investment in manufacturing capacity.
In offshore wind manufacturers are “expected to capture the full value of the AMPC” given the limited capacity of US manufacturing, the natural cost advantages versus imports and the need to invest in domestic manufacturing capacity.
Utility solar PV has a “somewhat foggier outlook” due to having such a small solar manufacturing base in the US, against substantial forecasted growth in solar additions.
Fully meeting US solar needs with domestic equipment will be more challenging than other sectors, Liu said.
The Internal Revenue Service (IRS) will provide eligibility requirement guidance on how to access support in the form of tax credits, which will be a “critical factor” for investment decisions by manufacturers.