IMAGE: USE GRAPH: ACTUAL MANUFACTURING INVESTMENTS BY TECHNOLOGY
Source: “Clean Investment Monitor, 2023”
By FREE Staff
Federal tax credits are helping clean energy sectors like wind and solar to see new investment and public attention.
Clean energy has gained new prominence in the U.S. in the last several months thanks to the Inflation Reduction Act.
The IRA, which passed in August 2022, made available tax credits and funding specifically for domestic clean energy manufacturing.
In the first year since the law’s passage, the U.S. saw $271 billion in the manufacturing and deployment of clean energy, clean vehicle, building electrification, and carbon management technology.
Clean energy manufacturing investment rose from $17 billion invested between July 2021 and June 2022 to $39 billion between July 2022 and June 2023, according to the Clean Investment Monitor from Rhodium Group and the Massachusetts Institute of Technology’s Center for Energy and Environmental Policy Research (Figure 1).
Figure 1 United States Clean Energy Manufacturing. Source: Clean Investment Monitor.
This includes the announcement of 83 new utility-scale clean energy manufacturing facilities and the creation of nearly 30,000 new jobs, according to the American Clean Power Association.
The announcement of projects came quickly in the wake of the law’s passage and talk of its many tax incentives for domestic manufacturing. In just the first ten weeks after the IRA was passed, companies announced 15 new or expanded manufacturing facilities across the country. In total, when including new investments in vehicle technology manufacturing and clean energy, the previous two years have seen company announcements for a total of $137 billion in new investments – a five-fold increase over the two years prior, according to the Clean Investment Monitor.
The Clean Investment Monitor notes that battery manufacturing and processing claims the majority of the announced investments (Figure 2), followed by zero emission vehicles, solar and critical minerals.
The IRA includes a variety of tax incentives and benefits for companies that build domestic clean energy manufacturing sites. The credits span several types of clean energy manufacturing, including the often-discussed electric vehicle and battery incentives offered by the Department of Energy. However, the law covers much more than just EVs.
For example, as part of the law, the Department of Energy is offering two types of tax credits for manufacturers: the Advanced Manufacturing Production Tax Credit, which provides tax credits for each clean energy component made in the U.S., and the Advanced Energy Project Investment Tax Credit, which provides a tax credit for purchasing and commissioning property to build an industrial or manufacturing facility.
Additionally, the IRA provides tax credits for residents who install solar panels. U.S. residents who install solar panels on their homes are now eligible for a 30% tax credit until 2033. Finally, businesses that installed solar panels on their buildings for service beginning last year are also eligible for a 30% investment tax credit, according to the Department of Energy.
Such incentives are likely to have contributed to the observed boom in solar energy equipment manufacturing. In fact, in the year since the passage of the IRA, private companies invested in nearly 30 solar energy-related factories across 18 states, according to an analysis by the environmental and economic advocacy group E2.
Other types of manufacturing are also benefitting from the IRA, including wind energy manufacturing. Starting in 2025, the IRA will extend and increase tax credits for wind energy projects and offer stackable bonus credits for projects that meet certain criteria, such as using 100% domestically produced iron and steel or 40% domestically manufactured
components for land-based wind or 20% domestically manufactured components for offshore wind, according to the Department of Energy.
These financial incentives have led to a surge in private manufacturing project investment in the wind energy sector. In the first year of the IRA, companies announced at least 18 wind turbine factories or major wind products, according to E2.
A third area of clean energy investment since the passage of the IRA is hydrogen. Twelve hydrogen projects made up of $5.1 billion in investment were announced in the law’s first year, as companies vie for tax credits aimed at domestic hydrogen and fuel cell projects. The law extends nine types of tax credits to eligible projects related to hydrogen and fuel cells, according to the DOE.
The law’s tax credit opportunities for previously less developed sectors of clean energy are an example of the IRA’s far reach in the U.S. manufacturing industry. The IRA has put the public spotlight on clean energy manufacturing in new ways, making the public aware of the many clean energy sectors ripe for growth in the coming years to fuel the U.S. energy transition.
Now in the years ahead, it will be up to both the public and private sector to ensure that tax credits are successfully doled out to recipients, that manufacturing sites get up and running as job creators and contributors to local economies, and that U.S. residents feel equitably involved in the energy transition.