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What potential effects could the Inflation Reduction Act have on renewable energy?


One of the biggest pieces of legislation in recent memory is the Inflation Reduction Act of the United States. According to estimates, the new law will raise $738 billion once it is passed and authorize $391 billion in investment on energy and climate change in the US. By any standard, these are large sums, and the data demonstrate the US’s commitment to combating climate change. The law is expected to cut US greenhouse gas emissions in 2030 to 40% below 2005 levels, with a large portion of this commitment being met by renewable energy. It is significant for the sheer scope of investment alone, and some have termed it the largest piece of federal legislation ever to address climate change. However, potential change doesn’t always materialize in the real world. Can the act really fulfill these grand promises?

Big revelations about the law are made in the White House’s briefing statement, starting with the fact that families can save more than $1,000 year thanks to tax credits for clean energy and electric vehicles. While 7.5 million additional families receive a 30% tax credit to install solar panels on their roofs, an estimated $9,000 over the life of the system or at least $300 per year, approximately $14,000 is set aside for direct consumer rebates for families to buy heat pumps or other energy efficient home appliances, saving families at least $350 per year. By 2030, there will be significantly more sustainable energy used to power the nation’s homes, businesses, and communities, including 2,300 grid-scale storage plants, 120,000 wind turbines, and 950 million solar panels. In addition, the act will accelerate clean energy projects that save money at rural electric cooperatives that serve 42 million people and generate millions of jobs in the US clean energy sector.

It’s also important to note that the Whitehouse estimates the act will have a 10 times greater climatic impact than any other single piece of legislation ever passed, reducing greenhouse gas emissions by around one gigaton, or a billion metric tons, in 2030. Undoubtedly, the act has spurred a response in America toward renewable energy. Assets like these could become more crucial than ever in the context of the act. The US financial firm Schroders handles hundreds of billions in assets and cash that could also be leveraged towards a renewable’s revolution. “The measure enhances and extends the support for renewables, and provides a variety of new credits to promote fledgling climate technologies like energy storage and green hydrogen,” says Isabella Hervey-Bathurst, a climate change investor at Schroders.

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The bill also includes a few quite overt industrial policy provisions that support the development of clean technology supply chains within the United States and with its free trade agreement allies. “The bill is certainly favorable for business earnings across many sections of the energy transition industry, such as solar, wind, storage, hydrogen [and] elements of the supply chain,” adds Alex Monk, a fund manager who specializes in the energy transition. It may help to clear some of the obstructions that have recently led to a decline in activity in some market segments. “Wind has been severely disturbed, but other sectors where operators and developers had been waiting for these new capabilities have also been affected. Additionally, it supports the technology’ relative cost competitiveness.

Also keep in mind that the US isn’t starting from scratch with renewable energy. According to the most recent US Energy Information Administration (EIA) Short Term Energy Outlook, renewable energy sources, mostly solar and wind, will account for the biggest increases in US electricity output. According to the EIA, between 2021 and 2050, the proportion of renewable energy in the US electrical generation mix will more than double. From 2021 to 2024, wind will grow more than any other sort of renewable energy source, and it will be responsible for more than two-thirds of those increases in power generation. Renewable generation has increased in the US, according to Stephen Nalley, interim administrator of the EIA, who previously testified before a Senate Committee. The general opinion is that future capacity additions will primarily come from wind and solar technologies as coal and nuclear generating capacity retires.

The International Energy Agency and other think tanks outside of the US concur that the continuous expansion of renewable energy sources and rising natural gas costs are putting downward pressure on annual increases in gas consumption in the US, currently the world’s largest natural gas market. According to Ashley Thomson, a senior climate campaigner at Greenpeace USA, “The Inflation Reduction Act is a huge win for the renewable energy industry and gets us one step closer to building a clean energy economy.” She also points out that the act has largely received support from all sectors of the economy. “Only the expansions of the clean energy tax breaks offer the much-needed stability for renewable energy producers whose higher output is crucial to achieving our climate goals.” In order to achieve the unprecedented deployment rates for wind, solar, batteries, and other clean electricity technologies envisioned in its 100% clean electricity scenarios, the National Renewable Energy Laboratory (NREL) notes that a corresponding increase in raw materials, manufacturing facilities, and skilled labor throughout the supply chain is required.

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NREL, a research and development facility, was unable to comment on broader US renewables policy, but the report does identify other issues, such as the urgent need for updated electrical infrastructure across the nation. This entails locating and connecting new renewable and storage facilities, tripling or quadrupling the transmission system, modernizing the distribution system, constructing new pipelines, and creating carbon dioxide and hydrogen storage facilities. However, the majority of commentators highlight the act’s benefits for renewable energy. According to unbiased data from Rhodium Group, the act puts the US in a good position to achieve the president’s target of 100% clean generation by 2035.

According to the group, “These shares are achieved by delaying the retirement of 10GW–20GW of nuclear through 2030 and increasing the annual average capacity additions of renewables to 35GW–77GW per year through 2030—more than double per year in the low and central emissions cases than the record set in 2021.” Additionally, Rhodium points out that the act doesn’t simply encourage large-scale renewable technologies like solar and currently accessible wind. It also expands on the funding provided by the Infrastructure Investment and Jobs Act to lower the cost of implementing a number of cutting-edge clean technologies that are currently in development, including carbon capture, clean fuels, clean hydrogen, advanced nuclear, and other innovative solutions. For once, it seems like everyone is agreeing. The act seems to be on track to fundamentally and positively transform US renewable energy. If US politics don’t change, clean energy will proceed.

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