Companies have announced hundreds of billions of dollars worth of clean energy and manufacturing projects in the United States over the past two years since the Biden Administration passed the Inflation Reduction Act (IRA) in August 2022.
The IRA has nearly $370 billion in climate and clean energy provisions, including investment and production credits for solar, wind, storage, critical minerals, funding for energy research, and credits for clean energy technology manufacturing such as wind turbines and solar panels.
In the first year since the IRA and the CHIPS Act were passed, companies announced over $220 billion worth of projects.
But over the past few months, announcements have been rarer due to slumping solar panel prices from China’s overproduction and overcapacity, slowing EV sales growth globally, high interest rates, and last but not least, enormous domestic policy uncertainty given the U.S. presidential election in November. Company executives are reluctant to make final investment decisions because they are concerned that a Trump presidency could try to gut Biden’s clean energy initiatives and incentives.
Other firms are waiting for clearer guidance from the Department of the Treasury on the specific terms under which clean energy projects and production of clean fuels would benefit from the IRA tax credits.
Funding has also been a deterrent for some projects because IRA subsidies and tax credits are granted in most cases to projects that have already reached some production milestones.
Setback for $84 Billion Projects
Of the announced projects worth at least $100 million each, nearly 40% are facing delays or indefinite pauses, according to investigation and research carried out by the Financial Times.
These $84 billion worth of projects face delays of between two months and several years or have been indefinitely paused, research by FT, which has also conducted over 100 interviews with company executives, showed.
Planned solar panel factories, battery storage projects, and a lithium refinery facility are among those faced with delays, according to the FT investigation.
Solar panel prices have tumbled globally amid overproduction in China, which could persist for another year or two until the authorities manage to rein in the quantity-over-quality output.
Then, there are higher-than-planned costs for manufacturing facilities in the U.S., including labor and materials. These higher costs add to increased interest rates, making projects more expensive than initially budgeted.
And finally, political uncertainty with the upcoming presidential election is now topping the list of potential risks for many companies.
Solar manufacturer VSK Energy, which planned to build a factory in Colorado, has ditched that plan and is now looking for a location in a mostly Republican state in the Midwest, to be spared from Trump’s possible axe, a company executive told FT.
“Just in case, you probably want to be in a red state so that someone from the same party is going to fight for you and your rights,” the manager told FT.
Trump Threat To Clean Projects
Some companies are waiting to see who will ascend to the Oval Office early next year before making final decisions.
If Donald Trump wins in November, he is set to overturn or at least try to dismantle many of President Biden’s energy and climate policies, including methane rules, the pause on new LNG export permits, EV mandates, federal oil and gas leasing, and even parts of the Inflation Reduction Act.
The IRA is under scrutiny for possible scrapping of tax breaks, according to Trump advisers and people with whom Trump is directly discussing energy policy issues.
However, dismantling the IRA would first need a Republican-controlled Congress with both House and Senate. And even then, it could be difficult to scale back or scrap some incentives, as they mostly benefit projects and jobs in Republican states, analysts say.
At a rally last month, Trump attacked the green policies of the Democrats and the “ridiculous and actually incredible waste of taxpayer dollars” on “things having to do with the green new scam.”
Trump vowed to redirect the money to infrastructure projects and not allow it to be spent on “meaningless green new scam ideas.”
A Trump presidency could jeopardize $1 trillion in clean energy investments, Wood Mackenzie said in May.
Although Trump—if elected—is not expected to fully repeal the IRA of 2022, he is likely to scrap major clean energy policies, including a pledge to decarbonize the power grid by 2035. He is also set to soften emission reduction goals and regulations, according to WoodMac.
The energy consultancy expects the U.S. to see $7.7 trillion in investment for the U.S. energy sector from now until 2050. But less policy support for clean energy and infrastructure improvements would reduce this base-case investment projection by about $1 trillion, Wood Mackenzie’s analysts say.
“This election cycle will really influence the pace of energy investment, both in the next five years and through 2050,” said David Brown, director of Wood Mackenzie’s Energy Transition Research.
By Tsvetana Paraskova for Oilprice.com
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