Policy

A new dawn: what are the potential renewable energy impacts of the Inflation Reduction Act?

The ground-breaking Inflation Reduction Act could change the future of US power, with a new focus on renewable and clean energy investment. Giles Crosse investigates the landmark legislation.

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he US’s Inflation Reduction Act is one of the largest pieces of legislature in recent history. Estimates suggest that the new law, as passed, will raise $738bn and authorise $391bn in spending on energy and climate change across the US. Huge sums, by any reckoning, and figures that make clear the US’s commitment to tackling climate change.


According to several independent analyses, the law is projected to reduce 2030 US greenhouse gas emissions to 40% below 2005 levels, much of this promise through renewables. Some have called it the largest piece of federal legislation ever to address climate change, and is notable for the sheer scale of investment, if nothing else.


But of course, real world change doesn't always match up to potential. Can the act truly deliver on these lofty promises?

The headline promises

The Whitehouse's briefing statement on the act contains some big reveals, beginning with the news that families can save more than $1,000 per year on clean energy and electric vehicle tax credits.


About $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, while 7.5 million more families get 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.


Central power for US homes, businesses, and communities is promised to feature much more clean energy by 2030, including 950 million solar panels, 120,000 wind turbines and 2,300 grid-scale battery plants.

"The act will also advance cost-saving clean energy projects at rural electric cooperatives serving 42 million people."

The act will also advance cost-saving clean energy projects at rural electric cooperatives serving 42 million people and create millions of jobs across US clean energy.


It's also worth mentioning that the Whitehouse says the act will reduce greenhouse gas emissions by about one gigaton in 2030, or a billion metric tons, ten times more climate impact than any other single piece of legislation ever enacted, it claims.

Claims versus reality

Certainly, the act has sparked a renewables response across America. US investment house Schroders manages hundreds of billions in assets and cash that could too be leveraged towards a renewables revolution, and assets such as these could become more important than ever in the context of the act.


Isabella Hervey-Bathurst, a climate change investor at Schroders, says: “The bill boosts and extends the support for renewables, and introduces a number of new credits to support nascent climate technologies like energy storage and green hydrogen.


“The bill also contains some rather more overt industrial policy measures which promote the buildout of clean tech supply chains within the US and its free trade agreement partners.”

"The bill also contains some rather more overt industrial policy measures which promote the buildout of clean tech supply chains within the US and its free trade agreement partners."

Alex Monk, a fund manager focused on the energy transition, adds: “The bill is clearly supportive for company earnings across various parts of the energy transition sector such as solar, wind, storage, hydrogen [and] parts of the supply chain. It can hopefully unlock some of the bottlenecks that have caused a lack of activity in certain parts of the market recently.


“Wind has been particularly disrupted, but other areas too where developers and operators had been pausing while waiting for this new support. It further supports the cost competitiveness of the technologies on a relative basis too.”

The wider picture

Bear in mind too that the US isn't coming from a standing start on renewables either. The latest US Energy Information Administration (EIA) Short Term Energy Outlook predicts the largest increases in US electricity generation will come from renewable energy sources, mostly solar and wind.


The EIA predicts the share of renewables in the US electricity generation mix will more than double from 2021 to 2050. Wind grows more than any other renewable generation type from 2021 through 2024, accounting for more than two-thirds of those increases in electricity generation during that period.


Stephen Nalley, acting administrator, EIA, previously told a Senate Committee that renewable generation has continued to grow in the US. As coal and nuclear generating capacity retire, the consensus is that new capacity additions will come largely from wind and solar technologies.

"As coal and nuclear generating capacity retire, the consensus is that new capacity additions will come largely from wind and solar technologies."

Outside the US, think tanks like the International Energy Agency agree, saying that in the US, for now the world’s largest natural gas market, annual increases in gas demand are being squeezed by the continued growth of renewables against rising natural gas prices.


“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,” adds Ashley Thomson, a senior climate campaigner at Greenpeace USA, highlighting how the act has received cross-sector support for the most part. “The clean energy tax break extensions alone provide much-needed stability for renewable energy companies whose increased production is essential to meeting our climate goals.”

Challenges remain

The National Renewable Energy Laboratory (NREL) notes that unprecedented deployment rates for wind, solar, batteries, and other clean electricity technologies envisioned in its 100% clean electricity scenarios require corresponding growth in raw materials, manufacturing facilities and trained workforce throughout the supply chain.


As a research and development laboratory, NREL couldn't comment on wider US renewables policy, but the report notes other challenges, such as the pressing need for electricity infrastructure to be upgraded throughout the country.


This includes siting and interconnecting new renewable and storage plants, doubling or tripling the transmission system, upgrading the distribution system, building new pipelines and storage for hydrogen and carbon dioxide.


Yet, overwhelmingly, analysts point positively to the act’s impacts on renewables. Rhodium Group's independent data says the act puts the US in a strong position to meet the president’s goal of 100% clean generation in 2035.

"Rhodium Group's independent data says the act puts the US in a strong position to meet the president’s goal of 100% clean generation in 2035."

“These shares are achieved by preventing 10GW-20GW of nuclear from retiring 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,” said the group.


Rhodium also notes the act doesn’t just incentivise the commercial-scale clean technologies like solar and wind available today. It also builds on the investments in the Infrastructure Investment and Jobs Act to cut the cost of deploying a host of emerging clean technologies, such as carbon capture, as well as clean fuels, clean hydrogen, advanced nuclear and other cutting-edge solutions.


For once, commentary appears almost unanimous. The act looks set to shake up US renewables positively, at scale, for good. Short of a political change in the US, clean energy is go.

// Main image: Thermosolar plant in Nevada. Credit: jvtato via Shutterstock