It’s been two years since the landmark Inflation Reduction Act was passed in August 2022, and we’re adding our voice to the chorus celebrating the transformative pathways it is paving. The IRA is a federal law mandating a swath of programs designed to spur economic growth, improve human health, enhance energy security and create jobs across various industries and includes the largest climate investment in American history.
This $369 billion investment is a cornerstone of the federal plan to revitalize the national economy by transitioning to a clean energy future through investments in renewable energy projects, energy efficiency, electric vehicles, carbon capture technologies, and green job creation. This funding is broadly divided into two types of investment policies: incentives to invest (like clean energy tax provisions) and direct investments (like government funding grants and rebates). Taken together, these initiatives are crucial to meeting the country’s ambitious climate goals and building a clean energy future.
The problem is that with uncertainty surrounding the outcome of the upcoming November 2024 elections, the fate of IRA is very much on the minds of stakeholders in the clean energy industry. It’s no secret that many Republicans have called for the IRA’s total or partial repeal since its passage. Investors, developers, state and local governments, workforce development agencies, unions, community and technical colleges and others are unsure if they can rely on programs driven by IRA investments in a changed political landscape.
Given all that, let’s take a look at what has changed since we last checked in on the IRA, and what is at stake this fall.
The IRA's Impact on Clean Energy Investments
While the IRA’s implementation is ongoing, it has already led to meaningful reinvestment in onshore manufacturing, the introduction of transferable solar tax credits, and stricter adherence to prevailing wage guidelines. Since its passage, the IRA has catalyzed over $265 billion in clean energy investments. This massive influx of investment has significantly accelerated the development of clean energy infrastructure, creating thousands of jobs, particularly in regions historically reliant on fossil fuels. Importantly, the deployment of IRA funds is largely focused on incentivizing equity and environmental justice, requiring renewable energy projects to meet specific criteria to direct funds to underserved communities.
The IRA’s tax credits for clean energy have been key to its success. The Investment Tax Credit and Production Tax Credit extensions have provided long-term certainty for developers, enabling them to plan and execute projects with greater confidence. These credits have not only boosted solar deployments but also spurred significant advancements in energy storage technologies, enhancing the reliability and efficiency of solar energy systems.
In AC Power’s corner of the renewable energy landscape – brownfield solar development – the IRA has implemented substantial incentives to encourage clean energy projects on formerly disturbed land, a crucial opportunity for the energy transition as more communities air concerns about using arable land for clean energy projects.
Good News in the Form of New Guidance
The IRA offers a 10% adder to solar projects that qualify as brownfield sites located in “energy communities.” Initial guidance issued by the IRS and Treasury in April 2023 left many questions unanswered. Just last month, the IRS clarified that, for projects with a nameplate capacity of 5 MW or less, an ASTM-compliant Phase I Environmental Site Assessment identifying the presence or potential presence of a hazardous substances, pollutants, or contaminants is sufficient to qualify the site as a brownfield. This update makes it easier for smaller developers like AC Power to benefit from the IRA's incentives.
Beyond this last example and despite the lengthy rulemaking process, tax provisions for clean energy projects have already begun to create good-paying jobs thanks to the construction of new projects and the manufacturing of necessary equipment. Also bolstering this trend is venture capital flowing to first-of-a-kind emerging infrastructure projects as public IRA funding derisked portions of the capital stack, thereby making private investment more attractive. Brownfield projects in particular have benefited greatly from these financial assurances.
Prospects of a Repeal
Some say that the IRA is “immune to repeal efforts since many of the investments resulting in the creation of ‘good’ jobs are in Republican districts.” And it’s true that Republican districts across the country have received four times the investments in clean energy technology as Democratic districts. However, as noted by David Madland of the Center for American Progress, workers often attribute their new jobs to the companies opening the plants, but not to the legislation driving the creation of these new jobs. In other words, the IRA is not credited by many voters as a source of job creation.
While the IRA is broadly considered a part of the Democratic agenda, the debate over a prospective repeal doesn’t completely fall along party lines. Former President Trump has said on the campaign trail that he will scrap the IRA on day one should he win in November, but many components of the IRA have bipartisan support. Indeed, 18 Republican members of Congress sent a letter to House Speaker Mike Johnson earlier this month urging him to “prioritize business and market certainty” when considering repeal efforts.
“We hear from industry and our constituents who fear the energy tax regime will once again be turned on its head due to Republican [IRA] repeal efforts,” the letter reads. “Prematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing.”
This speaks to the broader sense that, while many Americans may indeed be unaware of the IRA’s existence, the legislation has provided an undeniable boon to big businesses, particularly those in manufacturing. Business tax credits tends to be harder to roll back once enacted than consumer-oriented credits, and accordingly, even some Republican-leaning trade groups are balking at rolling back parts of the law.
Also complicating this process is the fact that a total repeal of the IRA by the Republicans would require legislative control of both the House and the Senate in addition to the White House. A more likely scenario is for a partial repeal to be accomplished through a budget reconciliation process that can be opened up when Trump-era tax cuts are set to expire in 2025. It is this potential extension of the 2017 Tax Cuts and Jobs Acts provisions that has lawmakers on the prowl for where the funding would come from – and certain IRA tax credits are a prime target. After all, those arguing for a repeal dispute the IRA’s benefits given its cost and dismiss decarbonization as a national priority.
Realistically, what’s on the table in the event of a potential repeal? There has long been consensus that electric vehicle tax credits would most certainly be in the crosshairs of a Republican IRA strike. A series of environmental-justice grant programs, including the reinstatement of the Superfund tax and funds allocated via the Greenhouse Gas Reduction Fund, are also possible targets of Republican repeal actions. As a result, the Biden administration has been working to dole out funds as quickly as possible, with the understanding that the dollars can’t be clawed back by the federal government once they’re in the hands of the states.
As for the incentives encouraging brownfield redevelopment, it seems unlikely that Republicans would have interest in repealing a relatively uncontroversial form of renewable energy procurement – that which brings economic benefits to communities without impacting agricultural land. Many Republicans in recent years have advocated for an “all-of-the-above” approach to energy, which means simply prioritizing energy procurement no matter the shape or form. Solar in particular, which grows cheaper by the day and is not as politically divisive as wind power, is gradually being accepted as a common-sense solution to grid volatility and a necessary part of the country’s march towards energy independence.
The Bottom Line
Nobody has a crystal ball, but one thing which is certain is that the mere existence of these discussions, conversations, debates, preparations, and speculation is creating uncertainty in the market. Although dollars being committed now are likely to be grandfathered, investors are pulling back as they price in risk. Add to this the uncertainties surrounding permitting reform and tariff schedules, and solar developers are seeing the effects of this in negotiations today.
As noted by AC Power’s Senior Director of Business Development and Strategy Juliet Brooks, "Infrastructure is measured in years and decades, not quarters. We haven't seen the full benefits from the IRA yet. We need the IRA to support market movement toward a safer energy future.”
While AC Power’s focus on brownfield solar development may be less vulnerable to shifting political tides than emerging technologies or issues that attract partisan debates, we wish to spotlight the obvious: the planet isn’t waiting for election results. We must double down on climate action and policy because a sustainable future isn’t just a political choice; it’s a global imperative. No matter what happens in November, our work towards a greener world cannot pause.
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