New report predicts Inflation Reduction Act to bring annual renewables investment to nearly $114B by 2031

In less than a decade, the decarbonization efforts enshrined in the Inflation Reduction Act (IRA) of 2022 will bring annual investments into domestic renewable energy deployment from $64 billion last year to nearly $114 billion in less than a decade, according to a new Wood Mackenzie report.

This will be the case by 2031, according to “Boom time: what the Inflation Reduction Act (Act) means for U.S. renewables manufacturers.” Wood Mackenzie, an energy research and consultancy group under Verisk, set out to assess how the IRA legislation could impact the country and the renewables industry and ultimately found that impact would mean something more like changing the whole field.

“The IRA will completely reshape the renewables supply chain in the U.S., incentivising the reopening of shuttered facilities as well as provide opportunities to build entire equipment supply chains from scratch,” Daniel Liu, principal analyst at Wood Mackenzie and lead author of the report, said.

The IRA, one of the Biden administration’s key legislative focuses early on, will influence the scale of growth in different ways, such as through major expansion of U.S. renewables equipment manufacturing capacity. Some of the largest spikes to come will be in solar utility installed capacity. However, the capacities of solar distributed, both offshore and onshore wind and storage deployments, will continue to tick upward as well.

Still, Liu highlighted wind as being the largest beneficiary in the future. Currently, the United States has enough manufacturing capacity to supply most domestic demand for turbines until 2031, although it must endure a near-term shortage of U.S.-produced equipment. Utility solar P.V. will have a harder time meeting domestic demand and manufacturing capabilities, in his view, due to a small solar manufacturing base and major forecasted growth in the sector, complicated further by U.S. manufacturing costs that are between 16-33 percent higher than imported equipment.

“It’s high stakes for U.S. equipment sales, as the IRA provides incentives that cut the manufacturing cost of solar panels, storage equipment, and wind towers in the U.S. by anywhere from 4 percent to 30 percent,” Liu said. “This, along with tariffs on some imports, potentially puts domestic manufacturing on a cost-competitive footing with imported equipment.”

Some of the likeliest game changers in the IRA are from advanced manufacturing production credits – a tax credit for U.S.-made renewable equipment – and tax credit-based incentives for developers of U.S. renewable projects that purchase domestically produced equipment. The latter has specific thresholds, though: 40 percent of all equipment in a project installed before 2025 must be domestically manufactured, with a 20 percent requirement for offshore wind being the exception, while after 2026, the overall equipment requirement will rise to 55 percent and the offshore wind requirement will rise to match after 2027.