IRA to spur US renewables investment, reshape supply chain, WoodMac says

Annual renewables investment in the US is expected to increase to USD 114 billion (EUR 105bn) by 2031 from USD 64 billion in 2022, driven by the country’s Inflation Reduction Act (IRA), Wood Mackenzie estimates in a new report.

The research firm said on Thursday the legislation will reshape the US renewables supply chain. Its analyst Daniel Liu commented that the IRA will encourage the reopening of closed facilities and the development of entire equipment supply chains from scratch.

Manufacturers of renewables equipment will mainly benefit from two IRA provisions: a tax credit, known as the advanced manufacturing production credits (AMPC), for US-made renewable equipment; and an additional tax credit offered to US developers if they meet domestic content requirement thresholds, WoodMac explains. The domestic content threshold is 40% for projects installed before 2025, or 20% in the case of offshore wind, and rises to 55% after 2026, for offshore wind after 2027.

According to Liu, the IRA incentives cut the manufacturing cost of solar panels, storage equipment and wind towers in the US by between 4% and 30%. In combination with tariffs on some imports, domestic manufacturing could be on a cost-competitive footing with imported equipment, Liu said.

WoodMac notes that a yet-to-be released guidance on the IRA implementation will have an effect on growth in the sector.

According to Liu, investment in equipment manufacturing capacity will depend on three factors. “First, the cost of manufacturing equipment in the US compared with imports, taking into account the benefits the AMPC provides. Second, the expected supply/demand imbalance for renewables equipment, and finally, specific guidance from the IRS [Internal Revenue Service] on what constitutes ‘domestically produced equipment’,” the analyst said.

(USD 1 = EUR 0.923)

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