10 Months With The Inflation Reduction Act

Love it or hate it, the Inflation Reduction Act has been the law of the land since President Biden signed it last August. And it’s already survived its first real political test, as Republicans in the House of Representatives backed off demands for effective repeal in agreeing to raise the federal debt limit ceiling. My August 2022 Conrad’s Utility Investor feature article ” What Energy’s Grand Bargain Means for Utility Earnings ” highlighted the key provisions of the Act, which at the end of the day is an attempt to return to the “all of the above” energy policies predating the Trump Administration. And target beneficiaries of the roughly $370 billion of tax credits and subsidy range from regulated utilities and battery manufacturers to carbon capture projects of super major oil companies. Dollar currency growth concept with upward arrows on charts and coins background. getty It’s fair to say the lack of energy infrastructure permitting reform is still a bottleneck for many potential IRA-incentivized projects. The NIMBY or “not in my backyard” impulse has been getting stronger over the past decade for pretty much anything to do with fossil fuels, including development of carbon capture. And it’s now heating up for new wind and solar projects as well. Winning needed permits for new electricity transmission lines is arguably as problematic now as for oil and gas pipelines. Only a specific provision in the federal debt limit deal, for example, was able to revive work on the 94 percent-complete Mountain Valley Pipeline . And it took a multi-year court battle to get a 145-mile Canada-to-New England power line back on track this year for developer Avangrid AGR +0.2% Inc (AGR) and its 81.64 percent owner Iberdrola SA (IBE, IBDRY BDRY +1.4% ). To pass Congress this year, energy permitting reform will need bipartisan support. That means liberalizing rules for renewable energy and fossil fuels projects, a step culture warriors on both right and left are sure to oppose. MORE FOR YOU Supreme Court Gets Rid Of Affirmative Action In College Admissions Judge Bars Part Of Tennessee’s Ban On Gender-Affirming Care—Here Are All The Other Transgender Health Restrictions Blocked By Courts CNN’s Anderson Cooper On Trump’s ‘Bravado’ Excuse In Documents Case: ‘Fancier Word, Same BS’ The IRA as it stands now, however, has already been an unqualified success in one major respect: The “multiplier effect” on private sector investment. When the federal government directly invests in projects, it crowds out efforts of companies and individuals that don’t have the luxury of effectively unlimited budgets. By contrast, the IRA is designed specifically to accelerate investment already being made by the private sector. And early indications are it’s succeeding to an extent no government effort has since World War II. Investing Digest: Know what’s moving the financial markets and what smart money is buying with Forbes Investing Digest. By signing up, you accept and agree to our Terms of Service (including the class action waiver and arbitration provisions), and Privacy Statement . Exhibit A is ongoing construction of new U.S. manufacturing capacity, particularly for solar panels and advanced batteries. “Reshoring” was already happening to some extent. That’s the result of post-pandemic supply chain disruption and escalating tensions in the U.S./China trade relationship, which resulted in punitive tariffs for imports. But since the IRA became law , manufacturers have announced new solar panel projects with nearly seven times the capacity of currently operating facilities. And despite this month’s record low for global prices, more capacity is on the way. Next month, for example, Italy-based power producer Enel SpA (ENEL, ENLAY) will likely start building a U.S. facility capable of producing 6 gigawatts of new solar panels annually. That’s nearly equivalent to the country’s entire production capacity pre-IRA. The economics of long-term advanced battery manufacture are more complex, as accelerating demand from the power grid and for transportation comes up against supply concerns for key minerals like copper and nickel. Nonetheless, there’s an ongoing U.S. building boom for new battery production capacity that would increase output to nearly 1,000 GWh per year by 2030, compared to 55 GWh/year in 2021. All this building has set off industry alarm bells of potential over-supply, and financial ruin for weaker companies. But what’s effectively a race to the bottom for manufacturers is a massive plus for deployers like NextEra Energy NEE -0.2% (NEE). The company will now enjoy a falling cost of supply for the foreseeable future as the leading U.S. contract producer of wind, solar and energy […]

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