Investments in the US renewable energy market are expected to hit $114 billion by 2031, up 78% from $64 billion in total investments at the end of 2021, buoyed by decarbonization momentum from the landmark US Inflation Reduction Act. Wood Mackenzie provides an initial assessment in its latest report on how the IRA will greatly support the expansion of US renewable energy equipment manufacturing capacity.
“The IRA will completely reshape the renewables supply chain in the US, incentivizing the reopening of shuttered facilities as well as provide opportunities to build entire equipment supply chains from scratch,” said Daniel Liu, head of asset commercial performance at Wood Mackenzie.
Two key provisions of the IRA are likely to be game changing for equipment manufacturers. The first is the advanced manufacturing production credits (AMPC) for US-made renewables equipment. The second provision is the incentivization of developers of US renewable energy projects to purchase domestically sourced equipment with an additional tax credit. To qualify, 40% of all equipment must be American made for projects installed before 2025, and 20% American-made for offshore wind projects. This requirement rises to 55% beginning in 2027 for the offshore wind market, the report notes.
“It’s high stakes for US equipment sales, as the IRA provides incentives that cut the manufacturing cost of solar panels, storage equipment and wind towers in the US by anywhere from 4% to 30%,” Liu said. “This, along with tariffs on some imports, potentially puts domestic manufacturing on a cost-competitive footing with imported equipment.”
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