IRA impact becomes increasingly visible in first half of 2024 as guidance and incentives spur investment

The Inflation Control Act celebrates its second birthday in August, and its potential impact is becoming increasingly clear as federal guidance on its provisions is issued and tax incentives increasingly spur private investment.

According to business group E2, this year there have been 41 major clean energy projects announced, with private investments valued at $12.6 billion, and in 2024 the IRS has issued final guidance on mandatory IRA compensation and work experience requirements, as well as a tax credit carryover mechanism.

This year, the IRS also proposed guidance on technology-neutral IRA 48E and 45Y credits, issued clarification on what qualifies as community energy, and issued guidance on the domestic content bonus — expanding its application to hydropower and solar.

But the clean energy industry is still waiting for final guidance on the 45V hydrogen tax credit, said Lesley Hunter, senior vice president of policy and engagement at the American Council on Renewable Energy.

“The notification at the end of last year created significant uncertainty and the Treasury has received significant feedback on the feasibility of the restrictions on eligible projects,” Hunter said. “This is final guidance, which we should see towards the end of this year.”

On the other hand, she added, guidance released this year has “effectively eased” some of the clean energy industry’s concerns.

Market shocks

Hunter said it was finalized tax relief transfer tips released in April helped develop a new and growing market for clean energy tax credit transactions. Crux Climate Report from January It is estimated that between $7 billion and $9 billion in transactions were made last year, and in April the company said that the number of deals this year could “significantly exceed” that amount.

Hunter added that she expects the IRA to be a “long-term boost” for the clean energy sector, especially when the technology-neutral 48E and 45Y credits replace existing production and investment tax credits later this year. The new credits are set to phase out either in 2032 or when U.S. carbon emissions reach 50% of 2022 levels.

While the IRA is fueling a boom in clean energy manufacturing and production, some sectors of the industry disagree on how the U.S. should approach related trade policy. The solar industry is currently divided over a petition filed in April by an alliance of seven U.S. solar manufacturers seeking antidumping and countervailing duties on crystalline silicon solar cells imported from Cambodia, Malaysia, Thailand and Vietnam.

One manufacturer is First Solar, whose CEO Mark Widmar testified before the Senate Finance Committee in March that “there is a significant risk that the largest beneficiary of solar IRA tax credits could be China.”

Interest rates have remained at 23-year highs this year, dashing industry hopes for a cut. David Carter, senior analyst at consulting firm RSM Industries, said he has seen “higher costs of capital and tighter access to capital…really driving companies back to fundamentals. They are focused on identifying ways to grow revenue, improve margins and maximize returns on their investments.”

Carter said he also noticed clean energy companies starting to adapt to the transmission headwinds they face as they get projects up and running.

“There’s been an increase in new generation connected directly to industrial facilities, quote, behind the meter,” he said. “And this is a way to allow them to get projects online more quickly and make the economics a little bit more attractive.”

RSM economists are forecasting a 25 basis point rate cut in September and another in December, with “more to come next year,” Carter said. “Overall, we see the strength of the economy is solid.”

New funding and grants

“The story of the first year (of the IRA) was that people moved relatively quickly to take advantage of some of the new or reauthorized, expanded tax breaks — and that the private sector and private capital were able to move quickly,” said Harry Godfrey, who leads the federal investment and manufacturing working group at Advanced Energy United.

Godfrey said he believes the biggest IRA story in 2024 “is the outflow of dollars from the federal government to states, nonprofits and municipalities.”

Some IRA funds are starting to flow freely, he said, while other programs, such as the Environmental Protection Agency’s $27 billion Greenhouse Gas Reduction Fund, will take longer to implement.

The $5 billion in climate pollution reduction grants to individual states are also still being paid out, but Godfrey said he finds it “encouraging” that so far 47 of the 50 states have used the planning funds to develop climate action plans.

“They vary in terms of the detail, quality and specificity, but states generally have produced plans that talk about decarbonizing sector by sector and how that can be done,” he said.

Godfrey said that regardless of which presidential candidate wins in November, he believes states in 2025 “will play a really central role” in implementing the IRA, as well as in its “ultimate success or failure.”