We break down the $369 billion climate law (IRA) deal-by-deal.
President Joe Biden’s Inflation Reduction Act (IRA) is the most significant legislative climate action ever undertaken by the United States. It greenlights $369 billion in subsidies and incentives. It allows the Department of Energy (DoE) to create $250 billion in low-interest loans.
The IRA follows through on President Biden’s executive order to make the U.S. government carbon neutral by 2050 at the latest, with an interim target of a 65% reduction by 2030. The law broadly encompasses 300,000 buildings, 600,000 cars and trucks, and $650 billion in purchases by the federal government.
The IRA has big stretch goals: that all cars made in or for America will be electric by 2035; and that by 2045 all new buildings will be carbon neutral (net-zero emissions). It also aims to reduce the cost of U.S.-manufactured carbon-free green hydrogen by up to 75% and — less popular with climate activists — subsidizes carbon capture and storage (CCS). It does provide politically wrangled sweeteners for the fossil fuel industry.
The impact of a historic tax credit
This article focuses on a critical provision in the law that makes customers of new electric vehicles (EVs) eligible for a $7,500 tax credit. But with a catch. The vehicle, parts, and critical battery must all be built in the US. Even the minerals needed for the batteries must be sourced locally.
This dramatic change in trade policy has triggered a rush by foreign companies to announce new onshore plans ranging from new EV car plants, to batteries, to mining of lithium.
Here’s a review of the new deals beginning with the EV sector, but also looking at some interesting solar, wind, and hydrogen projects as well
Editor’s note: What is a gigawatt?
We will often mention “gigawatts of energy.” But what does that mean? Our homes are lit with 60 to 100 watts of electric light bulbs. The most significant use of power is an electric oven, which uses 12,200 watts. A gigawatt is one billion watts, roughly 1.3 million horsepower, and can power 750,000 homes.
The Climate & Capital IRA DealBook since July
Redwood Materials announced a deal with Volkswagen AG to recycle used EV batteries into cathode and anode pipelines. Redwood recovers 95% of metals, including nickel, copper, cobalt, and lithium, from batteries and injects them back into the domestic supply chain rather than exporting. Redwood’s initiative aligns with the IRA’s targets in onshoring supply, creating a robust, circular domestic battery manufacturing value chain.
Aug. 2022 — VW and Mercedes cut a deal with Canada to secure raw materials
VW and Mercedes-Benz AG agreed to source raw materials for batteries —- nickel, cobalt, and lithium —- from US free-trade partner Canada and thus qualify for the subsidies.
Aug. 2022 — Panasonic expands battery production with two $4 billion deals for Tesla Model 3 batteries
Panasonic announces plans to expand investments in the US, reportedly to include a new $4 billion battery facility in Oklahoma. This move comes on top of a $4 billion facility, announced in July, under construction in Kansas, with a capacity of 30GWh of 2170 batteries. The batteries are the critical component of Tesla’s Model 3, which this year has represented over 27% of total US EV sales.
EV makers, including Tesla, are boosting production volume and demanding more batteries from suppliers to reduce long wait times for many popular EV models. Panasonic already jointly operates a battery factory in Nevada with Tesla.
Credit: Benjamin Payne, GPB News
Oct. 2022 — Hyundai to build $5.5 billion EV factory in Georgia
To get in on the consumer tax credit under the IRA, Hyundai is speeding up construction of a $5.5 billion, 3,500-acre EV factory outside of Savannah, Georgia. At the same time, its lobbyists in Washington are seeking to relax the US rules on the rebate. Hyundai was initially wooed to Georgia with a $1.8 billion tax incentive package from the state.
The company broke ground on the facility in October, launching what is reportedly the largest economic development project in state history, expected to create over 8,100 new manufacturing and supply jobs.
Oct. 2022 — LG teams up with Honda for $3.5 billion battery hub in Columbus, Ohio
Honda announces a $3.5 billion joint venture with Korea’s LG Energy Solutions to build a battery factory in rural southern Ohio. Honda says the plant will hire 2,200 people as the company starts establishing its North American electric vehicle hub in the state.
Oct. 2022 — Honda to spend $700 million to upgrade existing car plants
Honda, which built its first Ohio factory 45 years ago, will invest $700 million and add 300 jobs at three of its own factories in the state to prepare them to manufacture EVs and components.
Oct. 2022 – LG Energy Solution partners with Syrah to expand critical mineral portfolio in North America
LG Energy Solution signed a non-binding memorandum of understanding with Syrah Resources Limited to partner on developing natural graphite anode material. LGES is seeking to boost the competitiveness and stability of its critical mineral supply chain in North America through a series of partnerships seeking to diversify its supply chain of natural graphite, a key battery material.
Oct. 2022 — Hyundai Mobis to build a $1.3 billion EV component plant to support the Georgia EV factory
Hyundai plans to build a $1.3 billion EV components factory to support Hyundai and Kia’s US operations. The South Korean automaker announced its electrification component division, Hyundai Mobis, will build a plant close to the mega EV factory under construction near Savannah, Georgia.
Nov. 2022 — LG Chem to build largest Cathode Plant in U.Ss for EV Batteries
LG Chem announced it would spend $3 billion to develop a cathode manufacturing facility in the US, with a capacity to supply domestic battery materials to 1.2 million vehicles per year. The new plant in Clarksville, Tennessee, will cover 420 acres with a production target of 120,000 tons of cathode material annually by 2027. The Tennessee facility is designed to be 100% powered by renewable energy sourced from solar and hydro plants.
LG Chem’s investment strengthens Tennessee’s position as a national hub for electric vehicle manufacturing — with assets of some $12.7 billion in EV-related projects since 2017.
Nov. 2022 — Hyundai and SK On announce $4-$5 billion investment in developing battery factory in Georgia.
Hyundai Motor Group and battery maker SK On to invest between $4 and $5 billion to build a new EV battery plant in Bartow County, Georgia, near where Hyundai is building its first dedicated EV facilities.
The joint venture will strengthen the connection between the South Korean giants, with the partnership already supplying the successful Hyundai IONIQ5, IONIQ6, and Kia EV6 models.
Nov. 2022 — SK inks purchase agreement with Chile’s SQM to source lithium hydroxide for EV batteries
In support of the battery partnership, SK On announced a lithium hydroxide (refined lithium product used in batteries) supply agreement from SQM in Chile to purchase up to 57,000 tons of high-quality lithium hydroxide for five years starting in 2023. This amount is enough to produce approximately 1.2 million electric vehicles (EVs) batteries.
Once again, the SK On deal is in response to the IRA’s critical mineral requirements for EV value chains, with the supply coming from SQM’s operations in Chile, a free-trade partner of the U.S.
Mergers and acquisitions: A renewable feeding frenzy
The IRA and the continuation of the Investment Tax Credit (ITC) for wind, solar, and battery projects have together spurred some multi-billion-dollar investments into U.S. renewable energy developers.
Sept. 2022 — Brookfield Renewables announces $2.2 billion in U.S. renewable acquisitions
This includes a $1 billion acquisition of Scout Clean Energy, with its portfolio of 1.2GW of operating wind assets and a pipeline of 22GW of wind, solar and storage projects across 24 states.
Brookfield also announced the $540m purchase of Standard Solar, which owns 500MW of operating and under-construction contracted assets and a development pipeline of 2GW. This builds on the Brookfield acquisition in January 2022 of Urban Grid for $650 million, a leading solar and battery storage developer with a development pipeline of 13GW of utility-scale solar and 7GW of energy storage projects across the U.S.
Oct. 2022 — Con Edison sells $6.8 billion renewable energy business
The sale refocuses Con Edison on its core utility businesses and the investments needed for the clean energy transition, says Timothy Cawley, the utility’s chairman, and CEO. Con Edison’s clean energy business operates and develops renewable energy plants around the U.S., with 3GW of operational capacity and solar projects accounting for 90% of the total.
Oct. 2022 — ENGIE of France acquires 6GW of solar and battery projects from Belltown Power U.S.
The deal significantly strengthens ENGIE’s renewable development pipeline. Belltown Power specializes in greenfield development of solar PV and energy storage projects, managing site identification, interconnection, real estate, permitting, and environmental, tax, and other regulatory matters to bring these projects to fruition. The portfolio includes 33 projects comprising 2.7GW of solar with 0.7GW of paired storage and 2.6GW of stand-alone battery storage.
Nov. 2022 — For sale: $4 billion Duke Duke Energy renewables
The potential sale has been triggered by the eagerness of U.S.-based renewables firms to buy into a more extensive base of projects, including major European utilities and their U.S. operations, such as Engie, Iberdrola, and Enel. Duke expects to announce the details of a buyer for its renewable energy assets, including 3.4 GW of wind and 1.7 GW of solar, in early 2023.
The Department of Energy loan assistance program
To spur a new EV auto industry, the U.S. Department of Energy announced a $2.8 billion energy loan assistance program for 20 companies to ensure the U.S. has the right materials and parts to secure its domestic energy transition and to build onshore supply chains. The federal grants are expected to trigger more than $6.25 billion of private capital investment. The companies plan to build and expand facilities in 12 states to extract and process lithium, graphite, and other battery materials, manufacture components and demonstrate new approaches, including manufacturing components from recycled materials.
Among the first projects to be funded under this IRA program are:
Albemarle Corp is the only lithium company currently producing battery-grade lithium from U.S. resources. The grant will support Albemarle’s plan to build a lithium concentration facility to provide feedstock for Albemarle’s previously announced mega-flex lithium conversion facility in North Carolina.
- Oct. 2022 — Piedmont Lithium awarded $141 million DoE grant
The Tennessee project aims to increase the U.S. lithium hydroxide supply by 30,000 tons annually. The grant accelerates the project’s timeline, with operations expected to commence in 2025.
- Oct. 2022 — Syrah Resources receives $220 million for natural graphite processing. The DoE grant is for Syrah to expand its Vidalia Active Anode Material facility, which is the only large-scale supplier of natural graphite outside of China. The facility is expected to provide 2,000 metric tons of anode material to Tesla, SK
Deals beyond EVs
Because of the impact of the IRA, clean-energy developers are now forecast to install 215 gigawatts of solar during the next five years, according to the Solar Energy Industries Association. That is 40% more than expected before the IRA. Additionally, BloombergNEF forecasts residential rooftop solar installations will jump 25% next year.
Nov. 2022 — First Solar investing $1.5 billion to expand panel production and fund product R&D
First Solar confirmed it would build a $1.1 billion 3.5GW annual capacity solar module manufacturing operation in Alabama. To open by 2025, the facility will create 700 new direct manufacturing jobs. In August, First Solar announced a $185 million upgrade of its existing three factories in Ohio, including upgrading one facility to produce world-leading Series 7 thin film solar modules, scheduled to come online mid-2023. In October, First Solar announced that it also plans to invest $270 million in an innovation center in Perrysburg, Ohio, creating 100 research and development jobs.
Citing “policy tailwinds” from the IRA as a catalyst, the Italian multinational announced plans to build a plant to produce photovoltaic solar panels modules, modeled after its 3Sun Gigafactory in Catania, Sicily.
In September, Biden announced a new initiative to expand power supply from floating offshore wind platforms, adding to rapidly growing power generation from wind turbines that are fixed to the ocean floor. The effort to harness that capacity comes as individual states race to increase offshore wind power, which is also supported by billions in tax credits from the IRA.
Oct. 2022 — Hitachi Energy announces $37 million expansion of its power transformer factory
Hitachi Energy is expanding its power transformer factory in South Boston, Virginia, because of soaring demand for power transformers from utility companies scrambling to accommodate the renewable energy boom triggered by the IRA. The plant manufactures transformers for the U.S. power grid, commercial buildings, and industrial facilities, as well as traction transformers for railway applications.
The IRA is a game changer for U.S. green hydrogen manufacturing. Tax credits of $3/kg for ten years reduce the cost of production by as much as 75%, making green hydrogen immediately cost-competitive against hydrogen produced from fossil fuels, particularly given that renewable energy projects also get a 30% Investment Tax Credit. The expectation is that the new cost landscape will spark investment in green hydrogen to decarbonize tough sectors such as steel manufacturing.
Embedding Saul Griffith’s plan to electrify everything, the IRA makes a wide array of distributed energy resources (DERs) eligible for new incentives – including renewables, energy efficiency, and other advanced energy systems installed in homes and businesses. Many of these programs specifically address lower-income, disadvantaged, and tribal households. They aim to ease their upfront costs as they transition to clean energy.
Other important energy elements of the bill
- The IRA gives a $2,000 rebate to homeowners who install efficient heat pumps, heat pump water heaters or biomass stoves, and boilers.
- It refreshes the tax credit for energy-efficient home building, increasing the maximum credit to $5,000 per home.
- It directs the DoE to distribute $4.3 billion to states for home energy retrofit rebates, up to $4,000 or more per household. It allocates $200 million to the DoE to support state-level programs to train and educate contractors on energy efficiency and electrification. It launches a $27 billion grant program for states, local and tribal governments, and nonprofits to enable greenhouse gas emissions reduction projects, including energy efficiency and distributed generation.
- It creates a $1 billion fund for the Department of Housing and Urban Development for distribution to affordable housing providers for energy efficiency projects, distributed generation, electrification, or other sustainability projects.
Tim and Matt’s finance word:
With China leading the world in EVs and renewable energy installs, with the EU driving massively accelerated European decarbonization investment. India is likewise leading the developing world in investment in renewables. The IRA puts the U.S. back in this key global technology race. With the climate crisis a clear, present, and growing danger, it is great to see global investment in the energy transition gaining steam.