IRA Has Turbo Charged American Solar Manufacturing-SEIA

The Solar Energy Industry Association (SEIA), an Industry Association Body of US has released a Solar Market Outlook Report. It is interesting to see how the SEIA, till recently an advocate of solar developers and cheap imports from China, has changed tack to celebrate the impending manufacturing boom in the US.

The report, more a eulogy to the Inflation Reduction Act (IRA) than anything else, makes it clear that the act is being seen as a god send by the US industry. ” The Inflation Reduction Act (IRA) is the most transformational clean energy policy in history. The passage of this historic legislation has had an immediate impact long-term outlook for the U.S. solar industry”, says the report.

Highlighting how the passage of the IRA has been followed by a slew of announcements and movement in the US manufacturing space, the report says that since the IRA passed, 155 gigawatts (GW) of new production capacity has been announced across the solar supply chain. The numbers are way ahead of projections being made as recently as 2022 by US based manufacturers. The announcements include:

• • 85 GW of solar module capacity
  • 43 GW of solar cells
  • 20 GW of silicon ingots and wafers
  • 7 GW of inverter capacity

Beyond these, 65 GWh of energy storage manufacturing capacity has been announced across 14 new or expanded facilities in the US.

Highlighting the specific impact of IRA on US manufacturing and the solar sector, the report posits a ‘business as usual’ versus ‘Post IRA’ scenario, driving home just how impactful the IRA has been.

The IRA Impact

• Over the next 10 years, the IRA will lead to 48% more solar deployment than would otherwise be expected under a no-IRA scenario.
• By 2033, the U.S. will have installed 669 GW of total solar capacity, more than 4 times the amount installed today.
• By 2031, solar energy will produce more electricity each year than all U.S. coal-fired power plants in 2022.
• The IRA will drive an additional 160 gigawatts (GW) of solar over the next 10 years when compared to a no-IRA scenario.
• The IRA will lead to over $565 billion in new investment over the next decade, $144 billion more than under a no-IRA scenario.
• The solar industry’s annual CO2 emissions offsets will increase from 169 million metric tons (MMT) today to more than 459 MMT by 2033.
• 10 years from now, there will be enough solar power installed to power every home east of the Mississippi.

Importantly, the IRA will enable an additional 137,000 jobs by 2033 when compared with a no-IRA scenario. Overall jobs in the sector are likely to grow from just over a quarter million  to almost half a million by 2033. 

EMISSIONS IMPACT

The US could make a bonanza from carbon offsets and reduction in emissions, thanks to the IRA. Solar deployment spurred by the Inflation Reduction Act will offset an additional 665 million metric tons (MMT) of carbon emissions over the next 10 years when compared with a no-IRA scenario.

By 2033, U.S. solar installations will offset 459 MMT of CO2 annually, representing 30% of 2021 U.S. electricity sector emissions.

 

Conclusion:

While the impact of the IRA is no doubt visible and still unfolding, as announcements taper off by the end of the year, it will be interesting to see how many lead to actual construction on the ground. Keep in mind that a lot of the investments are for the relatively easier bits of the supply chain, especially module making. That, as India has learnt so well, is hardly enough. Elements like solar glass, critical minerals in the supply chain where China will retain dominance, and the fact that cost of doing business in the US will play out over the long term as a higher priced option, will all mean that life after IRA , some 10 years from now, is what investors will need to prepare for. That risks severely distorting the solar supply chain, as efforts to get out of dependence on China also mean paying a higher price, thanks to the mastery Chinese manufacturers have built up on cost control over time. For instance, the IEA reported that continuous innovation led by China has halved the emissions intensity of solar PV manufacturing since 2011.

Keep in mind too that Chinese manufacturers, and Indian firms for that matter, are also jumping into take advantage of the IRA subsidies, making it a moot point how much of the subsidies will go to domestic firms versus foreign firms.

The IRA, made on the promise of accelerating energy transition and building energy security at the same time, will challenge many other dogmas dear to the US, especially free trade and competitive advantage. 

The IEA, in a 2021 report on solar PV supply chains, had stressed that “Trade restrictions are expanding, risking slower deployment of solar PV. As trade is critical to provide the diverse materials needed to make solar panels and deliver them to final markets, supply chains are vulnerable to trade policy risks.
Since 2011, the number of antidumping, countervailing and import duties levied against parts of the solar PV supply chain has increased from just 1 import tax to 16 duties and import taxes, with 8 additional policies under consideration. Altogether, these measures cover 15% of global demand outside of China. ” Expect these measures to only multiply going forward, especially as new capacities across the US, India and Europe start coming on line from 2024-25.