Clean Energy Manufacturing in the United States
The past couple of years saw issues across the global supply chain – beginning with the COVID-19 pandemic, demand shifts, labor shortages, geopolitical unrest, and other factors have driven product bottlenecks and heightened prices. The clean energy sector has been no exception. Demand for clean technologies is skyrocketing, and it will only continue to grow with the implementation of new policies and emissions targets. The U.S. Department of Energy (DOE) projects the global clean energy market to reach a minimum of $23 trillion by 2030.
As of right now, however, the industry faces challenges around dependence on foreign supplies, raw materials availability, manufacturing capacity, worker training, and more. Solar, in particular, has been impacted by reliance on foreign manufacturing. China currently controls more than 80 percent of solar panel production on the whole, and 95 percent of certain materials production. Relying on foreign sources can significantly slow progress and produce unpredictable outcomes; we also run into issues such as recent scandals around tariff evasion. China and a few other countries in Southeast Asia are under investigation for allegedly trying to bypass tariffs on cheap solar panels. This issue and others have a significant impact on the U.S.’s ability to rapidly ramp up capacity for the cheapest electricity source in history.
Improving the U.S. Supply Chain
Experts note that improvements to the American clean energy supply chain will echo across all sectors. To start, domestic renewable energy will decrease reliance on foreign fossil fuels, many of which suffer global price volatility. Building out clean energy infrastructure will provide steadier ground for other industries to flourish. Renewable technologies also attract new customers, employees, and partners who will demand corporate responsibility around the climate crisis and will foster competition and growth between corporations. The bottom line is that improving clean energy manufacturing in the United States will create a stronger economy for all.
New planning, executive action, and legislation should soon get a struggling clean energy supply chain onto the right path. Earlier this year, a bipartisan set of U.S. Senators introduced the Protecting American Solar Jobs and Lowering Costs Act, which looks to eliminate solar panel tariffs entirely, as well as create programs to enhance domestic manufacturing. The bill claims that tariffs reduce solar component supply, suppress U.S. manufacturing efforts, and cost clean energy jobs.
Last year, the Biden Administration released Executive Order (EO) 14017 on America’s Supply Chains. This whole government action called for resilient policy, improved coordination between agencies and stakeholders, and a 100-day supply chain review. Building on this review, the DOE then released a report in February: America’s Strategy to Secure the Supply Chain for a Robust Clean Energy Transition. A big takeaway from this piece was to enact legislation supplying tax incentives for domestic manufacturing. In response, the Inflation Reduction Act (IRA) did just that.
The Inflation Reduction Act
The IRA is the largest climate investment in history and will provide funding to address many clean energy aspects – one of which being the largest ever investment in U.S. clean energy manufacturing. More than $40 billion in investments will bolster domestic wind, solar, battery, and electric vehicle production, drive climate action, address socioeconomic inequities, and generate good union jobs across the U.S. Key features include:
- $10 billion in expanded tax credits that will establish or expand existing clean technology manufacturing. $4 billion of this funding will drive creation of more than 110,000 new jobs in the next decade.
- More than $30 billion in new, five-year production tax credits that will fill gaps in the technology supply chain and create more than 560,000 new jobs. These credits will particularly benefit large sectors that may suffer long wait times for typical financing. The Investment Tax Credit (ITC) is also broadened and extended, making it cleaner and easier for supply chain companies to power their facilities.
- $500 million for the Biden administration’s Defense Production Act, which includes policy tools to grow critical component manufacturing for clean energy technology.
- Section 45X specifically targeting the solar industry supply chain, providing transactable, bankable, rapid timeline incentives for solar component production.
Domestic content adders like the ITC and production tax credit (PTC) – a tax credit for every kilowatt hour (kWh) of renewable energy produced at qualifying facilities – majorly incentivize clean energy projects and manufacturing within the United States. Even in these early stages, manufacturers, module suppliers, and investors have expressed interest in transitioning certain supply chains from overseas to the U.S. But there are still a number of details to be resolved. As of right now, the Internal Revenue Service (IRS) and other national agencies are clarifying guidance for IRA incentives will be deployed. They must solidify comprehensive domestic policies, regulations, and specific language around domestic transactions, and weigh the use of existing tariffs with improved and emerging incentives.
Potential Impact on Supply Chains
Though new conditions hold exciting opportunities for clean energy growth, the extent of impact on supply chains is uncertain. Some fear that shifting to largely domestic manufacturing will strain an immature market and potentially staunch renewable development. But on the other hand, funding new investments and providing incentives may spur rapid industry expansions, mend supply chain slowdowns, and allow clean technology to blossom. However, making decisions about adding a new facility does not happen overnight.
Some companies have announced new facilities recently. The largest solar manufacturer in the United States, First Solar, is investing in a new 3.5 GW solar plant in Alabama and upgrading its Ohio factory. All together, First Solar expects to have a solar manufacturing footprint of 10 GW by 2025. In addition, Toyota tripled its investment plans for the electric battery facility in North Carolina. In 2025, the facility will be able to produce lithium-ion batteries for 200,000 vehicles. These may be just the beginning.
At Leyline, we look forward to continued engagement with the clean energy transition and will continue to support renewable energy development however we can.