Inflation Reduction Act Has Spurred Significant Renewable Energy Investments in the Last Year, But Challenges Remain

President Joe Biden signed the Inflation Reduction Act of 2022 (IRA) into law on August 16, 2022. The legislation set aside $369 billion over ten years to support renewable energy investment and production. It includes, among other things, a comprehensive list of tax breaks for electric vehicles, heat pumps, batteries, nuclear power, clean hydrogen generation, wind and solar energy, and more.

It has been a little more than a year since the IRA passed, so we wanted to take a brief look at what impact it has had on the renewable energy industry, and what challenges—and potential solutions—lie ahead.

The IRA’s Impact

According to the American Clean Power Association’s (ACPA) new Clean Energy Investing in America study, since the IRA’s passage, the utility-scale clean energy industry has announced:

• Over $270 billion in capital investments
• 83 new or expanded manufacturing facilities
• 29,780 new manufacturing jobs
• $4.5 billion in customer savings
• 184,850 megawatts (MW) of new project capacity.

To put these numbers into perspective, according to the ACPA, these domestic investments exceed the clean energy investments made over the previous eight years combined.

Of the new or expanded manufacturing facility investments, 52 are solar manufacturing facilities, 14 are utility-scale battery storage manufacturing facilities, 11 are wind power manufacturing facilities, and six are offshore wind power manufacturing facilities.

Despite these massive investments, challenges remain. As folks in the energy and manufacturing industries know, there’s a big difference between an announcement about a new manufacturing facility, and that facility coming to fruition.

Challenges to Overcome

The sweeping investments in renewable energy since the passage of the Inflation Reduction Act are an encouraging indication of the momentum the clean energy sector is gathering. However, there exist challenges that can prevent mere investment announcements from becoming fully operational utility-scale projects. An understanding of these hurdles is critical for policymakers, business leaders, and other stakeholders if these investments are to result in completed projects

Permitting Challenges: The development of utility-scale renewable energy projects demands a complex navigation of permitting processes at local, state, and federal levels. The review under the National Environmental Policy Act (NEPA) is one such example, often requiring exhaustive environmental impact assessments. The prolonged timelines and lack of predictability in these processes can lead to increased costs and project delays. Similar challenges exist at the local level, such as zoning regulations that may not align with the requirements of renewable energy projects. This can result in conflicts and delays, as developers work to either comply with existing zoning or seek variances or rezoning. The attorneys here at GreeneHurlocker are working closely with industry in addressing the zoning and local authorization issues, particularly in the Mid-Atlantic.

Streamlining the permitting process, investing in capacity-building at permitting agencies, and enhancing inter-agency coordination would foster a more efficient and predictable environment for developers. Legislation aimed at establishing clear guidelines and timelines might be another viable path to mitigate these challenges. At the local level, educating local policymakers about the specific needs of renewable energy projects, and engaging in dialogue to adapt zoning regulations—and other changes needed to facilitate projects—can create a more hospitable environment for development.

Overburdening Existing Electricity Grid: The rapid addition of renewable energy can strain existing grid infrastructure, leading to reliability and stability issues. The intermittent nature of solar and wind power adds another layer of complexity.

Investing in smart grid technology (including micro-grids), energy storage solutions, and demand-side management can provide the flexibility needed to accommodate a larger share of renewable energy. Public and private sector collaboration to plan and finance new transmission infrastructure is also essential.

Financing Difficulties: While the IRA has been a catalyst, financing renewable energy projects remains a significant challenge. Traditional financing models may not fully recognize the long-term value and low-risk nature of renewable energy assets, limiting the availability of capital.

Developing innovative financing mechanisms, public-private partnerships, and encouraging banks to create specialized renewable energy investment portfolios may facilitate greater financial access.

Workforce and Supply Chain Constraints: The scaling up of renewable energy manufacturing demands a skilled workforce and robust supply chain. Constraints in either can hinder project execution.

Investing in education, training, and workforce development programs specific to the renewable energy industry can help in building the required human capital. Fostering local supply chains through incentives and collaboration with the manufacturing sector can ensure timely availability of components.

Regulatory Uncertainties: The evolving nature of energy regulations and policies, including potential changes to tax incentives, can introduce uncertainties that might deter investment.

Long-term policy commitments and the harmonization of regulations across different jurisdictions can help in creating a stable regulatory landscape.

Social and Community Considerations: Local opposition to projects, often due to concerns over aesthetics or environmental impacts, can also pose challenges.

Engaging local communities early in the project planning process, and incorporating their feedback, can foster support and minimize opposition.

Conclusion

Realizing the renewable energy future that the IRA envisions requires concerted efforts to dismantle the obstacles outlined above. Collaboration across government, industry, finance, and communities will be the cornerstone of turning investment announcements into real-world impact. By devising tailored solutions to these challenges, America can maintain its trajectory toward a sustainable energy future, leveraging the unprecedented opportunities created by the Inflation Reduction Act.