IRA: Progress, Roadblocks, and Outlook for Establishing Clean Energy

If this past summer proved anything, it’s that action against climate change is dire.

According to NASA, “August 2024 set a new monthly temperature record, capping Earth’s hottest summer since global records began in 1880.” The consequences of such a heatwave resulted in wildfire smoke from Canada shutting down New York City, record-breaking heat in the Southwest, and climate records being shattered by the waters off Miami.

It’s a series of events that brought renewed focus to the Inflation Reduction Act (IRA), the most significant piece of climate legislation in our nation’s history. Enacted in August 2022, this bill has led to the spending of billions of dollars to reduce carbon emission emanating from the US—with the goal of reducing emissions to between 43 to 48% below 2005 levels by the year 2035.

The act intends to usher in an era of heightened American commitment to innovation and creativity, aimed at reducing consumer expenses and propelling the global clean energy economy to new heights.

This would be accomplished by spurring investments in domestic manufacturing capabilities, promoting supply sourcing from domestic companies or free-trade partners, and kickstarting development and commercialization of cutting-edge technologies like carbon capture and storage and clean hydrogen. According to the Congressional Budget Office (CBO), the act is projected to reduce budget deficits by $237 billion over the next decade.

So, what did the IRA promise for the US, and how much progress has been made since its enactment? What states have become leaders in establishing clean energy resources through the IRA? Using the AlphaSense platform, we answer these pressing questions and more below.

IRA Objectives

In 2023, the current administration highlighted what the IRA had accomplished a year into its enactment. The private sector has committed over $110 billion to new clean energy manufacturing investments, with more than $70 billion focused on the electric vehicle (EV) supply chain and over $10 billion for solar manufacturing. To date, these commitments have grown to around $240 billion in clean energy initiatives.

Likewise, the passage of the IRA has created more than 170,000 jobs in clean energy and climate-related projects. Experts estimate that the law could lead to an additional 1.5 million jobs over the next decade. Over $1 billion has been allocated to bolster community resilience, helping to protect against climate-related threats like drought, heatwaves, and severe weather.

The IRA is providing hundreds of billions of dollars of investment that’s going towards jobs in the clean energy spectrum.”

– EVgo, Inc. | Special Call 

I think the IRA has a great setup to create local jobs and to go into the regions, which are politically wanted, where investors should go.”

– RWE Aktiengesellschaft | Analyst/Investor Day   

According to data from the Department of Energy, American households are projected to save $27-38 billion on electricity costs between 2022 and 2030, compared to a scenario without the Inflation Reduction Act. This savings accomplishment is made possible by relying on clean energy which includes renewable resources (i.e. hydrogen, solar, wind).

Hydrogen Production

The IRA introduced a tax credit known as “45V” specifically for hydrogen production, which consists of four tiers of value, determined by the total amount of carbon dioxide emitted during the production process. The most generous tier of this tax credit applies to “green” hydrogen, produced through methods like electrolysis or equivalent technologies powered by zero- or low-carbon electricity.

Additionally, the law substantially increases the value of another tax credit, “45Q,” designed for carbon capture, utilization, and storage. This technology plays a crucial role in reducing carbon dioxide emissions from the power, energy, and industrial sectors and can be utilized in the production of “blue” hydrogen. Blue hydrogen is generated from natural gas, with producers storing the resulting carbon dioxide emissions. 

This storage process allows blue hydrogen to exhibit significantly lower carbon dioxide emissions, compared to the prevalent method of hydrogen production known as “grey hydrogen,” which involves the same production process but lacks the capture and storage of carbon emissions.

We do think that hydrogen will play a role eventually in the energy transition, absolutely. And you’re obviously seeing the U.S. government through the IRA and other geographies really accelerating their progress in hydrogen.”

– Origin Energy Limited | Shareholder/Analyst Call  

Clean Energy

The electricity sector contributes to 25% of the US’s greenhouse gas emissions, so one of the IRA’s objectives is to promote the transition to cleaner energy in this sector by offering tax credits for initiatives such as clean electricity generation, energy storage, and the upkeep of nuclear facilities. 

According to Nicholas Roy, Senior Research Analyst at RFF, the impact of the IRA on the power sector won’t be immediately apparent, as clean energy projects involve extensive long-term planning. Factors like permitting, siting, and material availability contribute to delays in implementation. Ultimately, the outcomes of the IRA incentives for the power sector will become clear in a few years.

IRA Spending: Progress and Roadblocks

So far, less than $10 billion of the $400 billion available through the Energy Department’s Loan Programs Office has been distributed to qualified applicants. A portion of these low-interest loans has been awarded to companies producing solar panels, battery components, electric vehicle parts, and for the refurbishment of older nuclear plants. However, the process has been slow.

One reason for the delay is the caution among Energy Department staff, who are hesitant to issue large loans to companies that might fail, aiming to avoid past high-profile failures like Solyndra, a solar panel maker from Silicon Valley. 

Top executives of Solyndra repeatedly misled federal officials and withheld key information about the company’s financial outlook while seeking a major government loan (the company was ultimately approved for a $535 million loan guarantee).

Solyndra’s leaders engaged in a “pattern of false and misleading assertions,” portraying an overly optimistic view of the company’s sales as they lobbied for the first clean energy loan granted by the new administration in 2009. Despite this, the Silicon Valley start-up ultimately collapsed into bankruptcy.

Another roadblock: investors have grown increasingly aware of the financial risks and opportunities tied to climate change. For instance, insurance companies are increasingly pulling out of regions prone to extreme weather, as the rising frequency and intensity of these events make coverage in these areas too risky and costly. This retreat leaves developers and investors to shoulder the responsibility and financial burden of constructing in high-risk zones. 

It is important to point out that the past few years have been very challenging for insurance companies around the world. Inflation, adverse weather and a fundamental reset in global reinsurance markets have contributed to material impacts on profitability, particularly in home and motor insurance. Now I’m sure everyone in this room has felt the impact these conditions have placed on insurance premiums, which unfortunately have risen sharply as a consequence.”

– Suncorp Group Limited | Shareholder/Analyst Call   

Despite these challenges, the Department of Energy’s Loan Programs Office has so far approved around $6.5 billion in loans across five companies, with more than 200 additional applications requesting a combined $281 billion as of late July. 

This past summer’s climate events seem to have also reinvigorated the pace for loan approvals. According to the Wall Street Journal, recent funding agreements include $1.45 billion for expanding a solar project in Georgia, $1.2 billion for a battery component manufacturer, and $861 million for solar farms and battery storage in Puerto Rico.

Moreover, these investments are producing tangible results: a recently developed Enphase Energy facility in South Carolina is expected to create 600 jobs and provide solar technology to power thousands of homes. This project is part of the $500 billion already invested in clean energy manufacturing from the IRA. 

We have lots of megaprojects and unprecedented government spending with IIJA, the IRA, the CHIPS Act, these all continue to be meaningful drivers of demand. And with some commercial construction, of course, mostly buildings under some pressure due to interest rates, I think that all these big projects and big trends, at this point in time, they’re able to offset some of the weakness in general construction that we’re seeing.”

– Oshkosh Corporation | Q2 2024 Earnings

Likewise, institutional investors—ranging from asset managers and infrastructure funds to pension groups—are recognizing the lucrative potential of renewable energy projects. Clean energy ventures, particularly solar, are now seen as stable, high-return investments. This growing interest has led to a sharp increase in renewable energy funding, with investments reaching an impressive $358 billion in the first half of 2023 alone.

IRA Spending by State

The United States Department of Agriculture (USDA) has made a historic investment in rural communities expanding clean energy, supporting American energy independence, and investing in popular conservation programs and climate-smart agriculture. This economic endeavor has led to several states becoming leaders of the IRA fund spending initiative, with Nevada, Michigan, New York, and Ohio receiving major portions of the budget. 

Michigan 

Rural Energy for America Program (REAP): REAP helps cover the cost to install energy efficiency improvements and new renewable energy systems—like solar panels and anaerobic digesters—for farmers and rural small business owners. From Michigan, the USDA has received 167 applications for REAP, representing a total funding request of $30,878,449. In FY23, 42 REAP projects were announced in Michigan, representing $3,681,799 total funding awarded.

Powering Affordable Clean Energy Program (PACE): In May, the USDA made $1 billion available under PACE to fund new clean energy projects and energy storage in rural America though partially forgivable loans. From Michigan, USDA has received letters of interest for PACE representing 35 projects and a total funding request of $340,608,038.

Nevada

Empowering Rural America Program (New ERA): The USDA received 800 clean energy projects for member-owned rural electric cooperatives to help rural Americans benefit from affordable and reliable energy. The overwhelming response from rural electric cooperatives totaled more than two times the $9.7 billion available budget auth for the program.

In Nevada, the USDA received letters of interest representing 5 projects that were awarded $196,974,426. In tandem with these letters, the USDA has invested a total of $269,177,752 in rural communities within the state.  

New York

USDA’s Natural Resources Conservation Service: The Inflation Reduction Act provides nearly $20 billion over five years for the USDA’s Natural Resources Conservation Service (NRCS) to address oversubscription in popular conservation programs. 

For Fiscal 2023, NRCS made $850 million available for the Environmental Quality Incentives Program (EQIP), Conservation Stewardship Program (CSP), the Regional Conservation Partnership Program (RCPP), and the Agricultural Conservation Easement Program (ACEP). NRCS preliminary data indicates the agency will delegate 99.8% of all FY23 financial assistance funds to farmers, ranchers, and forest landowners across America. The sum granted to New York for this program was undisclosed. 

Ohio

Higher Blends Infrastructure Incentive Program (HBIIP): HBIIP provides grants to expand the market for higher-blend ethanol fuels by retrofitting gas stations, supply depots, and home heating oil depots to make use of higher-blend fuels. HBIIP received $500 million in the IRA, 100% of which was announced in FY23 to be awarded across five $90 million cycles and one $50 million backfilling of a previous HBIIP round oversubscription. Rural Development has awarded $25.8 million across 59 applications, with Ohio being one of many states to be given funds.

Keeping Tabs on the IRA

To be at the forefront of any industry, it’s crucial to stay ahead of every new development. On top of having access to content sets from the most reliable industry perspectives, you need AI search technology to help you speed up your ability to track new regulations and key trends so you can better inform your decision-making and take the lead. 

This is especially true of revolutionary legislation like the IRA—major government funding initiatives are transforming a myriad of sectors, the E&I industry being no exception. States across the nation are leveraging billions of dollars to decarbonize their energy resources and embrace net-zero forms of fuel. It’s a wave of change that is initiating industry conversations energy leaders must keep an ear on.

With the AlphaSense platform, you’ll have access to a universe of content and AI features that can keep you on top of pertinent IRA spending updates. Keep track of competitors receiving government funding and how they’re spending it to promote clean energy initiatives, while discovering expert insights on the US’s evolving investing landscape for the E&I industry—in real time. Leverage features like sentiment analysis,genAI summaries, and our customizable dashboards and alerts to glean insights instantly and strategize based on your findings.

Discover the power of the AlphaSense platform, which includes: : 

• 10,000+ leading content sources, including filings, earnings, and press from hundreds of thousands of public companies and over 1.4 million private companies, plus tens of thousands of expert interviews and broker research from over 1,500 sources 
• Purpose-built AI that seamlessly layers Company Recognition, Sentiment Analysis, Topic Extraction, and Smart Synonyms™  into the search technology
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