IRA one year on: 5 impacts on storage

• ‍Storage manufacturing booming 12 months after Inflation Reduction Act introduced
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• ‍IRA teething problems delaying some projects but storage installations rapidly increasing overall
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• Standalone storage becoming more popular than hybrid schemes, evidence suggests

Slightly over 12 months ago – on August 16, 2022 – the US Inflation Reduction Act was passed to considerable fanfare. Described as the largest piece of federal legislation to ever address climate change, it was hailed for providing $369 billion in meaningful incentives for clean technologies such as wind, solar, storage, hydrogen, nuclear, carbon capture, and biofuels. The energy storage sector, in particular, was expected to be a major beneficiary – the introduction of the IRA meant that, for the first time in the US, there was an investment tax credit available for standalone energy storage facilities.

So, 12 months later, how has the energy storage sector actually been affected by the IRA so far? Here, Tamarindo’s Energy Storage Report gives you a run-down of five of the biggest impacts of the IRA:

1. Energy storage manufacturing is booming

A recent report published by American Clean Power (ACP) showed that a total of 14 utility scale battery storage manufacturing facilities had been announced since the introduction of the Inflation Reduction Act. Arizona (with three new facilities announced), Georgia (two announcements), South Carolina (two announcements), and Tennessee (two announcements) are the states that have been the major beneficiaries of the US storage manufacturing boom. The 14 new facilities are expected to create more than 5,700 jobs (more details can be seen in the chart below).

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2. Storage industry growth going hand-in-hand with solar sector expansion

The Solar Energy Industries Association (SEIA) has called the 12 months since the introduction of the IRA a “year of solar and storage growth”. According to the SEIA, in the last year, US solar and storage companies combined have announced more than $100 billion in new private sector investments. The association added that solar and storage manufacturing is “now surging” in the United States, with 51 solar manufacturing facilities having been announced, or expanded, in the last year, to go along with the rapid expansion in storage manufacturing.

3. Slow IRA implementation delaying some projects, but storage deployment reaching new heights overall

ACP has reported that some renewables projects have been delayed due to “unresolved IRA implementation”. Meanwhile, the American Bar Association (ABA) has warned that political wrangling could prove an obstacle to the implementation of IRA-funded battery storage-related projects. The ABA highlighted the case of lithium battery company Microvast, which was ultimately denied a $200 million federal grant (under the bipartisan infrastructure law) following a probe into its links with China’s government – the ABA has  warned that the case “portends poorly for those hoping that federal agencies could distribute IRA funding quickly.” Having said all that, data shows that energy storage has undergone a period of unprecedented growth in recent months. In May this year, ACP published statistics that showed that the previous year had been a record-breaking one for energy storage installations. In total, 4 GW / 12 GWh was commissioned, representing an 80 per cent increase in total operating storage capacity, according to ACP.

4. Standalone storage projects overtaking solar PV plus battery projects in popularity, evidence suggests

A report published by the law firm Troutman Pepper earlier this year included anecdotal evidence that standalone storage projects were now being preferred to solar-storage hybrid schemes, suggesting the impact of the standalone storage tax credit had been immediate. Mark Hardin, senior battery energy storage consultant at independent engineering group Leidos, was quoted in the report as saying he had seen a significant new trend in the projects on which his team was advising. He explained: “Pre-IRA, 80%-90% of projects we were reviewing in our storage practice were solar-PV-plus-battery with 10%-20% standalone storage. That has completely inverted.”

5. Tax equity investments becoming viable, but uptake is slow

In February this year, Global Infrastructure Partners portfolio company Eolian confirmed it had closed what it called a first-of-its-kind tax equity investment in two standalone utility-scale battery storage projects – with a combined capacity of 200MW – located in Mission, Texas. Eolian said the tax equity structure had only become a viable option due to the passage of the IRA. Elsewhere, in August this year, SUSI Partners, acting on behalf of the SUSI Energy Transition Fund and US clean energy developer SMT Energy, secured a tax equity investment from Greenprint Capital for a 100 MW battery storage portfolio, also located in Texas. But tax equity investments have amounted to a trickle, rather than a flood so far. Doubts have been expressed about whether the provision of tax equity investment by corporates – as opposed to large financial institutions – will take off in a big way. In addition, the cost of creating tax equity structures can be prohibitive for developers of smaller storage projects and there are also very few institutions offering this type of investment at present.