What the Inflation Reduction Act Means for the Renewable Energy Storage Industry

On Tuesday, President Biden signed into law the Inflation Reduction Act (IRA), H.R. 5376, a historic piece of legislation that has far more consequences for renewable energy that for inflation. We at Higherwire have been following the bill since it was part of the Build Back Better Plan and cannot overstate its importance on our business, the industry, and U.S. energy policy as a whole.

What is the Inflation Reduction Act?

The IRA is, without hyperbole, a transformative law that was miraculously passed at a time when our polarized political system is in gridlock. Despite the name, the law is focused more on closing tax loopholes, extending Affordable Care Act and healthcare provisions, and benefits to promote the adoption of renewable energy.

Initially part of the ambitious Build Back Better Plan, the scope was reduced from $3.5 trillion to $369 billion (accompanying a $737 billion raise) after Democratic Senator Joe Manchin (WV) publicly pulled his support. What followed were months of negotiations between Manchin and Senate majority leader Chuck Schumer.

What are the main points of the Inflation Reduction Act?

The law is estimated to raise revenue from:

• $265 billion on prescription drug price reform to lower prices, including Medicare negotiation of certain drug price

• $222 billion from a 15% corporate minimum tax on companies with higher than $1 billion of annual financial statement income
• $203.7 billion on increased tax enforcement
• $74 billion from imposing a 1% excise tax on stock buybacks

It would spend this revenue on:

• $369 billion to address domestic energy security and climate change
• $300 billion deficit reduction
• $64 billion to continue for three more years the expansion of Affordable Care Act subsidies originally expanded under the American Rescue Plan Act of 2021 
• $4 billion in funding for drought resiliency in western states
• $80 billion increased funding for the IRS for modernization and tax enforcement

How does it impact the energy storage industry?

The law will undoubtedly create major tailwinds for the renewable energy and energy storage industries, and favors carrots (incentives) over sticks (regulations). Per the Solar Energy Industry Association (SEIA), the bill includes the following highlights for renewables and energy storage:

• Upping investment tax credits (ITCs) for solar and energy storage to 30% and extending them through 2032 and increasing tax rebates for energy efficient upgrades. Solar ITCs would have otherwise been eliminated for residential and reduced to 10% for commercial/industrial systems in 2024, and there was no ITC for energy storage.

• A 30% ITC for manufacturing facilities and equipment.

• A production credit for manufacturing certain components based on volume.

• Bonus 10% ITC (stackable with other incentives) for renewables installed in certain low-income communities or on tribal land.

• $760 million for the Department of Energy grant and loans on renewable projects such as SBIR grants like ours.

• Additional $1 billion for the USDA's Rural Energy for America Program (REAP), which provides grant and loan financing for agricultural producers and rural small businesses that adopt renewable energy.

The American Clean Power Organization estimates that the bill will result in the average American saving over $1,000 per year in energy savings, more than doubling of the clean energy workforce, creation of 550,000 jobs and employment of nearly 1 million Americans by 2030. Along with these benefits, it will reduce America's greenhouse gas emissions 40 percent below 2005 levels.

This will further incentivize the adoption of energy storage, which is essential with renewables that by design can’t operate 24/7. This will allow energy to be captured during times of excess production (10-2pm most days, or when it’s extremely windy) and used during times when demand exceeds supply (aka at night or periods with no wind).

Energy storage is also essential to level the demand on the grid. A typical grid experiences non-uniform peaks and valleys in demand and must operate at many different outputs to accommodate them. With energy storage, demand can effectively be leveled, reducing the change of brown- or blackouts and stabilizing the entire grid. We call this load leveling, and is especially critical during super on-peak periods when energy producers must fire up less efficient and more costly power plants to meet demand (an August afternoon in Phoenix, for example).

What does this mean for consumers?

Lower energy costs and a cleaner future. Adoption of renewable energy insulates consumers from price hikes and grants them more choice when it comes to their energy. Solar installations are already cheaper than gas- and coal-fired power plants, and this will spur even greater adoption of clean energy.

Some may argue that subsidies hurt competition. And economists like to espouse the invisible hand, whereby the forces of a free market economy act unhindered by outside forces. That’s how many intro-level economic models are set up to reduce complexity and teach basic lessons about supply and demand. But the real world isn’t that simple and the reality is that there are multiple invisible hands (or rather, hidden hands) lobbying our representatives for various interests - energy companies spent $70.1 million lobbying politicians during the 2019-2020 election cycle alone. And while it's true that it is difficult to think about the effects of climate change 20-30 years from now when prices for energy (and everything else) are soaring. But this law not only addresses future crises, it addresses those we are currently facing as well.

What does this mean for Higherwire?

Our mission is to reduce barriers to the adoption of renewable energy production and storage, and while we already offer incredible value from our batteries, this legislation helps us tremendously to achieve that goal. We've already identified a number of ways we can maximize our success and have put together a road map for our partners and investors. In fact, we’re so excited about this law that founder and CEO Trevor Warren penned an op-ed in the Arizona Capitol Times thanking Arizona Senator Kyrsten Sinema for voting in favor of the historic Inflation Reduction Act. The future is bright, and Higherwire is helping to shape it.