Inflation Reduction Act has already transformed energy storage industry thinking

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The US’ Inflation Reduction Act legislation is an unexpected “huge shot in the arm” for the energy storage industry and may have doubled the addressable domestic market almost overnight.

Energy-Storage.news spoke with senior figures from battery storage system integrators Fluence and Wartsila Energy at the RE+ 2022 clean energy trade show in Anaheim, California, who discussed the landmark climate legislation and other topics.

Fluence’s VP of growth and head of commercial Kiran Kumaraswamy said people at the show were “beaming with confidence” due to the surprise passing of the act’s US$369 billion in climate and energy security funding.

The introduction of the investment tax credit (ITC) subsidy for standalone energy storage means that for the first time, batteries don’t have to be paired directly onsite with solar PV generation to avail of around a 30% reduction in the upfront cost of their project equipment.

Not only is that an obvious financial boost, but today the majority of energy storage projects proposed or in interconnection queues in the US are paired with solar PV in order to qualify for the ITC. As we heard a few weeks ago from energy industry lawyer Morten Lund at Stoel Rives, it will mean battery storage projects can now be sited where they make the most sense, rather than arbitrarily needing to be built at solar farms.

Decoupling the solar and storage “development pathways” will also reduce project timelines, Kuraswamy said.

“Previously, if you did renewables-plus-storage, you would think about development from the perspective of getting land and getting permits and going through interconnection [processes] in a combined fashion to avail the ITCs,” Kumaraswamy told Energy-Storage.news in an interview at the California show.

Getting interconnection on a crowded grid does remain one of the biggest development hurdles and headaches Kumaraswamy said, but it is a “different dynamic to solve” and the industry will have to see what the impact of the Inflation Reduction Act really will be on deployment over the next 18 to 24 months.

Kumaraswamy said Fluence also expects that the IRA’s supportive policies will drive as much as a doubling in demand for energy storage in the US by 2030.

While the details of how it will all be implemented remain to be sorted out, the legislation has “unlocked 10 years of certainty” for the marketplace, he said.

‘Coordinated policy approach to support domestic manufacturing’

Wartilsa’s head of energy storage and optimisation Andy Tang was among those surprised by the IRA and how quickly it was passed, after its predecessor Build Back Better act floundered and failed following opposition from Senators Joe Manchin and Krysten Sinema.

The bill had gone through “all of a sudden,” with Manchin coming to agreement on its terms with House Majority Leader Chuck Schumer.

“All of a sudden, we went away on Friday, and it was dead, and we woke up on Monday, and had the approval from Manchin,” Tang told Energy-Storage.news.

“I was actually very, very, very happy to see that. It’s a huge shot in the arm for the US industry.”

Tang said the act’s support will turbocharge an industry already setting deployment records in almost every quarter over the next couple of years.

It also sends good “motivation” to the energy storage industry supply chain, with the IRA’s tax credit rules including adders for domestically sourced and produced content. That could be another vital boost at a time when the battery storage industry struggles to compete with the electric vehicle (EV) sector for supply of battery cells, for example.

While the IRA is a carrot incentivising domestic manufacturing and materials processing, the US’ Section 301 tariffs on imported Chinese goods including lithium batteries, are the stick.  

“You do have some suppliers that are waiting for the details of the letter of the law. And I think that’s a bit of a mistake to wait too long on what the detail is. You have to look at the IRA in a dual context: the IRA is one component and the other component is the so-called Section 301 tariffs,” Tang said.

“These are the tariffs that are lobbied against specific Chinese goods. List 4A is the current list for batteries right now. And the section 301 tariffs were put in place against Chinese goods in 2018 under the previous [presidential] administration, it actually had and continues to enjoy bipartisan support; one of the few things where there is bipartisan support in the US, and 2023 is when they are up for renewal. I think conventional wisdom is that they’re not going away.”

While those tariff levels are set at 7.5% for batteries – the lower end of a scale that goes up to 25% – they are expected to step up in the coming years, which would obviously impact manufacturers and their energy storage industry customers further and further.

“I actually think that what we have here is a really coordinated policy approach on how we build domestic manufacturing. You need to incentivise people to come onshore and do manufacturing, and you need to give them some period of years to do that. Factories take two three years to build,” Tang said.

“And then the incentive alone may not be enough. So, you need to have the threat of that stick that basically says your projects won’t be economically viable by a certain point in time.”

People are still “wrapping their heads around” what the details and letter of the act will really mean, Fluence’s Kiran Kumaraswamy told Energy-Storage.news, but it is undoubtedly a “remarkable” step forwards, he said.

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