Electrical Equipment / Components & Telecoms

A few days ago, US Democrats finally agreed to a long-awaited economic stimulus plan. Known as the Inflation Reduction Act (IRA), the plan includes $369 billion over the next decade for energy security and climate change programs.

Of that, $30 billion will be earmarked for production tax credits to accelerate U.S. solar modules, wind turbines, battery manufacturing and critical mineral processing. An additional $10 billion in investment tax credits (ITCs) will be provided for the construction of clean-tech production facilities, such as solar module manufacturing plants and other clean-tech factories.

Given the enormity of the plan and the difficulty in building consensus, it should be seen as a major boon for the U.S. solar industry. The plan has been labelled the largest climate package in U.S. history.

"The solar manufacturing clause in the IRA is the best opportunity for the U.S. to build a domestic manufacturing industry," said Pol Lezcano, chief analyst for North American solar at BloombergNEF, who expects nominal U.S. module capacity to increase more than sixfold by 2025.

Under the proposal, the tax credits for solar manufacturing are as follows:

- $0.07 for the module, multiplied by the module capacity (in watts per DC)

- $0.04 for thin film or crystalline silicon photovoltaic cells, multiplied by the battery capacity (in watts per DC current)

- $12 per square meter for silicon wafers

-Polymer back sheet $0.40 per square meter

- $3 per kilogram of polysilicon.

The credits are broadly in line with the manufacturing support measures included in the Solar Manufacturing America Act (SEMA), first proposed by Senator Jon Ossoff last year, and although SEMA did not have as much support in the government at the time, it was received by most of the U.S. Widely welcomed by the solar industry.

Lezcano told PV Tech Premium, "With the implementation of manufacturing incentives, the U.S. can realize its full polysilicon production potential of about 21GW in less than two years, starting in 2025 and producing 10GW worth of modules annually."

"By the end of 2021, the U.S. has about 7GW of module capacity," Lezcano explained. "In comparison, we expect the U.S. to build 37GW of solar in 2025."

BNEF believes that due to the implementation of incentives, the IRA can supervise the construction of large-scale module production capacity in the United States. That's because they're the easiest to build, and manufacturers are already considering new plants in the U.S., Lezcano said.

In addition to larger development plants, demand for U.S.-made modules will grow given existing import barriers and the proposed incentives in the bill to use domestic modules in U.S. solar projects, Lezcano said.

While the Inflation Reduction Act will stimulate U.S. module production, the bigger issue is the U.S. ability to develop more ingot and wafer capacity

In addition to the expected large increase in module demand capacity, IRAs are welcomed across the U.S. solar industry for their impact on employment and market signals.

SEIA President and CEO Abigail Ross Hopper applauded the "long-term incentives for clean energy development and manufacturing" included in the proposal and said, "This is a critical window of opportunity that we cannot afford to miss. Congress must reach an agreement and pass this legislation."

Gregory Wetstone, president and CEO of the American Renewable Energy Council, said, "The provisions in the Inflation Cuts Act of 2022 will stimulate critical investments in renewable power generation, energy storage and advanced grid technologies that will allow us to meet our climate goals. "

In fact, Maxeon Solar Technologies has said that the IRA will help support its plans to build a 3GW solar manufacturing plant in the United States. This is just one example. PV Tech Premium will soon conduct a separate analysis of corporate plans following the announcement of the IRA proposal.

Wetstone added: "The legislation finally frees the U.S. from years of intermittent renewable energy tax credits and establishes a long-term, full-value clean energy taxation platform that helps provide renewable energy companies Provides the stability needed to conduct business."

At the same time, Lezcano believes that if the bill is passed, companies will give priority to bringing ingot and wafer factories to the United States. If the U.S. is to meet its climate goals, there is currently a serious lack of capacity in these areas of the supply chain.

Ingot and wafer capacity outside China is just under 25GW, module capacity is over 100GW, and cell capacity is around 75GW, according to IHS Markit.

Lezcano said the new wafer fabs are likely to be located in the U.S. because they are less labor-intensive and U.S. electricity prices are very cheap. In addition, the company sees "high visibility into market demand over the next five years" with a focus on 182mm or 210mm wafers. If the U.S. Department of Commerce approves new AD/CVD tariffs on cells in Southeast Asia, U.S. demand for non-Chinese wafers could rise sharply.

Meanwhile, Michael Parr, executive director of the Ultra-Low Carbon Solar Alliance, said, "The energy provisions of the Inflation Cuts Act 2022 will put the US in a strong competitive position in solar manufacturing, with India and the EU racing to build a large domestic solar industry to deal with these risks."

"This bill paves the way for significant investment across the U.S. solar supply chain that will rapidly accelerate growth that has already begun."

hindering factor

It must be emphasized here that, while this agreement is very important, it is only an agreement among Democratic lawmakers. It still needs to pass both chambers and be signed by President Biden. Moreover, there are potential roadblocks along the way.

First, U.S. Senator Joe Manchin could make another dramatic turnaround. This seems unlikely given the many concessions he has managed to get in the plan.

More likely, Democratic Sen. Kyrsten Sinema scuttled those plans. Yesterday, Republican Senator Pat Toomey said in a Bloomberg TV interview that he hoped Sinema would block the proposals. He called the proposals a "benefit" for U.S. energy companies and electric vehicle owners.

Pat Toomey said: "I'm not guessing what she's going to do, but what I do know is that there are some rules in this area, she has reservations in the past, and I look forward to chatting with her this week."

Democrats are reportedly gearing up to vote on the bill this week.