Powering growth
In a warehouse in Turtle Creek, just east of Pittsburgh, Pennsylvania, a line of workers is assembling batteries, each about the size of a suitcase, based on zinc—an alternative to lithium-ion that its proponents say will offer competitively priced, non-flammable, dispatchable energy for hospitals, schools, and other stationary users.
It’s a young cohort of workers, many people of color and military veterans. “We’re hiring right out of high school,” says Joe Mastrangelo, the Edison, New Jersey-based head of Eos Energy Enterprises, the company making the batteries.
His goal for the factory in Western Pennsylvania is to double its total capacity to 3 gigawatt-hours in 2024, producing a battery every 90 seconds once the plant is fully automated. The workforce will also double to 500.
“We’re doing this in a location that was historically an old energy economy, creating not jobs but career paths for people to get to middle class,” Mastrangelo says.
Climate is central to the IRA. But it is industrial policy on a grand scale, too, aiming to revamp the US’s decrepit infrastructure and create advanced manufacturing jobs in Rust Belt regions like Western Pennsylvania, once the heart of the country’s steelmaking industry.
From Ohio to Georgia, investment is also pouring into lithium-ion energy storage, the technology that will underpin the electrification of the US auto fleet.
All told, the IRA offers $369 billion of tax credits, grants, loans, and subsidies, many of them guaranteed past 2030. The credits can be sold, too, allowing deep-pocketed investors with enough tax liability to buy the credit—a way to get more capital to developers, quickly.
Credit Suisse thinks the public spending enabled by the IRA could eventually reach $800 billion, and $1.7 trillion once the private spending generated by the loans and grants is included.
The tax breaks have made marginal projects suddenly economical, say developers. A battery plant can generate tax credits of up to 50 percent of headline costs if it meets several criteria, including prevailing wage requirements, domestic sourcing of materials, and location in a fossil fuel community. This can translate into an effective reduction of 60 to 65 percent of a project’s fair market value, according to law firm Vinson & Elkins.
“It enables us to grow and also enables a further incentive for people that want to invest,” says Mastrangelo.
Wood Mackenzie estimates investment in energy storage will more than triple by the end of the decade, reaching $15.8 billion. Energy storage capacity additions will grow from 5 GW to 25 GW per year by 2030, enough to power almost 20 million homes.
While juicy subsidies are also available for wind and solar, the IRA’s biggest impact may be on technologies that have yet to achieve scale, including carbon capture and bioenergy.
For green hydrogen, a potential clean alternative to natural gas in industries such as steelmaking, the subsidies wipe out about half the project cost, vaulting the US from its position as a global also-ran in the eyes of developers to the most attractive destination for future investment.
For Europe, which hopes scaling up domestic supplies of green hydrogen can speed decarbonization and help replace the loss of Russian natural gas, the US now poses a threat. The EU is scrambling to respond, but the US incentives are so comprehensive—tax breaks for every section of the green hydrogen supply chain—that it will be hard to compete, say analysts.
“If you look at the price at which a well-located green hydrogen project, let’s say in Texas, exporting through the port of Corpus Christi, could generate green hydrogen if they can access low-cost renewable power—it’s pretty untouchable,” says Scaysbrook. “It’s a pretty potent trade advantage.”
The geopolitics of the IRA
Gaining a similar advantage over China, however, will be far harder. About two-thirds of the world’s batteries for electric cars and nearly three-quarters of all solar modules are currently produced in China, according to the International Energy Agency. BloombergNEF estimates China invested $546 billion in its energy transition in 2022.
Meanwhile, the domestic supply of raw materials, parts, and processing capacity is lacking, too. The lithium refineries, and nickel and cobalt for batteries; the rare earth materials for solar modules; the nacelles and monopoles for offshore wind—almost everything can be sourced more cheaply from abroad.
Together, China and Europe produce more than 80 percent of the world’s cobalt, while North America makes up less than 5 percent of production, according to the IEA. China also accounts for 60 percent of the world’s lithium refining.
“The Germans make a lot of this stuff. The Chinese make a lot of this stuff. So we are still facing the irony that for the IRA to succeed in the short term, it still relies a lot on China,” says Scaysbrook.
Some early progress is being made. Last month, GM announced $650 million to develop the Thacker Pass mine in Nevada, the US’s largest-known source of lithium. Honda, Hyundai, BMW, and Ford have all announced multibillion-dollar plans to build batteries in the US following the IRA’s passage.
But it’s a drop in the ocean compared with the scale of Chinese domination. Wood Mackenzie estimates the US will make up 13 percent of lithium battery manufacturing by the end of the decade, only a 3 percent upward revision compared with forecasts before the IRA. Asia-Pacific will still account for two-thirds.
“There are so many components when you think about building solar and wind. It’s not going to be realistic that the US is going to become totally self-sufficient in that way,” says Marlene Motyka, US renewable energy leader at Deloitte.