The Inflation Reduction Act’s Impact on the Renewables Industry

The face of solar energy in the United States continues to change rapidly, seeing influence from an almost incalculable number of factors. Indeed, the SEIA reports that domestic solar companies installed 6.5 GWdc in Q3 of 2023 alone, representing a whopping 35% year-over-year increase.

Many analysts point to federal clean energy policies as a big reason for this installation surge. And it’s true that the United States government has done its part to push solar to the forefront. The most stark example of this came in August 2022 when Congress passed the Inflation Reduction Act.

Though technically a budget reconciliation bill, the IRA represents a huge step forward in domestic renewable energy policy. Perhaps more importantly, solar clients and investors are now basing the bulk of their decisions on Inflation Reduction Act policies. This, in turn, has created a rare bridge between incentive-based and forward-thinking action, all while surging demand for solar energy across the U.S.

Understanding The Inflation Reduction Act

True to its name, the primary stated goal of the Inflation Reduction Act was to curb soaring inflation in the wake of the pandemic, supply chain disruptions, and renewed consumer demand. However, growing concerns over climate change, healthcare costs, and the economy at large also played significant roles in the bill’s passage.

For years, solar engineers lamented how the “politicization” of renewable energy had created numerous barriers to widespread solar adoption. However, the IRA helped remove some of the stigma around solar by being simultaneously political and practical. Not only did it focus on the need for a green energy transition, it made the transition seem like a smart idea to those less interested in environmental causes. 

For instance, the IRA allocated around $369 billion for energy security and climate change programs. This represents the largest investment in these areas in U.S. history, with incentives for clean energy production, tax credits for consumers who invest in renewable energy sources like solar panels and electric vehicles, and funding for the development of new, green technologies.

And this was just one part of the $783 billion the Act put toward energy and climate change. Unsurprisingly, the impact has been quite clear over the past year.

Implications for the Renewable and Solar Industry

Despite having incalculable long-term benefits, the concept of clean energy has always been something of a pariah in American culture. One particularly astute analyst once described the United States’ approach to the transition as similar to slowly getting into a freezing cold pool. “You know it’s going to be uncomfortable,” they said. “Still, by dragging it out, you make it far worse than if you’d just held your breath and jumped in.”

The IRA seems to be the push many companies and individuals needed to make that jump. The American Clean Power Association recently reported that some 280 clean energy projects had been announced across 44 states in the IRA's first year. These represent around $282 billion in investment and could create nearly 175,000 jobs. The SEIA also predicts that the IRA will lead to 48% more solar deployment over the next ten years.

This IRA mainly accomplished this by extending the Investment Tax Credit (ITC) for solar projects, which had long proved crucial for the solar industry. Before the IRA, the ITC had been set to phase down. Not only did the Act extend it, it also increased the rate for residential and commercial solar installations back to 30%. This drastically impacted solar affordability, which is often the primary complaint of naysayers in public and private spaces.

The Act also introduced a Production Tax Credit, which provides financial incentives based on the amount of electricity produced by new solar projects. The PTC offers a per-kilowatt-hour tax credit for electricity generated by qualifying renewable energy facilities. This means that renewable producers receive a tax credit based on the amount of energy they produce. Obviously, this is most beneficial for large-scale and utility-level solar projects.

The Act further included tax credits and incentives for U.S.-based manufacturing of solar components such as photovoltaic cells and modules to strengthen the domestic solar supply chain. This aims to reduce dependence on foreign products and boost domestic production, opening the door for U.S. firms to create a self-sustaining domestic marketplace.

Indeed, experts project that the IRA will catalyze significant investment in the U.S. solar industry over the next decade or more. This means that the estimated 155 gigawatts of new production capacity announced since the Act went into effect will likely be just the beginning.

The U.S. Solar Shift is Already Happening 

Aside from the economic and environmental implications of the Inflation Reduction Act, it’s important to consider what all this new investment means for United States solar initiatives. To Aaron Burkhart, executive at Doman Energy Group, the post-IRA surge in projects represents a “changing of the guard” in terms of American attitudes about solar energy.

“For the past year and a half, the IRA and the PTC have basically served as a template for clients, investors, and other businesses,” says Burkhart. “It’s the main factor influencing if, how, and when they decided to invest in renewable energy.” This is a big deal for Burkhart and Doman, which has served the utility-scale solar market across the United States for years. “Today’s solar industry is secure, mature, and up to the challenge of supplying more energy than ever before. And now we’re seeing the demand growing as well.”

As with most global issues, dissenters almost always seem to have the loudest megaphones. Yet study after study indicates that U.S. citizens are generally bullish on solar. Just a decade ago, solar maintained a reputation for being either “too inefficient,” “too expensive,” or “too impractical.” Yet the efforts of the IRA, coupled with advancements in technology and post-pandemic changes in priorities, have done a lot to erase such opinions from the public discourse. 

“The IRA is currently pushing the industry toward trying to produce larger solar projects rather than smaller ones,” Burkhart says. “Back in the 80s and 90s, solar was seen as something for hobbyists, early adopters, and – most notably – people with high incomes. Now you have companies, municipalities, farms, and loads of other organizations all looking to see how solar can benefit them.”

To Burkhart, the benefits are obvious. “Most people are well aware of why solar and other renewables are better,” he says. “However, they’ve convinced themselves that switching is too massive or too expensive an undertaking. The Inflation Reduction Act provided enough incentive for organizations to finally stand back and say, ‘why aren’t we doing this?’”

It’s a question Doman has proposed to its clients for years. “Solar is clean, endlessly renewable, and getting more efficient all the time,” Burkhart says. “Even those organizations that aren’t concerned with the environmental impact can no longer deny the benefits that can come from increased energy independence, reduced operating costs, and infinite scalability.”

Burkart and Doman specialize in utility-scale solar, a term used for any project tied to the larger grid. Such projects produce a large amount of power that the utility then distributes to towns, counties, or groups of properties. “Such projects benefit society as a whole, not just an individual or business,” he says. “Still, that doesn’t erase the benefits to the individual or business. Thanks to the IRA, when companies go to build a project or facility, they’re looking to include solar on the front end. That change alone is going to make a difference for millions of people across the country.”