How can the photovoltaic industry navigate IRA uncertainties to maximise growth opportunities?
The 2022 Inflation Reduction Act (IRA) has spurred interest in renewable energy sources, including solar power. However, the IRA implementation has been highly uncertain, and better guidance is still needed to understand its requirements and maximise its benefits.
In our recent webinar, Developing a winning IRA strategy, Wood Mackenzie analysts explored the issues facing the solar industry over the next five years, and how to navigate current uncertainty and maximise IRA gains.
Fill in the form to download the webinar and read on for a brief introduction to the themes:
Broader power-sector challenges
We expect more than 253 GW of new solar installations in the US over the next five years, mostly in the utility-scale sector, though the residential and non-residential segments will also expand. However, growth will remain relatively flat compared with recent years with a compound annual growth rate (CAGR) of just 4% between 2024 and 2029. This is not down to a lack of demand, which remains buoyant, but to broader power sector challenges.
The country’s interconnection processes and transmission infrastructure are unlikely to be resolved over the next five years. While the Federal Energy Regulatory Commission has implemented reforms for interconnection and permitting, material change is unlikely before the 2030s. Near term, labour shortages and the limited availability of high-voltage equipment are delaying projects and causing cancellations.
In the utility-scale segment, there looks to be a healthy pipeline of projects in the near term, with hundreds of gigawatts planned. By our calculations, however, only 30% to 40% will actually come on stream this year, largely due to difficulties in procuring transformers and high-voltage circuit breakers, labour shortages, and delays in obtaining engineering, procurement and construction (EPC) contracts.
Post-election uncertainty
There is also growing uncertainty over the future of tax credits following the US election, putting investments on hold in Republican-leaning states. The prevailing view is that investment and production tax credits (ITC and PTC) are likely to remain under the incoming Republican administration, but that they could decrease in value or be phased out sooner. State-level policies are expected to continue supporting renewable development.
The impacts of the IRA tax credits are clear: US module manufacturing has almost quadrupled since the act was passed, to nearly 32 GW as of the end of Q2 2024. Since then, even more module factories have come online or expanded capacity.
However, these modules are mostly made with imported components. There is currently little cell and no wafer manufacturing capacity in the US amid high costs, stringent permitting requirements and other deterrents.
Many policy changes afoot
There are many policies in play that could change the future of domestic manufacturing. The pending anti-dumping/countervailing duty (AD/CVD) investigation that would impose tariffs on solar cells made in Cambodia, Malaysia, Thailand and Vietnam, for instance, could bring more cell manufacturing to the US longer term, making US module prices more competitive. It remains to be seen how the tariffs pan out.
Under the incoming Trump administration, we think a full repeal of the IRA is unlikely and that the 45X credits for the manufacturing of certain clean energy components will be relatively safe. Many solar manufacturing facilities are located in Texas, Georgia, the Carolinas and other red-leaning states, and these factories are creating hundreds of jobs and attracting hundreds of millions of dollars in investment.
Some kind of legislation to restrict foreign entities of concern from receiving these credits is more likely. Both Republicans and Democrats have already introduced several bills to this end. In practice, this would mostly hit Chinese-controlled companies operating in the US, and losing these firms could cause US manufacturing to fall behind on the technology front.
Sylvia Leyva Martinez
Principal Analyst, North America Utility-Scale Solar
Sylvia researches market dynamics, business models, market developments and financial strategies of solar PV projects
