National Conference on Public Employee Retirement Systems

The Voice for Public Pensions

Print Page

Blog

Assessing the Impact of the Inflation Reduction Act on the Renewables Sector: From Job Creation to Domestic Energy Security

By: David Boyce, Greencoat America/Schroders 

Geopolitical instability and deglobalization have increased the need for local energy sources. Schroders discusses the rise of energy security and what this means for the energy transition movement. We also discuss the impact of the Inflation Reduction Act (IRA) in the US, namely promoting onshoring of renewable energy projects and the benefits in terms of job creation and capital expenditure. 

 
This is an excerpt from NCPERS Summer 2024 issue of PERSist.

Geopolitical instability in recent years has laid bare the risks of interconnectedness or globalization, particularly in the energy sector. Ongoing conflicts in Europe and the Middle East have posed threats to the reliable supply of oil and gas, while the Covid-19 pandemic triggered a multi-year period of global disruption, dislocation, and bottlenecks. The deglobalization dynamic that we are seeing has hastened the need for governments and populations to identify secure energy sources with low geopolitical risk (i.e., conventional supply that is closer to home or located in stable, democratic regimes).

At a domestic level, the importance of energy self-sufficiency is growing. In August 2022, President Biden signed into law the Inflation Reduction Act (IRA). The Act provides tax breaks and subsidies worth an estimated $369 billion (1.5% of 2022 US GDP) for companies (i) building new renewable power generation projects, (ii) manufacturing components related to wind, solar and batteries, as well as critical mineral components, or (iii) involved in the production of electric vehicles. This legislation represents a new industrial strategy aimed at fostering onshoring of capabilities and skills, as well as building a long-term investment base for these industries in the U.S.

Job creation through new clean energy projects  
According to data from E2, companies have announced over 300 new clean energy projects across 41 states that should qualify for the IRA tax credits since the passage of the legislation. These projects are projected to attract more than $120bn in investments and generate over 100,000 jobs, boosting the US economy (as of May 15, 2024).



Interestingly, our analysis of the data on green energy projects reveals that, since the implementation of the IRA, more than 50% of newly created jobs and capital expenditure have been announced in Republican-leaning states compared to 20% in Democrat-leaning states (see chart below). It is also worth highlighting that swing states have seen large benefits from the IRA tax credits. More than 30% of the green investments since August 2022 have been in states like Arizona, Georgia, Michigan, Pennsylvania, and Wisconsin, boosting job creation locally.   



Increased focus on energy security  
Ensuring energy security and diversifying energy sources has become a top priority for governments. The goal is not only to accelerate the energy transition from a climate perspective, but also to safeguard against potential energy security risks. These dual drivers emphasize the importance of rolling out renewable energy sources to secure various methods of energy supply. 

Several factors have contributed to these heightened concerns. For example, underinvestment has caused a reduction in spare capacity, while there has been an acceleration in demand growth for energy in both developed and emerging countries. For another example, supply chains were severely disrupted during the pandemic, particularly for key components flowing into the U.S., uncovering a vulnerability to the power plant build out. 

In the U.S. alone, our electricity needs – excluding electric vehicles or a massive transition from gas to electric heating – are growing at a rate of 1% annually. Further, there is another approximate 1% of the existing fleet, such as coal plants from the 1950's, retiring each year.  Based on US EIA figure of installed domestic capacity, just keeping up with electricity demand would necessitate building over 150 new power plants per year. Renewables such as wind and solar will need to play a significant role and will require substantial levels of investment. Unlike oil and gas, renewables can be accessed by most countries and owned domestically, making them highly attractive from an energy security standpoint. 



In conclusion, developing a domestic renewable energy supply could be far less susceptible to geopolitical tremors such as war, terrorism, and global health events than the status quo. However, it may require committed upfront capital on a scale that has never been seen before. 

To learn more, visit our energy transition landing page. 

Bio: David joined Greencoat in July 2021 to head Greencoat's US business. David has worked in the US power generation industry since 1997 and full time in renewables since 2007. Since 2012, prior to joining Greencoat, David has held CEO roles at both Wind Capital Group, a fully integrated US wind generation business and Conifer Power, a US wind, solar and storage developer. Prior to that, David held senior finance and commercial roles at Wind Capital Group, Airtricity and SkyGen/Calpine. He also ran the project finance group of CoBank from 2002 to 2007, which covered the energy sector with a focus on power generation. David holds finance and accounting degrees from the University of Illinois and an MBA from the University of Chicago.  

Disclosures: All investments involve risk, including the loss of principal. Past performance provides no guarantee of future results and may not be repeated. The views shared are those of the author and may not reflect the views of Schroders Plc or any of its affiliates. Information herein has been obtained from sources we believe to be reliable but Schroders Plc does not warrant its completeness or accuracy. No responsibility can be accepted for errors of facts obtained from third parties. Reliance should not be placed on the views and information in the document when taking individual investment and / or strategic decisions. Any mention of industries or sectors is for informational purposes only and should be interpreted as a recommendation to invest or divest in any company or adopt a particular investment strategy. Schroder Investment Management North America Inc, registered as an investment adviser with the SEC, CRD Number 105820. 

Comments

There have been no comments made on this article. Why not be the first and add your own comment using the form below.

Leave a comment

Please complete the form below to submit a comment on this article. A valid email address is required to submit a comment though it will not be displayed on the site.

HTML has been disabled but if you wish to add any hyperlinks or text formatting you can use any of the following codes: [B]bold text[/B], [I]italic text[/I], [U]underlined text[/U], [S]strike through text[/S], [URL]http://www.yourlink.com[/URL], [URL=http//www.yourlink.com]your text[/URL]

Contributors