Pecan Credit reposted this
This week the Inflation Reduction Act turned two. Here's what we know and don't know, and what I'm particularly focused on going forward. (All of the data here are informed by the latest quarterly release from our MIT/Rhodium Clean Investment Monitor: https://lnkd.in/eTGTPuTi). The topline is two years of record breaking private investment in clean energy. Far beyond what most analysts projected. Clean investment is up 71% in the two years since the IRA was enacted. Total private investment over those two years was $493bn. Virtually no one had "nearly a half trillion dollars" on their bingo card in 2021. One of the notable things about this surge is that clean investment for the first time is really driving the trend in overall private investment in the U.S. economy. To make that specific: over this two year period, clean investment was responsible for more than half of the total private investment growth, economy wide. Clean investment in Q2 represented 5.5% of total US private investment in structures, equipment, and durable consumer goods in the United States, up from 1% five years ago. The dominant driver of this clean investment surge is manufacturing and innovation. Since the IRA passed, we've seen $89 billion invested in new or expanded facilities, up 400% over the pre-IRA period. The EV supply chain represents the majority of this investment – but solar has seen the largest percentage growth (10x), with QCells and other companies driving investment into an American solar supply chains. In the wake of the IRA we have also seen burgeoning markets for new technologies necessary for the clean energy transition. Investment in carbon capture, clean hydrogen, sustainable fuels is up 13x, as these technologies transition from R&D to commercial phases. One of the things we still don't know is what is driving consumer adoption and deployment of key technologies like heat pumps. The data we have, for example, suggest that only a small share (~10%) of heat pump installations are taking advantage of the IRA's tax credits. We have work to do to unpack what is going on here, and what we can do to make these policy tools more effective. There’s certainly some data that also give me pause -- and are reinforcing my concern about supply side barriers to build in the US. Investment in wind deployment is running at half the pre-IRA level. We’re not deploying clean electricity at the rate needed to keep apace with emissions goals. Both manufacturing and energy & industry announcements are down year on year (67% and 20%, respectively). This will be key to watch over the coming months. There’s a host of other findings to dig into: What’s the geographic uptake of the clean energy tax credits? How is project implementation and construction going across the country? Will emerging technologies – nuclear, geothermal, hydrogen, carbon capture – scale fast enough? I’m curious to hear your reactions, feedback, and input.