Posted on August 16, 2022.

Landmark legislation boosting wind, solar – and especially green hydrogen – on its way to President's desk for signature.

The US House of Representatives on Friday passed a landmark bill with an unprecedented $369bn in federal investment to counter climate change, securing a major political win for President Joe Biden who is expected to quickly sign it into law.

Majority Democrats’ 755-page Inflation Reduction Act of 2022 (IRA) cleared the chamber on a razor-thin 220-207 party-line vote, with four Republicans abstaining. The Senate had narrowly approved the $433bn measure on 8 August. It includes $64bn in health care spending.

“Because of this [bill], we will make the largest investment in our nation’s history to address the climate crisis, creating good-paying, union jobs in wind, solar, and electric vehicle manufacturing,” said vice president Kamala Harris. “We will lower energy bills for working families and support environmental justice.

“This is an historic achievement for our country that will directly benefit millions of Americans.”

Early independent analyses of the bill’s clean energy provisions suggest it could place the US on a path to cut greenhouse gas emissions by as much as 44% by 2030 from 2005 levels, above Democrats’ up-to-40% estimate, putting the US within reach of its 50-52% Paris Agreement pledge.

“Today is a day of celebration, a day we take another giant step in our momentous agenda,” said House speaker Nancy Pelosi. The measure “meets the moment, ensuring that our families thrive and that our planet survives”.

Menu of incentives

The bill aims to accelerate the US energy transition from fossil fuels with the most expansive and generous – if certain criteria are met – menu yet of federal clean energy grants, loans, and tax credits.

The tax incentives are key to ramping solar and wind domestic manufacturing and power generation, adoption of battery storage and electric vehicles, and demonstration of carbon capture, hydrogen, and modular nuclear reactors.

“Passage of this bill marks the largest investment in domestic clean energy ever,” said Heather Zichal, CEO of American Clean Power, a renewable energy advocacy group. “History was made in Washington today.”

The bill renews at full value the production tax credit (PTC) at $26/MWh and 30% investment tax credit (ITC) for projects completed in 2022 or later, and would remain at this level for at least the next 10 years.

Project sponsors must meet certain prevailing wage payment and apprenticeship stipulations, otherwise the PTC and ITC base rates decline to $6/MWh and 6%, respectively.

Extension of the credits long-term removes a key risk factor for the industry after two decades of Congress allowing them to expire and then reviving them short-term, which resulted in boom-bust cycles of development.

The bill also gives sponsors bonuses that can elevate the ITC value to 60% and PTC value to $31.20/MWh if they locate facilities in brownfield sites or locations with retired fossil fuel operations, or below-5MW projects in certain low-income communities or on tribal lands.

Other tax credit bonuses are available if sponsors’ projects use a certain percentage of iron, manufactured products and steel produced in the US.

For the first time, solar sponsors will have the ability to join wind in using the PTC along with the ITC. Both can now also sell credits to unrelated third parties for cash who would be able to monetise them.

After years of lobbying, the industry was able to secure a 30% ITC for standalone storage, seen as a key missing piece necessary to address overcome the intermittency of renewables and bring significant additional amounts of wind and solar into the grid.

Green hydrogen watershed?

The bill’s passage could be “the single most important event in the history of green hydrogen to date” — and a turning point for the nascent industry, according to Recharge analysis, given that tax credits included for renewables-produced H2 would mean production that was ‘Made in the US’ would be the cheapest in the world.

The IRA, however, does omit key federal permitting reforms and a tax credit for transmission that is reckoned to be critical to overcoming development and delivery hurdles across much of the country.

There are also issues lying in wait around several giveaways to the oil & gas industry, such as hinging new renewables permitting on hydrocarbon leasing on federal lands, which has incurred the wrath of climate activists despite independent number-crunching highlighting that the bill’s CO2 cuts outweigh emissions links to forecast new hydrocarbon production by a factor of 24.

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