When campaigning for office, President Joe Biden put infrastructure at the top of his agenda – and with the passage of the Infrastructure Investment and Jobs Act (IIJA) in November 2021, it seemed that he had fulfilled his promise.
While the IIJA represented the largest infrastructure investment in US history at $1.2 trillion, the Inflation Reduction Act came along in August and managed to make even greater waves in the world of climate and energy, despite promising spending and tax breaks totalling the far smaller sum of $385 billion. The fact that almost all hope had been lost on the passage of such a bill made it all the more sweeter.
What we’ve seen thus far is that, despite discrepancies in size, the IRA has made the largest and most immediate impact. The structure of using tax credits to incentivise certain energy projects had an overnight effect on the value of existing projects and projects-to-be.
In September, a mere month after the bill’s passage, Mike Joyce – a partner at Vinson & Elkins specialising in energy-transition projects – divulged to Infrastructure Investor that his firm had “already started restructuring deals in [the IRA’s] wake”.
Anecdotal evidence, you say? Well, in a report released this month, the American Clean Power Association revealed over $40 billion of new grid-scale clean energy investments have been announced since the passing of the IRA, the same amount as the total investment estimated for all clean energy projects installed in 2021.
Meanwhile, when interviewed around the same period, players like Dale Burgess – head of infrastructure and natural resources at Ontario Teachers’ Pension Plan – stated that the impacts of the IIJA on investors had largely been sentiment-driven.
The lack of concrete, monetary impact comes from the bill’s structure. The bill stipulates that the government agencies that receive said funds are required to consider PPPs when seeking more than $750 million in a “value-for-money” analysis. It therefore remains unclear just how much of the allocated $1.2 trillion in investment will be supplemented by private sector capital.
The tide may be turning – a handful of states including Texas and Oregon, for example, have just approved PPP programmes for IIJA-related funds regarding EV charging infrastructure, though there is still the possibility for these decisions to be reversed, according to Scott Monroe, senior director of infrastructure and project finance at Fitch Ratings.
Nevertheless, there’s no denying that the IRA has packed a much bigger punch in a much shorter timeframe. Moving forward, keep an eye on state budgets – while the exact size is uncertain, what is known is that there is sure to be some kind of increase in transit-based PPPs thanks to the IIJA.
And looking forward with the IRA, the boost it has given to supply chain difficulties seems to be having its effect. A 300 percent increase in solar module manufacturing capacity has been announced since August, as well as six new grid-scale battery storage manufacturing facilities, according to the ACP.
2022 saw plenty of supply chain issues disrupt renewables’ progress. With Washington’s legislation, maybe, just maybe, that discussion will begin to fade in 2023.