Date July 03, 2023
The IRA affects the LCOE of wind, solar, and energy storage during 2021 and 2030, according to the Powering a Green Future: A forecast to 2030 for solar, wind, and energy storage. The following paragraphs are some excerpts.

Impact of IRA on installation and LCOE/LCOS

The IRA profoundly affects the renewable energy sector, including solar, wind, and energy storage. Onshore wind had been the cheapest power generation in the U.S., with the LCOE sitting at USD 25.76/MWh in 2021. The new PTC should have reduced the LCOE by 30%, but rising construction costs due to economic downturn offset that reduction. In 2022, the LCOE of onshore wind was USD 23.68/MWh. Still, it was lower than China’s USD 29.66/MWh, boosting onshore wind development in regions where construction costs are high, and wind sources are less abundant.

Still in an early stage of development, the LCOE offshore wind in the U.S. declined, thanks to the ITC. The generation cost is expected to drop by over 20%. The IRA offers incentives for relevant industries. For instance, the Maritime Administration (MARAD) designated offshore wind vessels as Vessels of National Interest, making them eligible for financial support. Additionally, the IRA provides a 10% tax credit for offshore wind installation vessels, expands the area available for construction, and allocates USD 3 billion for upgrading infrastructure related to offshore wind development, providing strong incentives for reshoring offshore wind farm construction and local supply chains. 

Without a complete solar supply chain, the U.S. sees the LCOE of solar power sitting slightly higher than that of wind power. The U.S. imports most of its modules. The new ITC and PTC only come into force in 2023, but it takes one to two years to establish a local supply chain. Therefore, the IRA has limited impacts on the US solar industry in the short term. In the mid and long term, the IRA will reduce the LCOE by 13%. Another 10% of tax credit for U.S.-manufacturing will entice local manufacturers to expand production, allowing Southeast Asia’s share of supply to shrink to 30-35% in 2025.

As for the energy storage industry, the IRA is estimated to save 30% of LCOS. To acquire another 10% tax credit, manufacturers must use products made in the U.S. and must not use any component sourced (extracted, processed, recycled) from any foreign entity of concern. Therefore, the IRA will ramp up investments in the U.S. However, the U.S. will still rely on imports, for localization will be challenging in the short term since it takes one to two years to set up a cell production plant and even more time for upstream materials, which are scarce within the nation.

For more detailed data and research methodology, please refer to Powering a Green Future: A forecast to 2030 for solar, wind, and energy storage, which covers:
  • Wind, solar, and energy storage LCOE from 2021 to 2030
  • Wind, solar, and energy storage capacity from 2021 to 2030
  • Wind, solar, and energy storage supply chain outlook from 2021 to 2030
  • IRA regulations on wind, solar, and energy storage industries: summary and analysis

With the white paper, On the Road to Net Zero, InfoLink aims to provide a quick understanding of the world’s three major renewable energy markets, Europe, the U.S., and China. As a globalized industry, the renewable energy sector is inevitably influenced by policies and supply-demand dynamics in the three markets. This white paper helps businesses hop on the global bandwagon of net zero by visioning future price trend, allocating resources strategically, and uncovering latent opportunities.

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