Up to a trillion dollars in subsidies for low-carbon energy and related infrastructure are up for grabs amid the Biden administration’s push to transform the U.S. economy. The grabbing has already begun. European Union officials made a lot of noise earlier this year when European companies began making expansion plans for the U.S. in a bid to take part in the incentive race.
Now, towns and counties in the U.S. are also eyeing a piece of the incentive pie, by seeking to attract low-carbon projects. One such project, the Wall Street Journal reported recently, is Kontrolmatik Technologies’ battery plant, to be built in South Carolina, with the Turkish company eyeing up to $1 billion in federal tax credits over the next ten years.
Kontrolmatik, the WSJ wrote, is investing $279 million in the facility, which will have an annual production capacity equal to 3 GWh of power supply. It will also employ 575 locals, which has made it a favorite of the local authorities.
“I’ll be honest, I have no idea what a gigawatt-hour is,” Colleton County Council Chairman Steven Murdaugh said in February at the groundbreaking ceremony for the plant. “But I do know what a $279 million investment will do for our county, and I know what impact 575 jobs will have on our community.”
Colleton is hardly the only county in America eager to tap into the billion-dollar incentive jar. And it’s not just counties, of course. Businesses are springing up everywhere to join the race.
The latest addition to the ranks of transition business fruits is a digital marketplace for tax credits under the Inflation Reduction Act. Dubbed Crux Climate, the purpose of the company is to streamline businesses’ access to tax incentives.
“Many of the companies that earn the credits aren’t able to make use of them because they don’t pay large enough tax bills in the year that they get the credits to be able to use them,” Crux Climate CEO Alfred Johnson told CNBC.
Trading credits is apparently the way to overcome this obstacle in front of startups that don’t have the income to otherwise qualify for the incentives. In that scheme, the bigger company that qualifies for the tax credit can sell it below value and get the cash it needs, while the smaller company gets the credit it would not be able to afford otherwise.
“Tax equity has been the fuel of the renewable energy boom for decades, and it’s about to be put on steroids with the IRA,” the CEO of Arcadia, a solar project manager, told CNBC. No wonder so many European companies are looking to the United States for growth: the IRA and related initiatives are expected to drive some $3 trillion in total investments in the energy transition.
Yet all this is not without problems. Take EV incentives, for instance. Two states recently suspended their EV purchase credit programs because they ran out of money.
As one would have expected had one been paying attention, the incentive programs caused a surge in demand for EVs, and that surge dried up the funds allocated for EV purchase incentives. In New Jersey, the local authorities are not even sure they will renew the incentive program.
And that’s not all. As with all business ventures, the possibility of failure is always present. There could also be challenges with loan financing, especially with the Fed planning more rate hikes, and inflation is already high and may go even higher thanks to those massive subsidies.
The subsidy race could also hit taxpayers hard. When Congress passed the IRA, it was estimated that tax credits would cost taxpayers $271 billion. According to Goldman Sachs and the Brookings Institution, however, the final bill could be three times higher
By Irina Slav for Oilprice.com