U.S. households claimed more than US$8 billion in tax credits last year under the Biden administration’s Inflation Reduction Act (IRA), according to Treasury Department data released last week, with more than $6 billion flowing to rooftop solar, small wind, and other renewable energy systems.
The release shows major increases in the number of households applying for renewable energy and energy efficiency tax credits, and in the average value of their claims. But separately, an investigation released yesterday by the Financial Times shows that about 40% of the biggest renewable energy investments under IRA have been delayed by between two months and several years.
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On the consumer side, the IRA’s clean energy and energy efficient home improvement tax credits have been “more popular than initially expected,” Deputy Treasury Secretary Wally Adeyemo told media last week. While both tax credits have been around for years, the IRA expanded them, and they’ve “proven so popular that the law’s final price tag is likely to be higher” than the original estimate of $370 billion, the New York Times reports.
Rooftop Solar Dominates
Treasury Department data show more than 3.4 million U.S. households claiming at least one of the credits last year, for more than $8 billion in savings—far more than the $2 to $4 billion originally projected by the non-partisan Joint Committee on Taxation. With total spending of more than $6 billion, “the credit for solar panels was especially popular, the Treasury data shows, with more than 750,000 American households claiming it last year,” the Times says. “A credit for heat pumps, meanwhile, was claimed on more than 260,000 tax returns. Some households may have claimed both.”
The Times says the Clean Energy Tax Credit was most popular in southern states like Arizona, California, Florida, Nevada, and Texas. The Energy Efficient Home Improvement Tax Credit did best in northeastern and midwestern states, led by Connecticut, Maine, Massachusetts, New Hampshire, Vermont, and Wisconsin. Across the board, solar panels were the most common investment, followed by insulation or air sealing, exterior windows and skylights, exterior doors, central air conditioning, efficient gas, propane, or oil equipment, and heat pumps.
Utility Dive reports that the number of households claiming the credits increased by nearly one-third compared to the 2021 tax year, while the total value of the claims jumped by almost two-thirds. Heatmap says the Treasury Department expects uptake to increase over time, since households only invest infrequently in their home energy systems.
“The Biden-Harris administration’s top economic priority is making life more affordable for Americans,” Adeyemo said. “The Inflation Reduction Act is doing exactly that.”
But “not all of the data flatters the Biden administration’s goals,” Heatmap writes. “The tax credits—especially those that reward energy-efficient home upgrades—are used in large part by richer households who have the money and wherewithal to pay for costly upgrades to their homes in the first place.” And while nearly 268,000 households saved money on heat pump purchases, nearly 600,000 used their tax credits to buy fossil fuel appliances.
‘There Will Be Attrition’
The manufacturing incentives have generated their own continuous stream of big announcements. But now, “the delays raise questions around [President Joe] Biden’s bet that an industrial transformation can deliver jobs and economic returns to the U.S., which has offshored its manufacturing for decades,” the Financial Times reports. “They could also complicate efforts by Vice President Kamala Harris to use the administration’s record on manufacturing to attract blue-collar voters in November’s presidential election.”
The Times says it tracked the 114 largest projects to receive IRA incentives, valued at $227.9 billion. Out of that total, projects valued at about $110 billion are on track, and installations worth just over $5 billion are up and running according to a chart accompanying the Times story.
Another $70 billion worth of projects have been delayed, about $12 billion worth are on hold, and a smattering have been cancelled.
“Companies said deteriorating market conditions, slowing demand, and lack of policy certainty in a high-stakes election year have caused them to change their plans,” the Times writes. The news story attributes delays in several solar manufacturing projects over the last year to “a collapse in global pricing driven by overproduction in Beijing,” noting that China dominates global manufacturing for both solar panels and batteries. Electric vehicle and EV component manufacturing has also lagged due to slower growth in demand for the vehicles.
“There will be attrition. Not every single one of these facilities is going to come online,” John Hensley, vice-president of markets and policy analysis at American Clean Power, told the Times. “That’s just a healthy part of the competitive landscape.”
Electoral Math
Rising costs, supply chain issues, and slow or unclear program rollout have also had an impact, the Times writes. And “a potential Donald Trump victory in November’s presidential election has added to the uncertainty. While the bulk of IRA-related manufacturing investments have flowed to Republican-controlled districts, the law received no votes from party members in Congress. At campaign rallies the former president has vowed to ‘terminate’ the IRA if elected.”
The Times cites one executive who was working to relocate a $1.25-billion solar parts plant to a state where a Republican representative would be positioned to defend it if Trump wins. “Just in case, you probably want to be in a red state so that someone from the same party is going to fight for you and your rights,” the executive said.
But at least one U.S. news outlet is looking at whether the consumer tax credits will affect the election results in a key swing state, after 158,550 Pennsylvanians claimed more than $260 million in IRA tax credits.
“The clean energy revolution envisioned by the Biden administration is only now starting to take root,” Politico writes. “Whether voters see enough benefits to reward Harris and down-ballot Democrats for that approach in November remains to be seen.” And “that is especially true in western Pennsylvania, a swing region in a swing state, where the natural gas industry has emerged as a driving economic force in recent decades.”
A key factor, Politico adds, is that average voters “aren’t that familiar” with the multiple different investments flowing from the IRA and the earlier CHIPS and Science Act.
“They’re not seeing it as much as they should,” said John Walliser, senior vice-president of legal and government affairs at the Pennsylvania Environmental Council. “This is really driving a renaissance in a lot of ways.”
