According to International Energy Agency (IEA) website publication on Renewables 2022 Analysis and forecast to 2027 report:
Inflation Reduction Act incentives provide unprecedented policy certainty, boosting wind and PV deployment
Renewable energy capacity in the United States is forecast to increase 74%, or over 280 GW from 2022 to 2027, with solar PV and wind accounting for nearly all renewable expansion. This upwards revision of more than 25% from last year’s forecast takes account of new incentives under the IRA, which provides unprecedented long-term policy visibility for multiple technologies. While previous IEA forecasts assumed capacity addition uncertainty or even declining capacity additions because federal tax credits for solar PV and onshore wind developers were declining or expired, the IRA now offers uncapped investment tax credits (ITCs) and production tax credits (PTCs) through 2032. Our updated forecast is therefore more optimistic and will impact deployment beyond 2023. (1)
(1)The maximum rate for the ITC is 30%, and for the base PTC rate is USD 0.026/kWh; the PTC is adjusted for inflation. ITC and PTC rates step down in the final years covered by the IRA.
IRA incentives are expected to support the Biden Administration target of 100% carbon-pollution-free electricity by 2035. In addition, 37 out of 50 states have renewable portfolio standards and goals supporting expansion. Given that the country now has clear long-term policy visibility, uncertainties in the US renewable electricity forecast relate to project delays due to supply chain constraints, trade measures, the availability of grid infrastructure and long permitting timelines.
Despite the introduction of new incentives, however, US renewable capacity additions are forecast to decrease over 20% in 2022 compared with last year. Overall, utility-scale solar PV and wind projects have been delayed by supply chain challenges and rising costs. In addition to supply chain interruptions, several measures impacting imports have also impeded solar PV project development.
First, the United States started an anti-dumping and circumvention investigation into solar panels from several Southeast Asian exporters in March 2022. While an executive order of June 2022 suspended the investigation for two years, the threemonth period of uncertainty stalled decisions throughout the project pipeline. Second, the Uyghur Forced Labour Act came into force in June 2022, requiring imports from China’s Xinjiang province to be accompanied by documentation stating that no materials were manufactured using forced labour. Since the act came into force, confirmation and compliance procedures at US ports have delayed the delivery of some PV products to developers.
Nevertheless, while trade measures hamper faster solar PV expansion in the short term, IRA incentives induce a more optimistic forecast beyond 2023. Extension of the ITC, the new availability of the PTC, and options for stronger support based on labour and domestic-content bonuses are expected to make the business case more attractive for utility-scale projects. The inclusion of interconnection costs within the ITC and new ways to monetise tax credits are also expected to facilitate rapid uptake.
For distributed PV, the extension of tax credits and attractive economics resulting from net-metering rules in some states drive growth. In fact, net-metering incentives and demand for self-sufficiency resulted in over 4 GW of residential installations in 2021, surpassing previous expectations even before the IRA came into effect. However, ongoing discussions concerning California’s net-metering reforms to switch to time-of-use pricing and apply grid use fees continue to impose forecast uncertainty, as the state remains the largest growth market for residential and commercial installations in the United States.
For onshore wind, last year’s forecast expected a more than 60% decline in annual additions in 2026 compared with 2021 due to the phaseout of tax incentives. However, the long-term tax credit certainty provided by the IRA is now expected to lead to an increase in capacity additions, especially beyond 2023 (the US government’s previous one-year PTC extensions provided little policy certainty, creating boom-bust cycles of additions).
The US offshore wind forecast expects more than 11 GW of new capacity because projects previously awarded at the state level are entering federal review, leading to their faster commissioning. The forecast thus expects most projects that have been approved (nearly 1 GW) or currently under the federal permitting review process (over 14 GW) to become operational by 2027. Nevertheless, long development timelines remain a key challenge. For instance, Vineyard Wind 1 was awarded its lease area in 2015 while only being granted federal permitting approval in 2021, with construction finally beginning in 2022.
To help achieve the federal target of 30 GW of offshore wind capacity by 2030, federal and state governments have held additional lease auctions and identified new areas for future development. However, several barriers must still be overcome, including long federal and state-level permitting wait times; Jones Act (2) requirements that reduce the number of installation vessels available; and the need for port and transmission infrastructure development.
In the accelerated case, growth is 30% higher if the primary uncertainties affecting utility-scale solar PV and onshore wind expansion in the main-case forecast are addressed. The first challenge is the backlog of grid interconnection applications. The average time from interconnection approval to commissioning is over four years (and as high as six to seven for some independent system operators) and has been increasing steadily over the last decade. Growth could therefore be higher if proposed legislation (the Energy Independence and Security Act) to help facilitate transmission expansion is passed. Another forecast uncertainty is how well developers will be able to fully monetise all IRA rate multipliers. If conditions for labour, local content and project location are met, the ITC rate could almost double and the PTC could be five times as high, but the Internal Revenue Service has yet to release further guidance on interpreting these requirements.
(2)The Jones Act allows only US-built and -operated ships to move goods between US ports. Offshore wind installation vessels are currently under construction in the United States, so the number of vessels available to install turbines is limited.
