Battery manufacturing slows despite boost from anti-inflation law

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Energy storage will be a big beneficiary of federal inflation-reduction legislation, but material shortages in making batteries could plague construction for several years, an analyst said.

The law, signed into law by President Joe Biden in August, targets $369 billion in federal funding, mostly as tax credits for clean energy projects, and aims to attract private capital and boost domestic production. How much money will ultimately be available to spur and subsidize battery storage project development is unknown, as tax credits will be claimed by businesses and individuals for years to come

According to a Credit Suisse analysis, federal spending in the IRA is “probably double the total.” And with subsidized funding and a multiplier effect from federal grants and loans, U.S. public and private funding for clean energy could reach about $1.7 trillion over 10 years, according to the analysis.

“We see most of the upside potential in solar, wind, battery deployment and manufacturing, clean hydrogen and carbon capture,” the Sept. 28 report said.

The capital invested in stationary energy storage “is going to be massive over the next few years, largely because of the IRA,” said Sam Jaffe, vice president of battery solutions at E Source.

Scott Childers, vice president of Stryten Energy’s Essential Power business, said the IRA and infrastructure investment and employment bill signed by Biden in November 2021 is attracting private investment. Both measures work “pretty well,” he said. The infrastructure measure pays for the installation of demonstration batteries, and the IRA is more likely to help fund battery manufacturing, he said.

The infrastructure effort is pumping more than $1 trillion into building public works and upgrading bridges, highways and airports, and funding clean energy projects such as B. Charging stations for electric vehicles.

“It’s all about risk,” Childers said. “Certainly, these two bills go a long way toward reducing that risk and increasing investment opportunities. There are the investments that we do not have to carry.”

Material shortages to be expected for the next three years

Jaffe said supply shortages are affecting materials like lithium, copper foil and graphite used in making batteries. Significant investments would be made to build mines, refineries and factories to meet demand, Jaffe said.

“It’s just not fast enough,” he said.

Shortages are expected for the next three years, making it difficult to order batteries for delivery later this year or in 2023, Jaffe said.

John Godfrey, senior government relations director at the American Public Power Association, said of the two big federal spending bills, “They’re really, really overheating the supply chain.”

The Achilles heel of storage and clean energy

Storage provides a reserve for intermittent clean energy.

“Everything has a potential Achilles’ heel,” he said. “Coal dumps are freezing. Wind turbines don’t spin when there’s no wind, and solar doesn’t work when it’s cloudy.

“Everything hiccups,” Godfrey said. “It’s better to have them all than to rely on just one. Storage is another arrow in this quiver.”

The US has robust battery manufacturing, but key manufacturers are Chinese, Japanese and Koreans, including CATL, Panasonic and LG Energy Solution, who have been willing to sacrifice margins to expand their market share, Jaffe said.

By contrast, US companies are reluctant to “lose money for ten years hoping you eventually have a big deal,” he said.

The cash flow from the IRA will provide stimulus needed to encourage U.S. manufacturers to expand domestic industries as U.S. transportation and power generation increasingly rely on battery technology, Jaffe said.

Michael Conway, senior director of business development for energy storage at New Leaf Energy, said many of the IRA’s provisions are part of Build Back Better legislation, which failed in Congress last year. Certain incentives have potential impacts on clean energy companies, he said.

Expanding the investment tax credit has tapped into a policy most responsible for renewable energy development, “and just doubled it,” said Jessica Robertson, New Leaf Energy’s director of policy and business development for New England.

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