Hello and welcome to the Strawman - the daily climate newsletter that keeps you up to date like the weather app. Spoiler alert, it’s getting hot out there!

Today we’re diving further in to the impact of new climate subsidies in the U.S. and exploring the complicated role government incentives play in the green energy transition.

Incentive Interchange

Since governments have been facing increasing pressure to fund and support the climate transition, they’ve seen another opportunity written between the lines. That’s the idea of developing energy security. In other words, reducing the reliance that governments have on third parties for their own energy needs.

One of the cornerstone initiatives in the U.S. focused on incentivising the green energy transition, the Inflation Reduction Act (IRA), was updated this week. The Treasury Department revised their guidance to share that additional tax benefits would only be offered to solar manufacturers who made their inputs domestically.

The IRA offers up to 30% in tax credits to solar developers but now 10% of this is reserved only for those that use materials made within the United States. The U.S. has very little production capacity as things stand which means that pretty much all of the existing developers will struggle to take advantage of the additional subsidies.

It’s like promising your kids you’ll have McDonald’s and then telling them you have McDonald’s at home. They might be burgers but they just don’t hit the same.

Solar manufacturers and distributors are pissed. Many of these players were making plans assuming that they would receive the whole award and now they’re having to adjust their projections down.

A Solar Breakup

Whether it’s Germany’s investments in natural gas or the U.S. moving to on-shore solar development, it’s clear that energy security has become a global priority.

As things stand, China is one of the largest producers of inputs to solar panels in the world producing:

• Almost 100% of solar wafers (semiconductors used in panels)

• 85% of solar cells (cells converting light to electrical energy)

• 75% of solar modules (panels of connected cells)

In short, all global solar production is reliant on inputs that only really come from China. Now America’s urging solar companies to break up from the relationship.

If the U.S. is serious about on-shoring the entire manufacturing process, it will requires a large investment earlier in the value chain and many years before these businesses can get off the ground.

The short term impact of this change is simple, none of the solar players will get the whole incentives. In the longer term however, these incentives make U.S. production of wafers, cells, and modules significantly more attractive - a space we’ll be sure to keep following.

Until next time,

The Strawman