To mark the year anniversary of the US Inflation Reduction Act (IRA) today (16 August), the Energy and Climate Intelligence Unit (ECIU) held a briefing with industry representatives to discuss the domestic and international effects of the legislation.
The IRA embodies the US response to climate change and energy security, by aiming to accelerate investment in renewable and green technology. The legislation offers public and private entities US$369 billion (£289 billion) in subsidies through investment allowances, tax credits and other financial incentives for investment.
Following yesterday’s blog covering the domestic effects of the Inflation Reduction Act, Current± looks at the international consequences below.
Decreasing investment, increasing competition
“The bad news about that for the UK is that I think our investment is slowing down at a time with increased competition,” warned Emma Pinchbeck, chief executive of Energy UK, and one of the briefing’s panellists.
Pinchbeck also highlighted that alongside increased competition, a challenging financing environment also threatens the sector. According to Pinchbeck supply chain competition alongside global supply chain pressures have caused project costs to be projected to increase by 40%.
This is especially worrying as, quoting Office for Budget Responsibility (OBR) statistics, Pinchbeck notes that the UK is 20 times more likely to be affected by price spikes similar to those witnessed last year by 2050 if it doesn’t deliver its carbon budgets.
“And we’re currently off track on the carbon budget, so it tells you what the risk is for the economy and for households,” added Pinchbeck.
Investing in renewables is a credible solution to riding prices as, according to the OBR, the UK would have been five times more exposed today to the price spike experienced last year, if the nation hadn’t invested in both renewable and energy efficiency.
The race is on
“The race is really on” said Pinchbeck, for solutions to lacking renewable investments, namely cheap capitals and good markets.
Pinchbeck noted that countries entering the energy transition today are able to develop at a much quicker pace then the UK was a decade ago, due to the industry’s maturity.
Using the example of offshore wind, Pinchbeck explained, when the Contracts for Difference (CfD) scheme was developed offshore wind was a “baby technology that was a bit niche,” whereas today the technology is well established, allowing new projects to develop more rapidly.
“So it took us 10 years to do what the US has managed to do, in terms of developing an offshore wind pipeline, in a year, what China took five years to do; and China has overtaken the UK as the biggest offshore wind market in the world,” said Pinchbeck.
Addressing the attractiveness of the IRA in terms of renewable investment Pinchbeck added: “The reason money has moved to the US is quite simply the simplicity of the framework.
“It’s the size of the US market, the scale of some of the projects and the subsidy that they’ve put in there. Meanwhile, in a UK context we’re slightly resting on the laurels of 10 years ago, and I think there’s an underestimation of the speed of change.”
The power of support
In her concluding remarks, Pinchbeck noted the power of public political support in promoting investment confidence.
Understanding the huge amount of capital that would need to be brought in and the length of time legislative changes take to pass, Pinchbeck recommends “beating the drum for renewable technologies,” replacing the recent negativity in some parts of the UK press casting doubt on the UK’s stance on net zero and replacing it with clarity on the country’s long term investment.