Inflation Reduction Act could unleash $3 trillion in renewable energy investments
Energize Weekly, August 23, 2023
The $1.2 trillion in incentives proposed under the U.S. Inflation Reduction Act (IRA) will spur about $3 trillion investment in renewable energy technology over the next decade, according to Goldman Sachs Research.
Goldman Sachs said the IRA has created “the most supportive regulatory environment in clean tech history.”
“The IRA includes incentives that make most clean tech — solar, wind, electric vehicles (EVs), and storage, as well as bio-energy, clean hydrogen, and carbon capture — profitable at large scale,” the GS Research report said.
The incentives could lead to $2.9 trillion in cumulative investment across all sectors by 2032 – an average of $290 billion a year – and $11 trillion in total infrastructure investments by 2050.
The biggest impact will likely come in the transportation sector as the cost of EVs and clean commercial vehicles are reduced thanks to the IRA’s modified tax credits, the report said.
The extension of credits for biofuels and for the development of sustainable aviation fuel will also have an impact in the transportation sector.
The act provides for $36 billion in clean vehicle and fuel tax credits between 2022 and 2031, according to the Congressional Budget Office.
The power sector is another area where the IRA looks to be transformative. Power generation was responsible for about 30 percent of the country’s carbon emissions in 2021.
“Power infrastructure plays a significant role in electrification trends in transport, industry, buildings and green hydrogen production,” the GS Research report said.
Goldman Sachs is forecasting total U.S. power demand will increase 2.5 times by 2050 compared with 2021, which will require $6.6 trillion in renewable power investment.
The bulk of those investments will come in increased wind and solar generation, $1.4 trillion for each, and the digitization of power networks, $2.3 trillion. Other areas of investment include utility-scale energy storage, about $800 million, and other renewable energy generation, an estimated $700 million.
Renewable energy sources, not counting nuclear and hydro, are expected to grow by about 9 percent annually through 2050, representing 44 percent of total generation capacity by 2030 and 80 percent by 2050, according to GS Research.
“Our analysts anticipate that the early years of the new revolution will be driven mainly by electrification through the expansion of renewable power facilities, transmission, storage, and networks and building upgrades,” GS Research said.
The report estimates that the average annual investment in decarbonization between this year and 2050 will be about $400 billion, equal to about 1.3 percent of GDP, with the peak of $520 billion, or 1.7 percent of GDP, in the mid-2030s.
Meanwhile, hydrocarbon energy will gradually decline in the U.S., GS Research said, depending on the pace of the growth of new energy sources. Natural gas use will likely decline after 2030, but consumption is expected to be more resilient than oil.
“Among residential and commercial users, electricity will gradually almost completely replace natural gas,” the analysis said.
Still, U.S. net gas exports, primarily driven by increased liquefied natural gas capacity, will almost double to 20 billion cubic feet by 2030, from the current 11 billion cubic feet. This will soften the decline of domestic gas consumption.
GS Research estimates that this surge in renewable resources will produce twice as much energy as the last major shift in domestic energy production – the shale oil boom, which started 15 years ago.
“Shale remains a valuable asset, but in our view, the U.S. can no longer rely on it to carry this key cost competitive advantage into the next decade: it needs another energy revolution to maintain its energy cost leadership,” Michele Della Vigna, a Goldman Sachs managing director, said in a statement.
