Brendon Moran is cautiously optimistic that in the event of a Trump win the bill would be revised rather than repealed.
Just two years after President Joe Biden introduced the Inflation Reduction Act (IRA), the possibility of a Republican win in November's presidential election is creating uncertainty over the act's future. Yet we are cautiously optimistic that the IRA is more likely to be revised than repealed.
Republican campaign officials have made it known that a victorious Donald Trump would cut clean energy spending and increase investment in fossil fuels. Indeed, the presidential candidate himself has vowed to "drill, baby, drill".
Despite this, there are reasons to believe that a pragmatic Republican administration would leave the IRA's foundations intact. The bill received bi-partisan support, and many investments are flowing into Republican constituencies. Furthermore, after the initial capital costs renewable energy is cheaper than fossil fuel-produced energy.
In a broader context, therefore, it appears the arc of history is set and extends beyond any one presidential term. The IRA's subsidy package is just the start of a plan to make the US a major force in clean energy. Already, the $369 billion 10-year package of tax incentives and subsidies is delivering—giant solar and wind projects are underway and homegrown supply chains are being built.
Surge in investment
Making it a natural object of contention during the election campaign, the IRA is the centrepiece of Biden's economic strategy, alongside the Bipartisan Infrastructure Law that among other things provides funding for electric grid renewal. Even for its critics, the early success is hard to deny. US investments in clean energy increased to $280 billion in 2023, up from $200 billion in 2020, according to the International Energy Agency (IEA). Over the past four years, that has led to more than 310,000 jobs, again according to the IEA.
The US has become a major market for renewables, batteries and electric vehicles. Further, the IEA reports that it accounted for 15% of global clean energy investment in 2023. Last year, the rate of energy efficiency improvements in the US reached 4%.
Take the giant solar farms springing up in wide open spaces in western states such as California and Nevada. When the 966MW Gemini Solar farm outside Las Vegas is commissioned in 2025, it will be one of the world's largest and will power more than 260,000 homes. In California's Kern County, meanwhile, the 875MW Edwards & Sanborn solar farm connected to the grid in 2024 and can power almost 240,000 homes.
Turning to offshore wind farms, progress is slower due to the larger scale of these engineering projects and their extended supply chains. As a rule of thumb, solar projects take as little as two years to develop, from putting a spade in the ground to generating green electrons. By contrast, wind farms typically take five to 10 years.
Mainly located on the Atlantic coast, only a few offshore wind farms are currently under construction, including the 2.6GW Coastal Virginia Offshore Wind project and the 806MW Vineyard Wind project off Massachusetts. More are proposed, often with European sponsors such as BP, EDF Energy, Equinor, Orsted, Shell and TotalEnergies.
High inflation has impacted project economics, driving up prices of steel, blades, turbines and labour. Similarly, the spike in interest rates pushed up finance costs. Supply chain issues—such as booking ships to transport blades and turbines—have also caused delays. Consequently, some projects that locked in offtake agreements have been renegotiating them, while a few have been cancelled.
But when interest rates fall, the financial headwinds at least will ease, even if it will take time for new manufacturing capacity to ease the supply chain bottlenecks.
History in motion
Yet the uncertainty surrounding a Trump presidency is likely to build as November approaches. We believe that he would be more likely to revise than repeal the IRA because a full repeal would be more difficult, especially as the US government has three branches that check each other's power – legislative (Congress), executive (the President and supporting functions) and judiciary.
"Ultimately, though, a presidency only lasts four years, which is not long in the context of infrastructure projects that can take decades to bring to fruition. The IRA has set history in motion and it is bending towards a cleaner, greener US energy complex."
A new president could use tools like executive orders to do two things: first, remove constraints on oil and gas development, and, second, target areas the Republicans find contentious, like electric vehicles.
Ultimately, though, a presidency only lasts four years, which is not long in the context of infrastructure projects that can take decades to bring to fruition. The IRA has set history in motion and it is bending towards a cleaner, greener US energy complex.
Brendon Moran is co-head of UK corporate coverage & senior banker (energy, natural resources & utilities) at Societe Generale.
