Effects of the Inflation Reduction Act on renewable energy manufacturing and development costs and deployment

Abstract In 2022, the U.S. government passed unprecedented climate and social equity legislation—the Inflation Reduction Act (IRA)—designed to incentivize renewable and low-carbon energy deployment, promote domestic supply chains, and address labor and environmental justice concerns. In this study, we model the effects of the IRA on renewable energy manufacturing and development costs and deployment. We find that tax credits to encourage expansion of U.S. manufacturing are likely to generate comparative cost advantages for domestically-produced components across the utility-scale solar and wind supply chain relative to imported components. We also show that the bonus rate tax credits for renewable developers will decrease the U.S. average levelized cost of utility-scale solar (26%–65%), land-based wind (43%–61%), and offshore wind (16%–19%) projects, even when accounting for uncertainty in inflation, domestic content of renewable components, and pass-through of component cost savings associated with the manufacturing tax credit to developers. Additional tax credits available to developers meeting energy community and domestic content share requirements further reduce costs for qualifying projects. We find that tax credits for renewable developers collectively have the potential to substantially increase the deployment of renewable infrastructure, drive demand for domestically-produced components, and foster workforce access, higher wages, and the retention of workers. A large share of renewable investments and capacity may flow to disadvantaged communities (27% and 46% for utility-scale solar and land-based wind projects, respectively), although inframarginal changes in development costs associated with place-based incentives, such as the energy community tax credit, may be insufficient to influence project siting decisions, given transmission constraints, spatial proximity to electricity demand, and renewable resource potential.