Energy storage companies looking to set up in the US battery market with tax breaks from the Inflation Reduction Act are having to deal with battery supply constraints, plus labour and policy uncertainties.
New York-based law firm Troutman Pepper said in a report published on Thursday that companies are accelerating battery storage plans in the US but are aware of a bumpy ride ahead.
Less than six months after the IRA was passed, the US Energy Information Administration reported a steep increase in battery storage projects under development, it said. There is a 26.5GW of pipeline capacity it recorded in February, up 58% on the pre-IRA figure. It is expected to expand in 2023, the report said.
Companies are competing for battery supplies from Asian manufacturers while US battery gigafactories are developed, the report stated. It said the market is optimistic that the US authorities will respond to the growing challenge of inter alia interconnection lines and IRA tax credit transferability.
In 2022, there were attempts to reform federal laws on the permitting of infrastructure projects, including grid links. There have been further moves to get Congress or the Federal Energy Regulatory Commission to tackle the issue.
The report said the introduction of an investment tax credit for stand-alone battery storage projects is the single biggest catalyst behind energy storage project growth. It has also provided developers greater flexibility and encouraged higher installed capacities. It has also started to create a buyer’s market for investors, it said.
John Leonti, Partner at Troutman Pepper, said: “We’ve been active in the US energy storage sector for over a decade, so are well aware of the industry’s current buoyancy. But we’ve also seen how rapid growth in the development pipeline post IRA has placed even more stress on the supply chain.”
The company sees future investment trends:
- Significant inward investment into the US battery market from abroad will bring expertise
- Battery developers and investors in the US will face trade disputes between the US and China
- More activity in co-location with operational wind and solar projects
- Large institutional investors will enter the tax credit market
- Investors will begin to look at how they can apply the IRA rules to projects with emerging long-duration storage technologies.