Renewables sector eagerly awaits IRA breakdown

Next week sees the release of what will be the key drivers of the future for the world’s growing renewables sector and the hundreds of billions of dollars of potential investments (and profits) just waiting to be turned into projects for decades to come.

At the centre of the rules update will be the $US369 billion in tax breaks and other help available under the Biden Administration’s 2022 Inflation Reduction Act (IRA).

The US Treasury says it will release guidance on sourcing requirements for the all-important electric vehicle battery tax subsidies in the IRA that have already sparked an investment boom that can only go on growing for years to come.

The release will be the first in a string of highly anticipated rules to determine how broadly the IRA credits can be used.

The car, battery and clean energy industries have been awaiting guidance on complex questions governing eligibility for hundreds of billions of dollars of incentives in the IRA signed into law last year.

After outlining battery sourcing rules, Treasury officials said the department would follow in the next couple of months with guidance around bonus tax credits for clean energy projects sited in fossil fuel-dependent US communities, those built with domestically produced equipment, and those paying workers prevailing wages and employing apprentices.

It will also issue guidance on selling tax credits and making them refundable, which allows entities without tax liability to use them.

The Treasury head-up did not specify when the timing of the future guidance announcements, but the best bet is by the end of the year and well before the presidential and congressional elections on November 5, 2024.

Many of the rules are aimed at weaning the United States off dependence on China, which dominates the global supply chains of products like EV batteries and solar panels.

Those industries are key to Biden’s goal of decarbonising the US economy and fighting climate change.

Chinese firms have started trying to weasel their way into the bonanza – such as CATL, the world’s biggest battery maker which wants to joint venture with Ford on the US carmaker’s main American battery plant.

That has already aroused opposition from US politicians from both sides.

Already billions of dollars of incentives have been handed out to a string of US and foreign companies (including Australian groups like Lynas) under other US departments, such as the $US120 million from the Department of Defence for its heavy rare earths separation plant to be built in Texas.

The IRA specifies, for instance, that a $US7,500 EV tax credit is only available to North American-assembled vehicles that meet certain local battery production and mineral extraction processing standards.

Half of the EV tax credit is contingent on at least 40% of the value of the critical minerals in the battery having been extracted or processed in the United States or a country with a U.S. free-trade agreement, or recycled in North America.

The rules require manufacturing or assembly of at least 50% of battery components in North America.

Exceptions allow for raw materials to be sources from countries with which the US has free trade agreements. That includes Australia, Chile, Canada, Mexico.

And while the outline for those deals is well known, clarification is expected next week on how the IRA subsidies and rules apply to the countries without free trade deals with the US – the EU, South Korea, the UK and Japan (and possibly India).

In December, Treasury decided not to issue proposed guidance on battery sourcing rules until March, effectively giving some EVs not meeting new requirements a few months of eligibility in 2023 before battery rules take effect.

Already the likes of German car giant VW has announced Canada as the location for its first battery plant for North America.

The plant, which is a joint venture with VW and its battery spinoff Power Co, will be located in the southwestern Ontario city of St. Thomas, midway between Toronto and Windsor (which is just across the border from Detroit).

The German automaker has said it will spend $US20 billion building EV battery plants across the globe.

After starting construction on two other gigafactories, this will be the third plant worldwide and PowerCo’s first cell factory in North America. Production at the St. Thomas factory is set to start in 2027.

And a major investment is planned in the US by Albemarle one of the world’s two major lithium producers with a plant under construction in Australia and China.

Albemarle Corp said this week it will invest at least $US1.3 billion in a mega-flex lithium hydroxide plant in South Carolina to help meet growing demand for batteries that power electric vehicles.

The company said it expects the South Carolina facility to annually produce about 50,000 metric tons of battery-grade lithium hydroxide, with the potential to double the output.

The facility is expected to aid the production of about 2.4 million electric vehicles annually, Albemarle said a statement.

Albemarle is among the 20 manufacturing and processing companies receiving U.S. Energy Department grants to domestically mine lithium, graphite and nickel, build the first large-scale lithium processing facility in the country, construct facilities to build cathodes and other battery parts, and expand battery recycling.

Construction is expected to begin late in 2024, Albemarle said in a statement.

“This facility will help increase the production of U.S.-based lithium resources to fuel the clean energy revolution while bringing us closer to our customers as the supply chain is built out in North America,” said Albemarle CEO Kent Masters.

“This investment supports our long-term commitment to providing innovative products and solutions that enable a more resilient world. We look forward to partnering with the state of South Carolina on this important project.”

Pending permitting approvals, the facility will be located within a nearly 800-acre parcel. Albemarle estimates the facility will create more than 300 new jobs and more than 1,500 construction jobs.

Absent from Albemarle’s announcement was any mention of its Australian joint venture partner, Mineral Resources.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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