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Two Years of the Inflation Reduction Act: Transforming US Clean Energy

The Inflation Reduction Act has driven over US$ 115 billion in clean energy investments and created 90,000 jobs in two years. While the US leads the energy transition, challenges like grid capacity and permitting remain

The Inflation Reduction Act (IRA), passed in August 2022, represents a landmark moment for US energy policy, introducing US$ 369 billion in climate and clean energy investments. In the two years since its passage, the IRA has driven unprecedented growth in renewable energy investments, catalysed infrastructure upgrades, and positioned the US as a leader in the energy transition. Private infrastructure investors have claimed at least US$ 17 billion of tax equity, while the total IRA investments have reached US$ 115 billion, creating well over 90,000 jobs. 

However, challenges remain in expanding the energy grid, securing permits, and ensuring workforce readiness. This report assesses the IRA's progress, focusing on clean energy infrastructure, tax equity financing and the political landscape, while comparing its impact to Europe's more centralised regulatory framework.

Executive summary 

  • GIIA Infrastructure Pulse Survey highlights the US as a key market for infrastructure investors particularly in clean energy.
  • In 2023, US green energy private infrastructure transactions have accelerated, countering negative trends seen in Europe and Latin America.
  • Private infrastructure investors have claimed US$ 17 billion in tax equity, with US$ 10 billion redeemed by solar projects. Wind energy, however, continues to lag, suffering from global setbacks.
  • Republican states have benefitted the most from IRA investments and job creation, raising doubts about the likelihood of the Act being repealed. 
  • US needs more than financial incentives to deliver an energy transition, without a clear plan and net zero strategy key industry actors and investors have no direction.

Investor sentiment towards the US and EU markets 

Since 2020, investor sentiment toward the US has consistently outpaced that of leading European nations, largely driven by attractive incentives under the Infrastructure Investment and Jobs Act (IIJA) and the IRA. While the US’s investment appeal has grown, sentiment in the EU6 (Nordics, Spain, Germany, Italy, France, and the Netherlands), particularly the UK, has weakened since 2022.

Figure 1: Investor sentiment towards the U.S. has over four years led the EU6 (Nordics, Spain, France, Italy, Germany and Netherlands) by a clear margin. 

 

The country's energy stability, strengthened by its domestic oil and gas production, has played a pivotal role in higher sentiment, especially following Russia’s invasion of Ukraine, which caused European energy prices to soar by an average of 400%. Additionally, the US's faster Covid-19 vaccine rollout led to a quicker economic recovery than in Europe.

Another key factor bolstering US’s attractiveness is its more business-friendly regulatory environment. Investors perceive US regulations as more streamlined and less burdensome compared to Europe’s complex and stringent processes. Labour costs also enhance appeal. With lower unionisation rates and more flexible labour laws, US manufacturing wages average US$ 28/hour, compared to US$48/hour in Europe, offering significant cost advantages for businesses.

Although there is a considerable gap between European and US investor sentiment overall, the attractiveness of the clean energy generation sector is much closer. 

Green technologies have seen a continuous rise in investor interest, particularly in the Americas, where solar, wind, and hydro investments have peaked. 

Figure 3: Clean energy transactions, including renewable energy generation, battery storage and EV infrastructure. Source: Infralogic


In contrast, the US has maintained its clean energy investment momentum, reflected by an uptick in deal flow, bucking the downturn seen in the EU in 2023. North America, along with Australasia and the Middle East, were the only regions to see an increase in private infrastructure deal flow. Notably, Latin America peaked at US$ 21 billion in clean energy deals in 2022, while Asia reached US$ 49 billion in 2021, and Africa saw US$ 6 billion in the same period.

The rise in US transactions stems from the open window for tax credit applications and redemptions. In Q4 2023 alone, US$ 38 billion of the US$ 92 billion in deals were closed, thanks to clearer guidance frameworks released by the Internal Revenue Service (IRS), throughout 2023, better understanding of domestic production requirements, and improved administrative processes from an investor standpoint.

Solar continues to dominate US deal flow, with annual investments ranging from US$ 30–40 billion in the four years prior to 2023. In 2023, closed deals surged to US$ 57 billion. This growth reflects the maturity of the US solar market and the ease with which companies can claim tax credits, particularly those with domestic manufacturing, like First Solar. 

Solar alone accounted for around 50% of all US clean energy transactions. In contrast, wind and solar equally combine make up approximately 80% of clean energy deals in the EU during the same period. Europe’s stronger regulatory and financial instruments for wind deployment, coupled with its world-leading industrial base for wind technology, have contributed to its success in this sector— the US still faces challenges in the wind sector despite the availability of tax credits.

Figure 4: US private infrastructure tax equity financing from 01 Jan 2023 to 31 August 2024. Source: Infralogic

When examining the technologies redeeming the most tax equity, solar leads with around US$ 11 billion, far outpacing wind and other sectors. Unlike solar, wind lacks an established manufacturing base in the US, and globally, wind energy has faced setbacks due to rising capital costs, increased labour expenses, and shortages in critical materials. While wind deals have recovered slightly since 2022, with more successful auctions in the UK and Europe, the US wind sector continues to lag behind.

Despite solar’s progress in the US, significant barriers to decarbonisation remain. Achieving the energy transition requires more than financial incentives – it necessitates a comprehensive redesign of the energy system, including the development of a grid that can manage variable renewable energy and long-term storage solutions. Grid investment remains insufficient, with limited opportunities for private sector participation. Although battery storage has become increasingly cost-effective, long-term energy storage solutions have yet to be fully developed and deployed at scale.

Beyond storage, the US faces additional challenges with permitting and grid capacity. These bottlenecks cannot be addressed solely through tax credits and federal grants. To fully unlock the renewable energy’s potential and attract more investment, the US needs a more centralised and streamlined regulatory and planning framework. While the EU has worked to develop such mechanisms, it also faces challenges. However, Europe's more structured approach provides a clearer path for coordination and long-term energy infrastructure development.

Limitations of IRA in delivering an energy transition

The IRA has been instrumental in driving clean energy investment in the US. However, its focus on financial mechanisms reveals key limitations when compared to Europe’s more comprehensive approach. The IRA primarily serves as a financial tool, aimed at unlocking capital, but lacks the strategic and regulatory frameworks found in Europe that are crucial for guiding the energy transition.

In Europe, governments have established clear sectoral and economy-wide standards, setting firm expectations for industries. These standards, though sometimes viewed as burdensome, offer long-term direction, enabling better coordination across industries and supply chains. The US has yet to implement similar standards, leaving clean energy sectors without a cohesive framework for the future. This lack of alignment creates uncertainty for investors and industries that must plan for long-term infrastructure projects.

While the IRA has successfully stimulated investment in sectors like solar and EVs, it does not fully address the structural challenges of overhauling energy infrastructure. European government intervention goes beyond financial incentives, incorporating planning functions and coordination across the public and private sectors. This approach has enabled the EU to navigate supply chain complexities and set clear transition goals. Such policies give industries and investors a clear roadmap — something the US still lacks.

Figure 5: Pie chart showing the that less than half US states have anet zero target, but they represent a higher percetnage of the population. If we were to show this for the EU, the chart would be all blue, as all EU states have a net zero target.

 

Furthermore, uncertainty surrounds the durability of the IRA’s financial incentives. Investors are unsure how long these incentives will remain, making long-term commitments riskier. European policy frameworks tend to offer more predictability, as they are supported by legislative mandates and government planning. The US lacks the embedded planning capabilities seen in Europe, where governments actively map out the future of energy infrastructure and coordinate large-scale projects. 

The EU has also placed greater emphasis on public-private partnerships (P3s) as a way to fund infrastructure projects. While opportunities exist to leverage P3s in the US, they are far less common than in Europe. This difference can be partly attributed to the US’s traditional approach to infrastructure funding, which has relied heavily on municipal bonds and federal grants. As a result, energy P3s in the US remain in their infancy, with fewer projects utilising this financial mechanism. Expanding the use of P3s could be a key strategy for addressing funding gaps and accelerating infrastructure modernisation in the US.

Figure 6: Value of P3 renewable project pipeline compared to total value of project pipeline in the US and EU. The EU has 25 renewable projects in the pipeline out of 384, whilst the US has 10 out of 382: Source Infralogic

 

Europe’s approach also extends to community engagement and the cumulative impacts of infrastructure projects. European governments are more involved in planning and standard setting, ensuring that local communities and industries are aligned with national energy goals. However, federal coordination on these issues is limited in the US, which can lead to fragmented development and slower progress in scaling clean energy technologies. Despite the extensive financial support provided by the IRA, without stronger coordination and planning mechanisms, the US may struggle to match Europe’s pace in rebuilding its energy infrastructure.

Political environment

Throughout this year investors and industry have been concerned that the incentives set out in the IRA will likely be repealed if there is a change in the White House, however recent events have made this less likely primarily due to the substantial benefits that Republican-leaning states are reaping from both the IRA and the IIJA, which suggests smaller legislative and regulatory changes would prevail under a Trump II administration. Indeed, Republican lawmakers have already indicated an openness to take back some IRA funding to offset the cost of extending or making permanent the Trump-era Tax Credits and Jobs Act (TCJA). There are also some areas of the IRA’s tax guidance where there is a difference between the direct language of the IRA and how it has subsequently been interpreted. For example, the sourcing requirements for the 30D clean vehicle tax credit has already received criticism from industry. Further, the 45V hydrogen tax credit guidance includes additional requirement on producers to source and track clean energy to qualify for the credit. It is unclear whether these requirements would survive a legal challenge since they may not be sufficiently grounded in the statute.

Research by Jack Conness indicates that the IRA has unlocked US$115 billion in investment and created around 95,000 jobs. Of the top 50 IRA-backed investments announced, 34 are located in Republican-leaning counties, representing two-thirds of total investments—US$77 billion compared to US$36 billion in Democratic counties. Jobs follow a similar pattern, with 54,000 created in Republican counties versus 41,000 in Democratic areas.

Figure 7: Figure 7: IRA investment US dollar breakdown by political affiliation. Source: Jack Conness – IRA CHIPS investment
Figure 8: IRA jobs created breakdown by political affiliation. Source: Jack Conness – IRA CHIPS investment

 

There is also growing recognition among Republican representatives of the risks associated with prematurely repealing or reducing the IRA’s tax incentives. A letter sent by 18 House Republicans over the summer urged the prioritisation of business and market certainty, calling for the preservation of tax credits to avoid disrupting investments already in the pipeline. This reflects a broad understanding that dismantling these incentives would threaten the prosperity and economic gains in Republican constituencies.

While bipartisan support remains a stabilising factor, there are still potential regulatory risks. Delays in the permitting process, shifting state-level policies, or changes in federal regulations could dampen investor sentiment. 

Furthermore, uncertainty surrounding the reauthorisation of the IRA in 2025/26 looms large. This upcoming milestone could be a flashpoint for political contention, as the Act’s future will likely hinge on the composition of Congress and any potential shifts in political priorities.

What’s next for the IRA

Looking ahead, the political landscape will be crucial in determining the long-term success of the IRA. While there is broad bipartisan support for financing the energy transition, particularly in regions that stand to benefit economically, the upcoming reauthorisation of the IRA could present challenges. The outcome of the 2024 election will play a significant role in shaping the next phase of the Act’s implementation. If the current momentum continues, the IRA could further solidify its role as a key driver of clean energy investment. However, any political shifts could introduce regulatory risks or policy changes that might temper investor enthusiasm.