Green energy investment headwinds threaten Joe Biden’s climate goals

A slew of U.S. clean energy investments are being delayed or canceled a year after Washington passed a landmark climate law that threatens to hold up the Biden administration’s emissions targets.

The Deflation Act, signed by President Joe Biden in August 2022, includes $370 billion to rapidly decarbonize the world’s largest economy, including billions of dollars in new, extended or expanded tax credits for low-emission technologies .

But in recent weeks, the companies behind several high-profile investments backed by the subsidies have backed out or hit the brakes on their plans.

This week, Ørsted, the largest offshore wind developer, abandoned two projects designed to bring 2.2 gigawatts of power to New Jersey. BP’s head of low-carbon energy, Anja-Isabel Dotzenrath, told a Financial Times conference that the US offshore wind sector was “fundamentally broken”.

Last week, US carmaker General Motors scrapped plans to produce 400,000 electric vehicles by the middle of next year, citing “short-term growth slowdowns”. Ford said it was pushing back $12 billion in EV investment amid “a flatter growth curve that we’re seeing versus what the industry expected and we expected.”

The Biden administration wants 50 percent of all new vehicle sales to be electric by 2030, up from less than 8 percent of cars sold in the third quarter, according to data from Cox Automotive.

In October, a $3 billion carbon capture and storage project was canceled by Navigator CO₂, a BlackRock-backed company, due to what it described as the “unpredictable nature of regulatory and government processes.”

The delays and cancellations come despite IRA subsidies. Reasons include high interest rates, supply chain constraints and barriers to enabling new infrastructure. Some projects are also stalled due to a lack of guidance on tax rules and strict domestic content provisions in the new law, the companies said.

The announcements have some analysts rethinking their assumptions about how quickly the U.S. will be able to reduce emissions under the IRA.

“It’s almost inevitable that there will be bumps in the road. . . as some of these nascent industries start to scale up,” said Ben King, associate director of the energy and climate practice at the Rhodium Group, a think tank.

Rhodium predicted that U.S. greenhouse gas emissions would decline by 32 percent in 2030 in its preliminary report released in August 2022. In July, the company revised its forecast to at least a 29 percent reduction, citing faster economic growth , cheaper natural gas prices, slightly higher electricity costs and the challenge of creating new green industries.

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King said the IRA and an earlier bipartisan $1.2 trillion infrastructure bill were “never enough” to meet U.S. climate goals, and short-term projections may need to be revised.

The Biden administration is aiming to deploy 30 GW of offshore wind power by 2030. In addition to Ørsted, energy companies Avangrid and Shell have also dropped projects in recent weeks. More than half of all U.S. offshore wind contracts have been terminated this year or are at risk of termination, according to consultancy BloombergNEF.

“Biden’s offshore wind targets look impossible at this point,” said Atin Jain, senior wind analyst at BNEF, which cut its offshore wind forecast by nearly 30 percent last month. “The US is also unlikely to achieve its 80 percent clean energy goal.” [target] by 2030, the country will not add nearly enough wind and solar capacity to meet this goal.”

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Other large-scale onshore wind and solar projects have been hit by interest rate financing costs and the cumbersome process of connecting remote generation to the grid.

“While there are huge opportunities ahead, there are still serious market challenges that need to be resolved to realize the IRA’s potential and achieve the Biden administration’s goal of decarbonizing the energy sector by 2035,” said Gregory Whetstone , president of the American Renewable Energy Council, an industry group.

More than 10,000 green energy projects were in a queue waiting to be connected to the grid at the end of 2022, representing about 1,350 GW of generating capacity and 680 GW of storage, according to a report by Lawrence Berkeley National Laboratory.

A typical project built in 2022 took five years from interconnection request to commercial operations, compared with three years in 2015. The backlog is worsening as more projects are attracted due to IRA incentives, according to the report.

“The biggest issue in the U.S. right now is the availability of transmission and interconnection,” said Martin Pochtaruk, CEO of solar manufacturer Heliene, which announced a $145 million factory in Minnesota after the IRA. “If this is allowed, then the flow [of clean energy] it will be faster.”

While some high-profile investments have slowed, others are moving forward. This week, Dominion Energy won regulatory approval to build a 2.6 GW offshore wind farm in Virginia. Toyota, the world’s largest automaker, said it will invest another $8 billion in a battery plant in North Carolina. GM CEO Mary Barra told analysts that the company “is very committed to an all-EV future.”

The White House said the IRA has unlocked historic levels of private sector investment in green energy, including more than $11 billion in solar generation and $7.7 billion in offshore wind.

“By reducing barriers to the private sector, Bidenomics is revitalizing American manufacturing, lowering costs and strengthening our energy security, and creating good-paying jobs, especially in low-income and energy communities,” a spokesperson said.

Michelle Solomon, senior policy analyst at Energy Innovation, expects economic difficulties to be a “temporary moment” for renewable energy and said regulatory tools are available to make emissions targets achievable.

“Clean energy is still a really good investment, even though it’s a little bit more of an investment than it used to be,” Solomon said, adding that clean energy installations are expected to increase in 2023. “We still have a long way to go, on which we must walk. for our 2030 emissions targets, as long as we somehow double those factors that can accelerate the build-out of renewable energy.”

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