How the Inflation Reduction Act will impact wind, battery and solar markets

Joseph Triepke and Daniel Cruise from Lium Research join the show to talk about the many ways the Inflation Reduction Act is poised to shape markets for solar, wind and battery storage. Joseph and Daniel will offer their views from more of an investor and financial market intelligence perspective. And speaking of market intel, don’t miss the nugget Joseph and Daniel share about solarSAT, a new data collection platform the team at Lium recently launched. And in this case, when they say launched … they really mean launched!

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Transcript

(Note: This transcript was created using artificial intelligence. It has NOT been edited verbatim.)

Sean McMahon  00:00

Hey what's up everyone and welcome to another episode of the renewable energy smart pod. I'm your host Sean McMahon, and today we're going to be talking, yet again, about the inflation Reduction Act. It's a huge piece of policymaking that stands to have a big impact on the renewable energy industry. So I reckon we'll be talking about it for quite a while. 

My guests today are Joseph Triepke and Daniel Cruise from Lium research. I gotta tell you, I get a ton of research notes in my inbox, which probably isn't surprising considering what I do. But I can assure you research notes from Lium research, never get lost in my inbox. If the team that Lium is talking, I'm listening. Joseph was actually on this podcast last year when we talked about the burning debate surrounding net energy metering. He and Daniel are here today to talk about the many ways the inflation Reduction Act is poised to shape the markets for solar, wind and battery storage. On our last episode, we heard from Lauren Collins at Vinson and Elkins about the various tax aspects of the IRA. But today, Joseph and Daniel will offer their views for more of an investor and financial market intelligence perspective. And speaking of market Intel, don't miss the nugget, Joseph and Daniel share about a new data collection platform the team at Lium recently launched. And in this case, when I say launched, I really mean launched. 

So let's get rolling. But first, here's a quick word from the sponsor of today's episode. ABS Quality Evaluations,

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Sean McMahon  02:27

Thank you, everyone for joining me for today's episode. I'm pleased to introduce my guests, Joseph Triepke and Daniel Cruise. They are from Lium Research. Thank you guys for joining me. How's it going today?

Joseph Triepke  02:36

Good. Good. Good to be here. Good to be back.

Daniel Cruise  02:40

Yeah, thanks for having us.

Sean McMahon  02:41

Great. It's good to have you guys back on. So I want to dive right into it. First part of the conversation, we're gonna talk a little bit about the inflation Reduction Act. You guys kind of cover various corners of the energy sector. So I wanted to kind of get your overall take for what's your reaction when you saw the passage of the IRA? And you know, what kind of impact is the standard have on on the entire renewables marketplace?

Joseph Triepke  03:01

Yeah, it's, it's obviously a big deal, Shawn, I think it's that's probably no surprise to your listeners, you know, I think it's, it's pretty huge. I think Daniel, and our research team, and I have a Slack chat and some of the words that we were spouting off in there as it moves through Capitol Hill where things like next energy boom and supercycle so it's, it's definitely big. I think one thing that it's important to remember is that we do kind of approach this act with some tempered enthusiasm, because a lot of the provisions that did make it through are not necessarily new, and some of them are things that renewables industry has kind of been banking on, on coming things that had bipartisan support in the build back better bill that failed. So we and I think a lot of the industry is have expected that a lot of the provisions would come to pass eventually. And I think what this act really did was to remove the overhang of uncertainty, right, which is, for investors, that's one of the biggest things is, you know, uncertainty is a very big negative. And so it kind of cleared that out, open up the fairway for more spending, I think, some of the specific provisions. I was listening, actually, to recent guests you had on Sean, I think, Lauren, from vieni, recently kind of talking through the nuances, and some of those are certainly different. And so as it makes its way into into effect, it'll have some different nuances. But for me, I think the biggest thing was just the removal of uncertainty. And I don't know if Daniel wants to add to that.

Daniel Cruise  04:23

Yeah, I mean, I would agree, part of our job here is not just to model and to predict and to analyze based on what's out there, but also to think about what the expectations are and give our realistic view and model of the industry and for solar. Look. We already had some pretty big expectations for the solar industry. With the passing of the IRA, a lot of that overhang of potentially not having for instance in ITC at 30% that came off, but it was General really expected I think among the industry before this bill passed that we weren't going to pass an ITC at 30%. So things like that we're kind of waiting through and in getting nailed down, but But generally speaking, like our expectations for solar and for wind and for the renewable sector has gone higher after the passing of this bill.

Sean McMahon  05:23

Alright, I want to kind of dive into each of those sectors. You know, let's start with solar. I know you guys offer a lot of information on utility and residential. So So where do you guys see in that sub sector?

Daniel Cruise  05:32

I would say, first, just on the utility scale solar, we actually just revised our utility cell scale model after the passage of this bill. And keep in mind, we're us focus. And so all of our estimates are US based. But we took our estimates, we have about 13 gigawatts being installed this year, we think after the passing of the IRA, you could have almost 20 gigawatts. So this is a big increase. And and it's a it's a short amount of time, like, like, to give you a perspective, we were only doing five gigawatts a few years ago, and so to have 20 gigawatts per year, installed next years, these are big ramps, part in the only reason that they could do it is because you had the IRA past. Like I said earlier, I think a lot of people expected the ITC to go through and some of the bonus credits to go through and all that but but still this is this is big, and it adds a bigger, it takes away big uncertainty, I won't get into it now. But the other big uncertainty in the bigger end uncertainty, I think, than having the the ITC and other things was the solar tariffs and the solar panel import issues. It just so happens that both of these things are getting cleared up kind of at the same time. And so it sets up a real positive momentum case for solar, not just 10 years from now. But now, in the near term. We've seen that in some of our satellite data, and we're seeing it certainly in the queues as we go next year. So this is this is great, I think for the industry and exactly what the industry needed.

Sean McMahon  07:10

Alright, and what do you guys see as far as wind goes?

Joseph Triepke  07:13

Yeah, I think on on wind, one of the big things for us in particularly offshore wind, where we spend a little bit more of our time is the the boost this gives to the supply chain, and particularly the the local content side of the US market. As you know, Shawn, from covering these, these headlines in wind for a long time, you know, there's been a lot of talk going back a decade or more about these offshore wind projects. And they've kind of been stalled. The Biden administration really since since he took office has been very proactive on working with the BLM to try to accelerate timelines and project approvals, get these environmental reviews off the sidelines and actually get them approved. And so we've actually seen quite a bit of progress from a governmental side already. And I think what the IRA did, if you kind of dig into some of the provisions is to really put some more incentives and define them around grants for transmission. And some of the incentives that it gives to local content developers will get bonuses as well for more domestic content. So I think, from our perspective, and we did a huge deep dive on the supply chain, the supply chain has been kind of the bigger risk than the government support, you know, we're actually tracking over 40 gigawatts of projects in the pipeline, both sort of speculative stage as well as already moving through some some sort of approval. And as we look at supply chain, you know, the vessels, the quayside infrastructure, but ports, supplies components, there really just is not the capabilities to execute on that yet. So, for me, the biggest thing on Ira was as far as when was the supply chain boost.

Sean McMahon  08:54

Okay, now, I want to talk a little bit about storage. You know, there are some aspects in the IRA that are focused on storage and standalone and things like that. So how do you guys see that sector of the marketplace taking shape after the IRAs passage?

Daniel Cruise  09:05

Yeah, great question. I mean, I think in terms of incremental changes in the from this IRA, Ira bill is the, the battery storage components of this like before this we had not had a standalone ITC, meaning that if you put a battery out in the field somewhere you weren't going to get credit for it unless it was combined with solar wind or some other renewable source and so this is this is great for battery storage. For us. This means that from our total, the total capacity now being 10 gigawatts or so this probably means battery storage in the US can get up to 50-60 gigawatts in a matter of like five years. So this is, this is huge and big for what the the US needed for building out the battery storage chain. I will temper that comment was saying like, that's not much more capacity than we had already planned before the IRA was passed again, we were already anticipating some sort of ITC and standalone being passed here. So so we did revise it higher but but not dramatically higher. But bottom line is, we go from from somewhere around 10 to 60 gigawatts in a matter of five years. So it's, it's huge, it's big.

Sean McMahon: We’ll be right back

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Sean McMahon  11:04

And now back to my conversation with Joseph Triepke, and Daniel crews from Lium research. Alright, we talked a little bit about some of the pitfalls, you know, supply chain, things like that. And I want to dive a little deeper there. So big picture on the IRA, or within each individual sector? What are some of those pitfalls out there that you're worried about that might kind of get in the way of some of this growth we're talking about?

Joseph Triepke  11:24

Yeah, I think I think one aspect of inflation that won't be curbed by the inflation Reduction Act has higher costs and renewables. And so I think, you know, all the problems that were there before the IRA are still there. You know, as Daniel talked earlier, I think we're seeing some progress on some of the tariffs and some of the import problems that we've seen. And Daniel can speak a little bit more to, to how we're using satellites to get higher conviction on on that clearing up. But I think the, you know, the renewables industry has faced really for the first time and it's in its short history, a year where cost went up, you know, cost of structurally been coming down for many years. And I think cyclically, they're, they're going up now, structurally, they're actually still coming down. But the cyclical inflation is offsetting that this year. And that's something new for the industry. And I think as we think about, you know, the government really opening up its wallet for renewables here, these incentives, some of the spending the grants, you're going to have sort of a gold rush over the next, you know, three to five years, as we've talked about throughout the show, you know, not entirely unexpected, but I think it's certainly going to draw more folks in and so things like, you know, lithium in the battery supply chain, already a huge concern, Daniel talked about going from 10 gigawatts online to 60. By 2025. I mean, you know, the, the lithium supply chain is a real concern for that. That's a potential choke point. I think, again, panel delays, you know, getting through that component costs for everything, you know, from from wind, through resi, solar or a concern back to back to offshore wind, you know, the the wind turbine installation vessel market is under supply globally, and we don't even have our first vessel dedicated to the US bill yet. And so, you know, as we think about having to have a call on global capacity, bringing in vessels from Europe, kind of working around the Jones Act with some feeder vessels, you know, those are, those are going to be big challenges for developers that probably do get a little bit more difficult, as more folks come in following Iran.

Sean McMahon  13:20

Okay, then, in terms of other things that might trip up some of this projected growth, we'll call it. Joseph, last time, I had you on the podcast, we talked a lot about net energy metering. And so there any kind of state and local laws or statutes out there that might get in the way of this? I mean, obviously, if that goes the wrong way, in certain jurisdictions, that's gonna have an impact on residential, solar, but you know, anything like that you guys are watching. Yeah, there's

Joseph Triepke  13:40

potentially a couple things out there. I think that's always a wildcard at the state and local level. But one thing I would say in especially with this sort of sweeping legislation passed at the federal level is that even at the state and local level, I think the level of support for renewables has never been higher. And so we're in an extremely conducive market. Could there be things that pop up and some may be unexpectedly? I don't think, you know, NAMM was really on people's radar. much before. We talked about it on the on the show back, I guess, was that in March on?

Sean McMahon  14:08

March last year? So it's been a year in March of 21. Yep.

Joseph Triepke  14:11

Yeah. So it's one of those things that where things can pop up unexpectedly. And you never quite know at the local level, if there's going to be a spoke thrown in the wheel. But again, I think just thinking big picture, the IRA lifts the environment, both at the federal level, the state and the local level, it's kind of an across the board. And it's sort of setting off this renewable spending way that's going to impact every corner. So even if some corners of the market, you know, regionally are not quite as fast to ramp as others because of some restrictions. I think everything's going up.

Daniel Cruise  14:42

I would add to that, on the residential side, that's one sector of our renewables pieces that we really haven't revised up our expectations. Now, we were already anticipating growth next year, but it was it was relatively modest and I bring this back to to the This year's residential solar market, it's been absolutely phenomenal. And part of that it has to do with California because California is such a large piece of the residential market. It's relates to California, the NEM, piece of residential solar. And there was a lot of fear around NIMBY, any NBN changed this year. And so people got out and they really contract a lot of solar this year. And so it's hard to see this bill, really making residential solar grow at an incremental rate at the same way it's doing for utility, solar, and storage and offshore wind and whatnot, so much more dependent on the local environment and local laws,

Sean McMahon  15:44

really surprises a you're not really bumping up your expectations, because obviously, a lot of the headlines around Ira was tax credits, you know, homeowners are going to be able to get this tax credit and that tax credit. So that's fascinating. But it makes sense, though, because you know, nem, kind of motivated people. And that might level out to say things always tax incentives, motivating people. So

Daniel Cruise  16:05

that's right. And I think if you were if you would have surveyed people in the residential solar market, and you would have asked them their honest opinion, six months ago, if they thought that there was going to be a tax credit of 30%, in 2025, most of the industry would have said, yeah, probably, it's generally had bipartisan support. And so like that's, that's something that, at least for us, we already had growth, we didn't think there was going to be a reduction that we didn't think ITC was really going to go to zero. And so, at least for us in our expectations, and the investors we talked to, it's not a real increase in our model for that segment of the market.

Sean McMahon  16:45

All right. And then speaking of, you know, solar, and an extremely well timed, new product launch or new information gathering tool from you guys, I saw it come across my desk right about the time that the IRA was making its way around Capitol Hill, you guys are deploying satellite to track solar projects. So what are you guys tell me about that? I believe it's called solar stat.

Joseph Triepke  17:03

Yep, solar sat? And yeah, you're right. Sean Biden kind of stole our Thunder by signing the bill on the same day we launched. We didn't get a call from Pennsylvania Avenue asking us about schedule. But But in all seriousness, we I think we were really, we were really actually pretty thrilled that they happen. At the same time. I think, as we've talked on your show, Sean, the you know, the the IRA definitely changes the game. Again, a lot of the stuff was expected, but It codifies it and removes that uncertainty. And so I think the way that people think about the market and try to get data also needs to change with that, you know, some of the old conventions, the old wisdom of relying on lagging data, or anecdotes, or, you know, potentially biased sources that that may not cut it if the market starts to move really fast. And so with the satellite product, you know, I'll let Daniel kind of talk through more about how it works. But we're effectively providing that real time kind of pie in the sky on utility scale solar. Yeah, I

Daniel Cruise  17:59

think tying it back to the IRA. Before the IRA had come out, we were looking at satellite imagery. And we've been kind of had this in testing mode for the last six months or so. And we were looking at the satellite imagery. And we were comparing that with expectations on on the ground and what people thought about the utility solar market, and it's been dreadful. If you talk to investors, if you ask them where they want to put their capital, they had not wanted to be part of the utility scale solar chain for the last six months. But if you look at the solar satellite imagery, projects were still ongoing. They were starting they there was momentum from the actual developers themselves. NextEra is a good example. They have delayed their projects, but they were were still very active in starting new ones. And so what this did was because the sentiment out there didn't really have I would say on the ground, they kind of just assume this kind of negative sentiment, negative attitude.

Sean McMahon  19:02

And all that sentiment was based on Commerce Department, right and supply chain.

Daniel Cruise  19:06

That's right. Yeah, yeah. And there was other there was other industry groups that were driving this they were putting out surveys and whatnot about the industry and granted like solar panel installs have been down, but they haven't been nearly as draconian as as some of the sentiment has been in the media. It but you wouldn't have known that unless you literally were watching these projects move along. In you're watching them get started. Well, what we saw was with the IRA, it got rid of that overhang or or it just made the sentiment improve, but to really know like, what is happening, or how that improves the fundamentals of the market, you would have had to have been watching those projects start in bottom line being projects have already ready to go had been started. And so this just kind of adds to that positive fundament Some tools here over the next six months, 12 months and two years.

Sean McMahon  20:03

All right, just so our listeners comprehend what we're actually talking about here, he's talking about watching these projects go. So you're literally you got satellites trained on, you know how many utility scale projects, they're watching it. And yet to build out how far that progressive how many, how many panels are put down today, tomorrow, the next day, like, right, that's how the project works.

Daniel Cruise  20:22

Yeah, so we say 350, officially, but but really, it's more about, it's more like 600 or so. And so these are any projects or any sites that could potentially have a solar project come online by 2024. And so as each day, we're looking at the different satellite imagery. And we have methods in AI and whatnot that can identify these trends. But we can see when when dirts been moved. And so as soon as dirts move, we're able to kind of identify that product. And we're able to aggregate that in the larger scheme of things, were able to see exactly where it was that the EPC contractor were even able to see the solar panel manufacturers that will most likely go on to that project. And so from the time the dirt turns to the time that comes online, we've got a short period, 912 15 months, maybe two years at most, that most of the activity is happening. And so those satellites, stay on those projects, and watch every phase of that development from when the trackers come on to when you start installing your panels into when those those projects are ready to go. And I think that's the importance of it and kind of takes a lot of the guesswork out of it.

Sean McMahon  21:32

So you guys can watch if you know someone like uh, next year is building out a huge solar facility with a kajillion panels, you can actually kind of tell if it's on time or on track. Oh, yeah, you know how long they are like, okay, they're a month away, or two months, three months, maybe a month behind because of supply chain stuff. So you can really kind of keep your finger on the pulse of what's going on in terms of the status of the Eatonville project at hundreds of locations.

Daniel Cruise  21:55

Exactly, yeah, yeah, it NextEra is a good example. Because the same time that NextEra came out back in May, I think it was May that they were talking about how bad things were because of the solar panel tariffs. At that same time, we were looking at how many projects they were starting. And the number of projects they were starting had jumped like fivefold from a year ago, period, while at the same time, they're saying that they're going to have to reduce activity, or they're going to reduce installations, which all of that's true. It's just a sentiment idea. It's a timing thing. And so from our perspective, it was positive for the industry that what we saw NextEra doing was continuing to drive utility scale solar activity. But what the rest of the space was saying was, this is really bad, everything's terrible, I don't want to be an investor in that space. And bottom line, if you would have taken what NextEra was doing on the ground, rather than what they were saying, if you invested, let's say array, or shows or one of these utility scale solar companies on the public side, you would have been in a stock like array that went from $7 to $20. So these are big advantages that you can benefit from by by actually watching it in the sky.

Sean McMahon  23:11

Yeah, I want to follow up on that, because obviously, we have a ton of investors who listen to this show. So who else is tapping you guys for this information? And what kind of customers funds and things like that?

Joseph Triepke  23:21

Yeah, I'd say most of most of the interest has been on on the institutional investor side. So you know, mutual funds, pension funds, private equity funds, both on the public side of the equity market and the private side, I think there's probably application that in the credit market as well. And then also from corporate management, we've had interest as well. And I think some of that, you know, what they're looking at is business development, you know, if they're a supplier, kind of watching which projects are actually actively moving. And then also, if they're a developer, they can kind of monitor the competition a little bit better. Alright,

Sean McMahon  23:53

what does all this data telling us right now? I mean, I know you mentioned that some of the headlines, were not matching the actual dirt being moved and projects being built out on the ground. But is there any other information you guys already been able to glean from this new information gathering technology?

Daniel Cruise  24:06

I think the biggest is what we'd already mentioned is that that the amount of dirt being turned is just as good as it was a year ago, meaning people even before IRA is being implemented, the utility scale solar activity has been maintained. Now what we're also able to see is the installations and the amount of panel installations that have come in as we track it. And that's down 2030 40% In the US, so that's not a surprise. I think, though, what the surprise is that we're still turning a lot of dirt. The other thing we can see is about 20 gigawatts or so of projects that are under construction. Now, again, before Ira we've got 20 gigawatts that is under construction right now. We'll only put a that will maybe only put six gigabytes of that online here in 2022. The majority of that will go right into 2023. So It adds to this kind of positive outlook for that.

Sean McMahon  25:03

Are there any regions or I should say states that are moving a little quicker in their unit that you're noticing maybe projects in California are staying on time are moving ahead quicker than you know, Texas or Arizona, stuff like that.

Daniel Cruise  25:15

I would say on the on the the new dirt being turned, Texas is the one where we saw back starting about March where the new dirt being turned there was was pretty incredible. Florida to we mentioned next era NextEra started a ton of projects in Florida over the last three months or so. So those are the ones that stand up for first dirt.

Sean McMahon  25:36

All right, now I'd like to ask you both to just kind of think about big picture stuff. You know, one of the things we do on the shows, we ask guests for bold predictions, you know about what they see in the renewable space in the you know, next year, maybe five years, you know, whatever timeline you want to put on it. So what do you guys got any bold predictions? You want to put your name out there on and and see if they come true?

Daniel Cruise  25:55

I guess I'll start, you know, we we kind of like the bold predictions aspect of it. We like research because in that type of research we do because we we can put bold predictions on things. Sometimes they're right. Sometimes they're not. But at least they they stand out. One of the things to me that stand out is on the storage side. We've got I mentioned this number earlier, but we've got 60 gigawatts coming online by 2025. This is huge. There I think the EIA number that at least the last one I saw, they may be we're getting up to 40 gigawatts or so. There's other industry folks that do this too. And I've seen kind of that 40 gigawatts range across the board. So I think 60 gigawatts would be pretty huge, but I think it's doable. Part of that as a standalone, or more than half of that will be the standalone piece of it. And with the IRA bill, taking that standalone headwind off of it, then that means that that standalone 50% or more can really go ahead and we can get there.

Sean McMahon  27:00

Alright, Joseph, anything you want to add in terms of bold predictions department?

Joseph Triepke  27:03

Yeah, I think Daniel had a great one there. I think just kind of just thinking bigger picture, again, just processing the IRA. As we've talked, you know, Shawn, on your show that a lot of the booths that the IRA is giving the industry, it was baked into our numbers, and I think baked into some of the market expectations. So I think you'll see, as you look at third party research firm estimates, I think everyone is going to be raising, that shouldn't be a big surprise. But I think again, as we come back to kind of some of the delay issues, the supply chain issue, some of the costs inflation, we talked about higher interest rates, and what that means for project economics. You know, I'd argue that at least on some of Lium's forecasts, which already included that IRA boosts before it was passed, in many cases, I'd almost argue we might see a little bit of downside to some of our published numbers, which I think could surprise people just given this, this sort of exuberant positivity in the wake of the IRAs, that kind of as we actually go into execution mode, you know, you never know what's going to pop up. So very bullish outlook, but I'd say, you know, watch out for some of those, those unexpected little potential downsides.

Sean McMahon  28:06

Gentlemen, this has been a wonderful conversation. Thank you both for joining me to talk about what you got going on in terms of solar stat, but also your overall views on IRA. So thanks for your time today.

Joseph Triepke  28:15

Thanks for having us. Yeah, thanks.

Sean McMahon  28:19

That's our show for today. But before we get out of here, I want to say one final thank you to our sponsor, ABS Quality Evaluations. 

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