Inside the $220bn American cleantech project boom

A year ago, President Joe Biden launched a new era of US industrial policy, signing into law the Inflation Reduction Act and the Chips and Science Act. Passed within days of each other last August, the two laws offered more than $400bn in tax credits, loans and subsidies, all designed to spark development of a domestic cleantech and semiconductor supply chain.

Over the past year, the Financial Times has identified more than 110 large-scale manufacturing announcements — including in semiconductors, electric vehicles, batteries and solar and wind parts — spurred by the landmark legislation. We have examined them and spoken to experts, and here is what we have learned.

$224bn worth of projects and 100,000 jobs

At least $224bn in cleantech and semiconductor manufacturing projects have been announced in the US since the passage of the IRA and the Chips Act. In total, they promise to create 100,000 jobs. The FT tallied company announcements of at least $100mn, from August 2022 to this week.

While the pace of announcements has slowed, each month since the acts passed has brought new projects. This month, Singapore-based Maxeon Solar Technologies announced a $1bn solar panel facility in Albuquerque, New Mexico, and US manufacturer First Solar picked Louisiana for its fifth factory, worth $1.1bn — the largest capital investment in the region’s history.

“The [IRA] is working to accelerate the nation’s energy transition, spur economic growth, and launch a renaissance in American manufacturing. I don’t think in my career I’ve ever seen a law have a greater impact on economic development in this country,” said Gregory Wetstone, chief executive officer of the American Council on Renewable Energy, a clean energy lobbying group, at a panel on Monday.

The largest commitments have come from semiconductor groups: Intel will expand a campus in Arizona and Taiwan Semiconductor Manufacturing Company will build a second fabrication plant in the same state; IBM will invest in New York’s Hudson Valley region and Micron will build the US’s largest semiconductor plant in Clay, New York.

Planned project sites pepper the country, but certain states and regions are streaking ahead, and new manufacturing hubs are appearing. Georgia and South Carolina have secured the most projects, with 14 and 11, respectively. Michigan and Ohio are next, and Arizona follows.

“It just gives you chill bumps to think about in the next 10 to 20 years — what is the Midlands region gonna look like?” said Ashely Teasdel, South Carolina’s deputy secretary of commerce, of Volkswagen’s $2bn plan to build an electric vehicle plant in the state’s central region. South Carolina awarded Volkswagen a $1.3bn incentive package to secure the project.

Republican districts have secured the dollars

The FT found that more than 80 per cent of cleantech and semiconductor investments announced in the past year are heading to Republican districts, despite there having been no votes from congressional Republicans for the IRA and only lukewarm support for the Chips Act.

“We have incredible support from both Democrats and Republicans in Georgia,” said Marta Stoepker, spokesperson for Qcells, a South Korean solar manufacturer that this year made a $2.5bn investment in two Republican districts in Georgia, including one represented by GOP firebrand Marjorie Taylor Greene.

But a Republican-led committee in the House of Representatives recently approved a bill that would weaken the IRA, while the rightwing Heritage Foundation think-tank’s Project 2025 has already created a lengthy manual calling on a potential future Republican administration to roll back the legislation.

“One of the biggest differences in policy between a Republican candidate and a Democratic candidate is going to be what is going to happen with energy,” said Diana Furchtgott-Roth, a former Trump administration official now at Heritage. “Project 2025 is to make sure the economy grows fast, and it’ll grow faster with lower spending, especially public spending.”

South Korean and European firms lead the inward investment race

South Korean and European companies have led the foreign capital influx, announcing 20 and 19 projects, respectively, since last year’s big legislation. The flurry of projects comes as US allies roll out their own policies to compete with IRA subsidies that they say have created an uneven playing field.

Paolo Gentiloni, the EU’s economy commissioner, told the Financial Times last month that the “pull factor of the IRA is increasing” and called on Europe to step up its response. In February, the EU announced a rival industrial plan, including subsidies to keep developers in the bloc.

Meyer Burger, a Swiss solar manufacturer, announced last month it was putting its German expansion plans on hold to open a $400mn factory in Colorado to receive tax credits from the IRA.

“I would be very happy if Europe arrived faster to this new reality on climate and brought more support for companies here . . . The longer it takes, the more investment will go to the US, not only from Meyer Burger but also from others,” said Gunter Erfurt, the company’s chief executive.

A handful of Chinese companies have made investments — defying the worsening relations between Beijing and Washington — but many are too small to be included in the FT analysis. Among the largest are Gotion’s $2.4bn battery factory in Michigan and Fuyao Glass’s $300mn expansion of its automotive glass factory in Ohio.

Although the IRA’s EV tax credit allows developers to source some materials overseas, imports from China do not qualify.

A Republican-led congressional committee on China last month sent a letter to Ford announcing that it was investigating its technology licensing deal with Chinese battery giant CATL in its $3.5bn Michigan battery factory announced in February.

Lack of skilled workers and raw material constraints are hurdles

More than 1mn US jobs for computer scientists and engineers risk going unfilled by the end of the decade, said a July report from the Semiconductor Industry Association and Oxford Economics. Associated Builders and Contractors, a construction lobbying group, says the US faces a shortfall of 500,000 construction workers this year alone as it tries to meet demand fuelled by the new factory announcements. 

“There’s just so many new [plants] going out,” said Gregg Lowe, chief executive of Wolfspeed, a semiconductor manufacturer that announced a $5bn factory in North Carolina last year. “[The biggest challenge] is probably going to be the labour to build the factory . . . then the second challenge is once you build the factory, you got to fit it out with tools, and lead times for semiconductor tools have definitely stretched out.”

Long lead times for construction, technological advances abroad and tight supplies for raw materials will also hinder development of supply chains.

A recent BloombergNEF report warned that new US solar cell factories could become “functionally obsolete” in the next five years due to long timelines for construction and new developments in Asia. S&P Global Commodity Insights said on Tuesday that the US would struggle to meet demand for critical minerals such as nickel by relying on domestic sources and free-trade partners — a condition to secure IRA tax credits.

This means east Asia is likely to keep its grip on global cleantech and semiconductor supplies this decade, analysts say.

The International Energy Agency expects China to control more than 60 per cent of the global supply chain for wind, batteries and solar by 2030. Benchmark Mineral Intelligence expects China will have more than double the battery manufacturing capacity of the US and Europe combined by the end of the decade.

Even if the US achieves self-sufficiency in battery cell and solar module production by 2025, it will still depend on imports for parts including anodes and cathodes for batteries and polysilicon for solar modules, predicts research firm Rystad Energy.

“The two largest economies are going to need each other to some extent,” said Andrés Gluski, chief executive of AES, one of the world’s largest utility developers. “A total rupture of trade does not make sense — it also would not be in the benefit of fighting climate change globally.”

Are you aware of any new IRA or Chips Act projects in your area? Let us know: amanda.chu@ft.com

Source: Economy - ft.com