The Inflation Reduction Act has put billions in federal funding on offer for clean energy development, incentivizing solar manufacturers to build projects domestically — even against an unsettled solar deployment backdrop.
However, when it comes to deciding where exactly to break ground on those projects, local-level incentives are just as important as federal financing.
- The top line: The IRA provides investors and developers alike with certainty of long-term returns on certain clean energy investments — but local-level financing is still a necessity in a project’s early stages. For Array Technologies, a solar equipment company, both city- and county-level financing was key in kicking off a new $50 million plant in New Mexico. Though the facility will eventually be eligible for production tax credits under the IRA’s 45X provision, which incentivises domestic manufacturing for clean energy, that payoff won’t hit until after it comes online.
- The nuts and bolts: Array broke ground on the new 216,000-square-foot manufacturing facility late last month, following grants from both the city of Albuquerque and Bernalillo County, as well as $2.5 million in assistance from New Mexico’s Local Economic Development Act job-creation fund — in addition to IRA tax credits. The expansion is projected to create over a hundred new jobs; the company’s own analysis found it could have an economic impact of more than $300 million over the next decade.
- The current take: As the IRA becomes fully integrated into the cleantech funding landscape, the balance of local and federal funding could change, said Neil Manning, Array’s chief operations officer. “[2024] is a transitory year where the full benefits of the IRA bill are still being digested within the market,” he said, noting that high interest rates and supply chain hurdles are also slowing down industry growth. He added that he expects to see a large uptick in demand later this year and into 2025 as the dust settles.
Array builds solar trackers, which are the equipment that allows ground-mounted utility-scale solar panels to “track” the sun’s movements throughout the day and maximize a system’s electricity production.
The company, which opened its first manufacturing facility in Albuquerque over 30 years ago, is among the biggest fish in the global solar tracker market. And in recent years, it became clear that Array had outgrown its 65,000 square foot plant. To keep pace with the growing demand for solar modules as deployment took off nationwide, they needed to expand.
According to Manning, each year the existing factory creates about 10 million solar clamps, which hold up the solar array and connect individual modules to the overall infrastructure. The new plant, which is expected to come online in the third quarter of next year, is set to triple that number and bump up Array’s production of other solar components as well.
Still, tripling manufacturing capacity isn’t cheap. While it was the IRA that crystallized the company’s ambitions, actually getting the project to pencil out required looking at other public financing options as well. (Array went public in October of 2020.)
Because Array has a history with the city of Albuquerque, it was only logical to plan to expand the company’s presence there. And Albuquerque wanted Array as well.
Manning explained that the city and county put together “a very attractive package” that included $250,000 each of LEDA funds and a partial property-tax abatement through an Industrial Revenue Bond, or $500,000 in total. Coupled with the 45X manufacturing credit dollars, these were enough to make the project pencil out.
But Albuquerque is far from the only city offering a financial incentive to lure cleantech companies.
New York City’s Economic Development Corporation, for instance, is opening nearly 4 million square feet of usable space in an old Brooklyn Army Terminal to expand the city’s network of climate hubs; there, cleantech startups can test and develop products.
On the West Coast, the city of Los Angeles created a cleantech “corridor” program, which essentially provides companies with incentives to locate their headquarters or production facilities east of downtown. The incubator, which benefited from the IRA, invests up to $500,000 in debt or equity funding in 35-50 cleantech startups annually.
Reshoring cleantech production
Because the IRA provides additional incentive for domestically sourced materials, there’s now more demand for facilities like Array’s. Suddenly, “domestic” sourcing is a major calling card for manufacturers — Array, for instance, said in a statement that it was the “front-runner” in the solar tracker market and uses the highest amount of domestic materials in their products.
“We’re now seeing others in the [solar] industry kind of changing their tactics and bringing supply back to the U.S. shores as well,” Manning said, adding that developer incentives and manufacturing credits are helping to build out the U.S. supply chain. “What we’re actually seeing is entrants from Asia actually picking up and moving manufacturing facilities here to the United States to compete more effectively given the IRA backdrop.”
That said, he’s not worried about potential competition. In fact, he’s “very bullish” about the company’s prospects post-IRA.
Manning said that Array has essentially spent 30 years developing tight-knit supply chain partnerships and building mutually-beneficial stakeholder relationships in the local community. That sets them up to take advantage of the IRA — and local incentives — in a way that would be more difficult for a company that has to start their U.S. operations from scratch.
Meanwhile, the uptick in local financing is set to lend the solar industry resilience even in a turbulent political climate. As November’s election nears, concerns about potential policy rollbacks are growing, given that both chambers of Congress and the White House appear to be in play. However, when cities or states provide a large portion of the funding for a manufacturing facility, federal incentives matter less.
Nonetheless, Manning expects the 45X credit at least to stick around even if the administration changes, especially given its “intense emphasis on U.S. jobs and domestic production,” and the fact that the credit can benefit solar projects in both blue and red states.
“Jobs tend to be the great equalizer when it comes to bridging the divide between red and blue,” Manning said. “No matter what may happen when the election comes, I feel really confident that the landscape and backdrop in place for solar is really strong.”
