Flush With the Promise of Tax Credits, Clean Energy Projects Are Booming in Texas
In the city of Mesquite, Texas, 10 miles east of downtown Dallas, one of the area’s largest manufacturing spaces is being refurbished to churn out highly efficient solar power modules.
The factory is the result of a $250 million investment from Canadian Solar, a leading global solar panel supplier, and this year, it will become the company’s first site outside China capable of producing tunnel oxide passivated contact solar cells, which convert a larger percentage of sunlight into electricity than typical panels on the market.
It has been exactly one year since President Joe Biden signed the Inflation Reduction Act, his signature climate legislation, into law, and the incentives it created to spur U.S. production of renewable energy are starting to deliver results. Through the tax credits it provides for homegrown manufacturing of parts and for power generation, the legislation has attracted a flurry of new private investment in the sector, and Texas is among the winners so far.
“The IRA was essential,” said Thomas Koerner, senior vice president at Canadian Solar, based in Guelph, Ontario. “Without the IRA, without a manufacturing incentive, and without creating a stronger demand in the U.S. market,” he said, opening a solar factory facility in the United States would not have made economic sense.
Under the provisions of the Inflation Reduction Act, a host of clean energy tax incentives will be available through 2032, including credits for manufacturing the technology in the U.S. Companies that manufacture the components for green energy or generate renewable power can easily get direct compensation from the Internal Revenue Service, and those tax credits are also bolstering an expansion of battery storage technology in the Lone Star state.
“No one is producing more renewable energy than Texas,” said Jack Conness, a policy analyst for Energy Innovation, a nonpartisan firm that researches energy policy. “Strip politics aside: Texas is an energy hub, and it’s not just oil and natural gas.”
Before Congress approved the legislation, production and investment tax credits for renewable energy came up for renewal every two years, creating “sharp ups and downs” in how much new clean power was being added to the grid, said Dennis Wamsted, an energy analyst at the Institute for Energy Economics and Financial Analysis. Extending the credits for 10 years was a “key component” for giving renewable energy, especially the wind industry, more long-term stability, he said.
“There’s been a significant increase in investment announcements in the past 10 months, and that is due completely to the IRA,” Wamsted added.
Since the law went into effect, the amount of new wind power generation proposed in Texas has shot up. Data from the Electric Reliability Council of Texas, or ERCOT, which operates the grid providing power to most of the state, shows a sixfold increase in newly proposed wind generation in its “interconnection queue,” a pipeline of projects that are proposed or under construction but not yet delivering power to businesses and households.
From August 2022 through July 2023, so-called screening studies—one of the first steps required before construction can get started— began for 28 large wind power installations on the ERCOT grid. Together, those sites could eventually deliver more than 7,000 megawatts of energy. By contrast, in the year leading up to August 2022, companies started screening studies for only eight wind turbine projects that are now active, delivering 1,200 megawatts.
Screening studies for battery storage saw an increase from 201 projects to 237, for a projected yield of about 5,800 more megawatts more in energy storage than in the previous year.
The total number of renewable energy projects in the interconnection queue has been rising, with the potential for significant job growth. A report from Energy Innovation estimates that clean energy tax credits will continue to fortify the Texas economy, adding $15 billion to the state’s gross domestic product and creating 100,000 jobs by 2030.
With its incentives to add more batteries and solar and wind farms to the grid while galvanizing the manufacturing of components, the Inflation Reduction Act is supporting an “ecosystem of every part of the supply chain that will be a beneficiary and a job creator,” Conness said.
A Flourishing Domestic Supply Chain
To track new domestic manufacturing projects, Conness created an online dashboard that maps new announcements related to the Inflation Reduction Act or the CHIPS and Science Act, a legislative measure for boosting U.S. semiconductor manufacturing that also took effect in August 2022. The dashboard indicates that 109 new manufacturing projects representing $76 billion in private investment have sprouted across the country since the Inflation Reduction Act was approved, bulking up the supply chain for wind and solar power, battery storage and electric vehicles.
The dashboard methodology is not a perfect science, Conness acknowledges, because it is “hard to know exactly” if companies were already planning to open these manufacturing facilities before the legislation was passed. But the projects he has tallied all stand to benefit from the tax credits, he said, whether the companies are saying so publicly or not.
Canadian Solar’s $250 million factory in Mesquite is the largest solar manufacturing investment to be announced in Texas since August 2022 and one of many that Conness expects to reap tax benefits. Others unveiled in the past 12 months include a $60 million solar manufacturing facility in Houston, a $40 million solar factory in San Antonio and a $776 million expansion of Tesla’s electric-vehicle Gigafactory in Austin. Two more companies are planning to open manufacturing facilities related to EVs in the Dallas-Fort Worth area.
Conness says that while some companies are leery of crediting the Inflation Reduction Act, with its links to the Biden administration, for their capital investments, the legislation gave those industries a green light. “It typically depends on what the politics of the state are if they are going to directly attribute these investments to the IRA” or “shy away from giving that credit,” he said.
In its announcement of the Mesquite project, Canadian Solar did not mention the Inflation Reduction Act, but the press release quoted Sen. Ted Cruz and Gov. Greg Abbott of Texas, both Republicans, as welcoming the creation of 1,500 jobs at the factory. Koerner, the Canadian Solar executive, said nonetheless that the legislation had given the company the “confidence” to move forward because it will receive a tax credit for selling products made in the United States.
Developers also get an extra 10 percent for using U.S.-made components on their solar farms, which could drive up demand for the products that will be manufactured in Mesquite.
Even with its stream of clean energy announcements, Texas falls just short of making the Top 10 in Conness’s dashboard ranking of states with the greatest number of new manufacturing initiatives related to the Inflation Reduction Act. The South and Midwest are dominant, with Georgia, South Carolina and Michigan claiming the top spots.
Given the tax incentives, politics do not seem to stand in the way. “The benefits that communities are seeing” are in areas that “voted primarily for Trump in the 2020 elections,” Conness said. “There is no picking of winners and losers, left and right.”
The Inflation Reduction Act also includes provisions to help ensure that the new clean energy jobs are ones that workers will want to fill. Tax benefits are accorded to projects that meet prevailing federal wage and apprenticeship standards that benefit both a company’s bottom line and the career outlook for workers.
“It’s a no-brainer to pay the workers well,” said Ben Beachy, vice president of industrial policy for the BlueGreen Alliance, a coalition of unions and environmental organizations promoting labor- and climate-friendly solutions. He said the legislation’s impact had come “faster than anyone predicted.”
Corporate decisions keyed to the act’s tax incentives show the potential for U.S. companies to wean themselves from “vulnerable overseas supply chains that are marred by labor abuses, higher levels of pollution and shipping bottlenecks,” Beachy said. Already, he added, he sees promising signs that the clean energy transition can happen “on a foundation of good jobs, clean manufacturing, a reliable industrial base and greater equity.”
He pointed to a study commissioned by the BlueGreen Alliance showing that the manufacturing tax credit will make American-made solar photovoltaic modules at least 30 percent less expensive than those imported from other countries. The research, carried out by engineers at Princeton and Dartmouth, also estimated that by 2035, the Inflation Reduction Act will have created 1.6 million more jobs in clean energy than would have existed if it had not been passed.
“These investments change the game,” Beachy said.