The One Big Beautiful Bill (OBBB) complicates things. Together with a related executive order, it dismantled key parts of the Inflation Reduction Act, while also injecting uncertainty into tax credit eligibility. The uncertainty in particular throws a wrench into project planning and leaves big questions about the impact across climate tech.
So what do we know about the complexities of the new policy landscape? And what questions still need answers?
In this episode, Shayle talks to his colleague Andy Lubershane, partner at Energy Impact Partners and the firm’s head of research. They cover five topics:
- The foreign entity of concern provision and why Andy calls it the biggest unresolved issue
- Safe harbor and under construction guidance
- Tax credit disparities in coming years — tax credits for nuclear, geothermal, and CCS, not solar and wind — and how that might alter the generation landscape
- Hydrogen’s extended tax credit timeline, and how much will get built
- EV tax credits and their impact on both personal and commercial vehicles
Resources
- Latitude Media: The GOP megabill will reshape the tax credit transferability market
- Latitude Media: Congress just reshaped the solar industry. Here’s what comes next
- Latitude Media: How OBBB will impact the power grid
- Latitude Media: With help from Chris Wright, geothermal is spared in the budget bill
- The New York Times: Ford Says Battery Plant’s Tax Break Survived Republican Attacks
Credits: Hosted by Shayle Kann. Produced and edited by Daniel Woldorff. Original music and engineering by Sean Marquand. Stephen Lacey is our executive editor.
Catalyst is brought to you by Anza, a solar and energy storage development and procurement platform helping clients make optimal decisions, saving significant time, money, and reducing risk. Subscribers instantly access pricing, product, and supplier data. Learn more at go.anzarenewables.com/latitude.
Catalyst is supported by EnergyHub. EnergyHub helps utilities build next-generation virtual power plants that unlock reliable flexibility at every level of the grid. See how EnergyHub helps unlock the power of flexibility at scale, and deliver more value through cross-DER dispatch with their leading Edge DERMS platform by visiting energyhub.com.
Catalyst is brought to you by Antenna Group, the public relations and strategic marketing agency of choice for climate and energy leaders. If you’re a startup, investor, or global corporation that’s looking to tell your climate story, demonstrate your impact, or accelerate your growth, Antenna Group’s team of industry insiders is ready to help. Learn more at antennagroup.com.
Transcript
Tag: Latitude Media covering the new frontiers of the energy transition.
Shayle Kann: I’m Shale Khan and this is Catalyst. I think you can make a case that solar in particular would be relatively robust to an expiration of the tax credits, but I think that the semi-existence of tax credits really complicates things.
Andy Lubershane: It’s cliche to say it, but capitalism loves certainty and that’s, I completely agree with you
Shayle Kann: Coming up: the wonkier questions that emerge from the One Big Beautiful Bill.
I’m Shayle Kann. I invest in early stage companies at Energy Impact Partners. Welcome. Well, the OBBB as I guess some people call it, has passed. And like the original Inflation Reduction Act itself, it contains a lot. So rather than speculating at the high level about every sector it affects, what I thought we should do here is pull out a few of the more nuanced questions that I think fall out of the legislation and talk about what they might portend for the various markets that are affected from batteries to wind to solar to hydrogen to CCS. And as usual, my partner in prognostication for this one is Andy Lubershane, who is my partner at EIP and our head of research.
So before Andy and I get into it, I am hosting an Ask Me Anything episode coming up. It’s I think the third or fourth of these that we’ve done. I will attempt to answer as many of your questions as I possibly can. We’ve actually already gotten a bunch of really good questions, so thank you for sending them in. Please keep ’em coming. Email us at catalyst@latitudemedia.com. That’s catalyst@latitudemedia.com. Episode will be soon. And in the meantime, here’s Andy.
Andy, welcome.
Andy Lubershane: Hey, thanks Shayle, always great to be back on Catalyst.
Shayle Kann: Speaking of being back, I had, as you know, our mutual friend Nat Bullard on a few weeks ago to talk through some interesting utility tariff filing stuff and utility docket stuff and he pointed out to me both there and then publicly thereafter that he thinks he’s the most frequent guest on Catalyst beating you out as number two recently. I wonder how you think about that.
Andy Lubershane: I heard through the grapevine that Nat was boasting about that and I just want to set the record straight that if you include both Catalyst and your prior podcast, the interchange, I think I win hands down. Although I will say it’s clearly not a fair competition just because I think I have the home court advantage. You have me on speed slack, so.
Shayle Kann: It’s true though you get a lot of credit for the deep cut of the previous iteration of this podcast. Anyway, we’ll use this one to one up, Nat for you.
Andy Lubershane: IbNeeded it.
Shayle Kann: Yeah. Alright. There’s so much to talk about on this. Okay. First of all, what’s your shorthand for this bill? What do you call it when you’re just in conversation? I’ve heard people say O triple B, OBBB, the beautiful bill, the budget bill.
Andy Lubershane:. I haven’t had to refer to it that many times. OBBBA, but that’s too long.
Shayle Kann: Too long.
Andy Lubershane: Yeah.
Shayle Kann: The bill.
Andy Lubershane: Should we just call it the bill? The bill, let’s call it the big bill.
Shayle Kann: Alright. There’s a lot to talk about on the big bill as there was with the IRA in the first place when it passed and this bill is mostly changing the IRA at least as it pertains to the stuff that we’re going to talk about here. But I think what we want to do rather than opine at the really high level is just focus in on some areas that we think are the biggest, most important open questions that emerge from the bill. So we’re going to run through five of ’em that you and I identified before. Let’s start with the first one. I’m going to call this one what the FEOC, so FEOC restrictions abound in this bill. Talk me through I guess the high level, the FEOC restrictions, where do they come into play and then your high level view on what it means.
Andy Lubershane: I think FEOC is the biggest question mark because it’s so omnipresent. It cuts across the three most important categories, at least in my opinion, of the tax credits that are being modified here. And those are the ITC and PTC for renewable projects and storage projects. I mean deployed projects that is, and then the manufacturing production tax credit, the 45 x, all of which are subject to slightly different versions of fiat restrictions, which very simply in my mind I’m just thinking about as you can’t buy stuff that is originating in or controlled by companies in China, basically it’s more complicated than that. I’m sure lawyers would jump down my throat and point out all the nuance there, but that’s the basic gist of it as far as, at least as far as I think I need to understand that has really different impacts across each of those categories. So for wind projects it’s not a huge impact because it’s very easy to source components from non-China sources. There’s plenty of wind turbine component manufacturing in America and Europe, et cetera. Not a big deal, although wind has other troubles in the big bill for solar and battery storage, it’s more complicated.
And then for manufacturing, I think it’s probably the most complicated for solar projects.
Shayle Kann: I think it’s manageable largely because the supply chain has already moved outside of China. This is where we get into the nuance of it. We’re already not really buying solar panels from China. We are buying solar panels that have wafers from China. We are buying solar panels from companies that are based in China manufacturing in Southeast Asia. And so the nuances of all the FEOC restrictions get really complicated there when it comes to solar projects. I think on solar manufacturing side it seems more clearly a challenge for solar projects.
Andy Lubershane: I agree. I think we’re pretty much fine when it comes to fiat. I think most solar projects already can figure out a way to avoid that restriction. Mainly because like you said, we’ve already, the solar industry has already been avoiding companies and sources that are associated with China or that have already been found to be circumventing tariffs on China in certain Southeast Asian countries for example. And it sounds like everything I’m hearing and reading is that the global solar industry has done a pretty good job already diversifying to India and some other countries in south and southeast Asia.
Shayle Kann: And there will probably be more of that and there are new tariffs that could be introduced separate from this. There’s an ongoing ADCVD case, anti-dumping case on a bunch of southeast Asian countries. The solar supply chain has gotten increasingly messy and complicated, but the fact that it has already been somewhat messy and complicated in some ways insulates us a little bit from basically the battery equivalent, which we’re going to talk about in a second, which is where the introduction of the FEOC restrictions in this bill. The, again, fiat being foreign entity of concern, which basically means China present a unique challenge. I think there’s a challenge in solar, but it doesn’t seem like it’s not the end all be all because the solar supply chain has already been spreading out.
Andy Lubershane: Yeah, I agree with the exception potentially for solar manufacturing like you noted in which the one area in which the solar supply chain has not become a lot more flexible yet is in Inge and wafer manufacturing. In fact, if you look across all of the areas of clean energy that we care about and everything that the IRA was focused on, I think Inge and wafer manufacturing is actually probably the most concentrated of all of those supply chain steps in China still. And from what I can gather, that’s okay today if you were to start up a new solar cell manufacturing facility in the US today, you could probably qualify even buying wafers from China, right? Because together the ingot and wafer manufacturing steps are like ballpark, somewhere around a third of the cost of a complete sell and you only need 50% non FEOC components starting in 2026, but by 2029 you need 85% non FEOC components. And so that could present a problem if you were still reliant on Chinese wafers by that point.
Shayle Kann: And that gets to this, I guess this bigger thing, which is going to be the segue into talking about batteries here, which is on the manufacturing side, right? So the big thing about the IRA was that it brought with it this boom in planned domestic manufacturing of solar, as you said, lots of solar cell and module stuff, but I think even more so of batteries and battery components. And that was driven by this combined carrot and stick approach where you had tax credits for the ultimate consumption of a thing that were tied to either fiat restrictions or in the case of batteries, complicated stuff around friendly countries and so on. But then also the carrot on the manufacturing side, which is really the bigger one, which is the tax credits for the manufacturing itself. And so there was this incentive, but a lot of that manufacturing has not been stood up yet.
A little bit of it has, but a lot of it hasn’t actually been built yet and was planned. And so the question is what happens to all of that manufacturing in light of the changes to the RA, which sort of remove or at least place an early sunset on a lot of the demand side incentives, the EV tax credit for example, or the ITC, PTC for solar and wind, which expires earlier than it would have in the IRA, but on the other hand keeps 45 x, which is the manufacturing tax credits all the way through the early 2030s. So you still have, but of course introduces fiat, right? So it’s like a very complicated equation to determine is it still worth it to stand up your new, I don’t know, battery sell factory in the US?
Andy Lubershane: It’s super interrelated and that’s why it’s so hard to parse. But I actually think that battery manufacturing, stimulating battery manufacturing in my opinion, is probably the most important thing that the IRA was trying to do when it comes to making clean energy manufacturing overall more robust and less subject to geopolitical risk intention in the US. So I think it’s worth starting at the beginning, which is like can you comply with these fiat restrictions and make battery cells in the US? And it’s tricky. I think there’s some real uncertainty there and it really depends on the kind of batteries you’re making because especially if you’re making NMC cells, so the more expensive cathode material cells, then that cathode active material can be roughly half the cost of a cell. Now there is supply outside of China, there’s some relatively minimal supply of that material today coming in out of the US with some more on the way.
But if you add up that cam, the cathode active material and then anode material which is much more concentrated in China, that’s graphite anode powders, which is another say 10 to 15% of the cost of a cell, then it’s hard to comply with FEOC if you were buying those materials from China today because right out of the gate starting in 2026, you need 60% non-China components in your battery cells and so you’re going to need to find another source probably of cathode materials. And again, today it exists outside of China, but the market is more limited. And so at the very least you could see that make it more expensive to produce battery cells in the US and there could also be just pure bottlenecks on supply if you were trying to ramp up a bunch of new cell manufacturing all at the same time, which we can talk a little bit more about when we get to EVs, but I am still pretty confident in the fundamental trend of electrification of vehicles even in the US and I think there are still some pretty good signals, pretty strong signals that battery manufacturing is moving forward.
Just to give you one quick anecdote, our colleague Bryant Ebright who heads up our research in commercialization efforts at EIP focused on electric mobility, he sent me an article earlier today about Ford, it was in the New York Times that Ford has basically said we’re moving ahead with this $3 billion battery plant in Michigan where they’re licensing lithium iron phosphate technology from CATL, the Chinese battery giant. And they claim in the article that they’d been in contact with the administration frequently throughout the drafting of this bill and they believe that they have a pathway to complying with the fiat rules. And I guess I’ll add one more point. This is, I think illustrates how the architects of the IRA, especially around battery manufacturing were being pretty clever in that they were really trying to insulate the way that they were rolling this out from political risk. And that Ford plant, for example, is in a county that President Trump won by 56%. It’s going to be serving battery cells to two new EV facilities also in red districts I think in Kentucky and one other state that reliably votes Republicans. So there are a lot of jobs now on the line in Republican supporting counties that are dependent on these EV battery plants moving forward.
Shayle Kann: Well, I’ll tell you one thing about this whole FEOC fiasco so to speak, which is it’s great for lawyers, it’s going to, there’s just going to be so much to do to determine compliance to set up a supply chain for compliance. Great situation for the lawyers. Alright, let’s move on from the fiat bit. I mean it’s still relevant to everything else that we talked about. As you said, it lays above a bunch of the other credits, but let’s talk about the other thing that I think is a big open question. Certainly we’re sitting in a 45 day period right now. We’re in the midst of it where there is a big remaining open question, which is around the wind and solar ITC, PTC, the tax credits ruined and solar where the rules are set in the bill such that you can commence construction by the end of 2026 and then not be subject to a restrictive placed in service date.
And so per the historic precedent of the definition of commencing construction, there’s a couple of different ways that you can go about doing it. You can begin groundwork and so on, but a lot of people would also do what’s called safe harboring, which is to buy some of the equipment, 5% of the cost worth of the equipment that allows you to safe harbor and then consider yourself to be in construction and then you can have a few years to then begin operation important of course, because wind and solar developers don’t necessarily control the timeline under which they can enter operation. That is a function of interconnection amongst many other things, which is tough to predict. That is the bill that passed. Then of course there’s an executive order that came right afterwards that says that treasury basically needs to go look at the rules for safe harboring and commence construction amongst other things and presumably take a more aggressive stance on those.
So 45 days haven’t passed yet. We don’t know what those rules are going to come out to be. We’re in this really weird limbo period right now and I’ve spoken to a bunch of developers about this too, where clearly you want to get as much of your pipeline into construction as possible as quickly as possible, but how to do that and what will definitely qualify is uncertain. So it results in a kind of strange, I think, outlook for the next 2, 3, 4 or five years of wind and solar, maybe particularly solar, where historically whenever the tax credits would be about to expire, you’d see a boom and then if the tax credits seemed like they were going to expire, there’d be a bust right afterwards and then the market would cycle and it would come here. There’s so many mini boom and bust possibilities that I actually don’t know how to frame it, right?
Andy Lubershane: Yes, yes. I mean I started really my career focused on renewables and clean tech looking as an analyst covering the wind energy industry. And I remember the first boom bust cycle I lived through was 2012 to 2013 where we went from 12 gigawatts of wind build because in 2012 when everyone was expecting the tax credits to expire and then nothing basically in 2013 it was the steepest drop really possible. I don’t think we’re going to see that again, but this is probably the biggest area of uncertainty and it’s not really because of the bill, it’s because of this executive order and associated reporting around that executive order, which suggests that treasury is going to be pretty aggressive in terms of redefining start of construction and safe harbor rules. And so I think for the 45 days until we have clarity there, and hopefully it is only 45 days, I don’t think that much happens.
I think people kind of sit on their hands and then after that, if the rules are anywhere close to what we’ve seen in the past for safe harbor where you can spend 5% of a project cost and then kind of continuously make progress, then I think we see a lot of the biggest developers who have balance sheets to buy to safe harbor those components like inverters or modules and also who have enough visibility and enough diversity in their project pipeline that they know there’ll be a project to eventually put them into which favors the bigger, more well capitalized developers by the way. But that’s just one other side effect of this. I think we’ll still see probably another three, four years, well past 2017 of pretty solid consistent wind and solar additions because previously the bottleneck has been interconnection, like you pointed out, it really hasn’t been demand and especially if they continue to qualify for the tax credits, the economics still look really good. I think there is also just an open question in the market that we’re in today, and I want to be careful about this because the tax credits clearly matter. They make a huge difference to the economics of a wind or solar project, but it’s not clear how that much they matter to the near to medium term opportunity to build more wind and solar because of the demand conditions that we’re seeing out in the power market.
Shayle Kann: I think you can make a case, and many have made the case that solar in particular would be relatively robust to an expiration of the tax credits, but I think that the semi-existence of tax credits really complicates things if you just absolutely eliminated them overnight, the market would see a shock and every project would get repriced, some projects would die, the market would have to adapt and then it would end up at the size it ends up at, right? And it probably wouldn’t be as big as it is with the tax credits, but it also wouldn’t be zero To me, the trickiest thing is if we’re entering this period wherein some projects will qualify for a substantial, it’s 30% tax credit, if you still get the domestic content bonus coal communities, et cetera, you can get their big credits. So some projects will have that and some projects will not. And that to me actually might be more of a risk to the overall scale of the market than if you just had certainty one direction or the other.
Andy Lubershane: It’s cliche to say it, but capitalism loves certainty and that’s, I completely agree with you. I was looking at just some basic math a couple days ago just to give myself more confidence in what I thought would happen with wind and solar if let’s say there are highly restrictive new safe harbor rules that make it really hard to qualify. And so basically 2027 is the end, and I think if you have solar wind at $25 a megawatt hour today, which is feasible, those are good wind and solar projects, but maybe not even the best. And you take that’s with the ITC or PTC in the case of wind and you take away that subsidy, you probably go back up to 40 to $45 a megawatt hour in both cases according to a bunch of different sources and people who’ve really crunched these numbers with really sophisticated cashflow models.
And that is a big difference because at $25 a megawatt hour, you are less than the marginal costs of natural gas generation. So you can build those wind and solar resources solely and you’ll make money solely off the avoided cost of burning gas at existing natural gas power plants. Whereas at 40 to $45 a megawatt hour, it’s not so clear you’re closer to the line. It’s harder to compete straight up with gas. You really need to want that energy as an additional resource not just to offset gas. You’re already burning. And I think that’s probably where the line is in the market and why you will see lower deployment, but I don’t exactly know how to bet on the market, but there’s still a market there. It is less if the tax credits really go away in 28.
Shayle Kann: So that’s a good segue to topic number three, which is you’re referencing solar wind versus natural gas. Now the other category here are other forms of clean energy that did not see their tax credit expiration dates moved up. So specifically nuclear, geothermal, and I guess you could include carbon capture which retains its credits for a longer period of time as well here. So again, it’s hard to predict how this goes without knowing exactly how long solar and wind projects will still have the tax credits, but they’re assuming that this version of the law holds. There will be some period of time starting later this decade sometime when nuclear geothermal and CCS projects will get tax credits and solar and wind projects. And by the way, storage projects also will get tax credits and solar and wind will not. So in your mind, does that change or does that significantly change the calculus for, I dunno, the volume of nuclear and geothermal we build and over what time period?
Andy Lubershane: Yeah, I don’t think it changes my calculus within the next five years because I think for pretty much all three of those resources, nuclear, geothermal, and then gas with carbon capture and sequestration, which is the other one that continues to get subsidized, I think all of those nuclear in particular obviously takes longer to develop. I don’t think we’re going to see, we might see a little bit in the 2030, early 2030s timeframe, but I think for the most part we’re talking 2035 and beyond when we’d actually have new nuclear power at scale coming online. And I think in that timeframe the tax credits really help, but what matters most is how much power we need really nuclear, my own view is really never going to look great from a pure economic basis on paper relative to say just more natural gas power generation unless we have significant natural gas resource constraints, which we might have bottlenecks in the US, but there’s a lot of gas underground.
So I think nuclear is really, we turn to nuclear as a hedge against natural gas resource constraints and because we want clean power more and more over time and because you just can’t build and extract enough new gas fast enough. And so that’s where the value in starting to develop new nuclear projects today really is, I don’t think it crowds out wind or solar at all really. I think they’re sort of added for separate reasons. And probably the same thing with geothermal. Geothermal is much more resourced, much more geographically constrained. I think we’re really only talking about the western us, Nevada, California places where you have heat that still rises fairly naturally, reasonably close to the surface of the earth. And in those regions probably solar is still cheaper on a levelized cost of energy basis than geothermal even subsidized, even when geothermal is subsidized and solar is not for quite some time, but you don’t add geothermal because you’re competing with geothermal is not really competing with solar. It’s being added as an additional energy and capacity resource. And I think similarly about CCS though the CCS story is more complicated for a bunch of reasons.
Shayle Kann: Yeah, I guess on the margin it advantages nuclear and geothermal over wind and solar. In practical terms, it might not be that important. I think that that said, nuclear and geothermal really do need the tax credits. I think more so they are more expensive resources, at least in the near and medium term, and so if you were to remove those tax credits, it’d probably even more painful than it is for wind and solar. So in that light, extending them further sort of makes sense.
Andy Lubershane: There’s just a much better economic and political argument you can make that we want these resources to come down the cost curve faster and one way to do that is to give them a little boost. I mean that’s kind of what we did 15 years ago with wind and solar.
Shayle Kann: Yeah, exactly. Okay, so onto topic number four. So we’ve talked about wind, solar, fiat, let’s talk about hydrogen. Hydrogen went through kind of a whirlwind over the course of the drafting and changing of the legislation of the bill. As a reminder, hydrogen in the us, it’s already been a journey, right? Since the IRA, there was this extremely lucrative on paper tax credit up to $3 per kilogram, but then the government under the Biden administration took a really, really, really long time to actually set the rules under which you could qualify. So there was a ton of uncertainty in the market. Then they set the rules and the rules were really strict. It’s this three pillars, guidelines for what you have to do in order to source clean energy that qualifies you to generate the $3 tax credits at least. And then basically immediately after that, Trump got elected, a bunch of new uncertainty got introduced.
Then the bill gets sort of introduced first in the house and most versions of the bill early on would’ve killed the credit for any hydrogen projects entirely that didn’t begin construction by the end of this year, which is very few projects, there are, I dunno, a couple under construction and not very many. Then of course the final version of the bill extends that a bit. So that gets it out to beginning construction by the end of 2027, which is a big difference, right? Two and a half years to begin construction on a project is again, depending on the definition of commencing construction, which we talked about, it’s a fair amount of time. On the other hand, those really strict guidelines for the three pillars still apply. And so I think the fundamental question in clean hydrogen is how many projects can satisfy the three pillars criteria can source enough clean power really you’ve got to go buy essentially 24 7 clean power from resources that were constructed in the last three years or new resources that are deliverable to you that are time matched.
You got to do that and that gets you the ability to qualify for this credit. And because we’re also sort of limiting the amount of new solar and wind that can get developed and because there’s all this other demand from data centers and other things, it’s really hard to find that stuff and that stuff is getting more expensive as we’ve talked about before. So it’s an interesting dynamic in hydrogen where it got a real reprieve, but it doesn’t mean it’s going to be easy to go qualify for the credits in the first place. So I wonder how you think about that
Andy Lubershane: Right after the election, actually my assumption was because of some of the political economic variables around hydrogen that actually one biggest, I assumed that if there were a bill like this, that hydrogen, the tax credits would be extended similarly to CCS largely because they’re at times, and again, hydrogen’s been through a roller coaster, but at least during the first big, big surge in hype around hydrogen, there was a lot of excitement from the oil and gas industry, which I thought would’ve made the tax credits more politically robust. And in fact, my assumption was that if anything, we’d get some guidance from the administration to the treasury to loosen those three pillars restrictions which would make for a bigger hydrogen market. And actually I haven’t heard anything about that recently. I’m curious if you have, because if they were to loosen those restrictions, especially if they were to do it soon again, if you had an accelerated rulemaking timeline like in the next 45 days similar to the under construction and safe harbor rules that made those restrictions looser, then yeah, maybe I could imagine more projects getting done or getting started in the next two and a half years.
Absent that given, we’re also seeing all this uncertainty around renewables build, right? So you need new renewables, but we’re not sure what new renewables costs and how much you can build and all the demand we’re still seeing for power period, clean power in particular from highly price insensitive buyers like data centers, hydrogen, anyone making hydrogen is not going to be a price insensitive buyer. They’re very price sensitive, they want the cheapest clean power. I don’t know, I’m not personally super bullish on helping make hydrogen make a turnaround, but you’re actually closer to this world than I am. So I’m curious if you think differently.
Shayle Kann: I broadly, if you’re looking at it from the high level market perspective, I think that’s right. I think you won’t see a booming hydrogen economy as a result of this bill and the extension from end of 25 or I guess the early expiration being not as early as it could have been. It does mean I think some projects are going to move forward. Very, very, very few would’ve moved forward if the rule was commenced construction by the end of this year, the extra two years will make a difference. It’s not zero projects, it’s not one or two projects that can figure out how to source enough clean power, but it’s probably not a hundred projects either. So I think you’re going to get a much narrower market that generally again, favors the larger developers, larger projects who can go buy big chunks of clean power and piece together multiple resources and so on.
Andy Lubershane: Yeah, it’s interesting because you think about the two pathways, right? The bill was trying to incentivize clean hydrogen and it was trying to incentivize battery manufacturing in the us. Battery manufacturing’s moved fairly quickly and we now see a bunch of new plants getting up and running today or already under construction and again, building constituencies for those tax credits because they’re hiring jobs in specific locations where they’re going to make a big difference for the community. Hydrogen, because of all the uncertainty around qualification for the PTC, because of the pretty strict three pillars didn’t get off the ground under Biden. And so there’s not a constituency for it to advocate. And I’m not sure that two and a half years and a few more projects builds a constituency just from a political economy standpoint to make much of a difference.
Shayle Kann: The hydrogen hubs, the hydrogen hubs were where there was a constituency, and this is why you saw, I think like Senator Shelley, more capital from West Virginia talked a bunch about hydrogen. She seemed to be one of the advocates of continuing those tax credits. There’s a hydrogen hub there. I think that’s the extent there was. You’re right. But yeah, I mean this was one of the areas where the slow rollout of guidance during the Biden administration I think hurt the political heft of the nascent market. Nonetheless, let’s see what happens. I think there will be certainly more hydrogen, large clean hydrogen projects in the US than there would’ve been under previous versions of the bill. Certainly fewer than there would’ve been had the IRA held entirely and the guidance come out sooner. Okay, last one, EVs. So EVs took a beating from a tax credit perspective in the bill and the EV tax credits expire pretty quickly. You alluded to this earlier, you have a pretty sanguine view I think on consumer EV demand despite this, so make your case.
Andy Lubershane: Yeah, I continue to be very bullish on electrification. I think at a fundamental level, EVs are a better product. I think they’re going to win in the medium term globally. In fact, globally, we’re already seeing that happen. And I think we’ve basically just gotten to the point at the consumer level where the $7,500 tax credit, of course it makes a difference on the margins. There’s no question about that. And would the market be bigger next year if the tax credit remained in place? I have no doubt that it would be somewhat bigger next year and every year thereafter. But I don’t think this changes the timing of the curve, but I don’t think it changes the shape of the curve all that much. And it certainly doesn’t kill the market because consumers are not buying cars still for the most part on all that rational economic grounds, right?
If you are an EV consumer, you’re buying still today, especially in the US where we’re at around 10% new vehicle purchases are electric, it’s still a pretty unusual consumer who’s buying an electric vehicle and that person is probably not as price sensitive. So yeah, it makes a difference, but I think the market goes on and I still have high confidence in the medium term and in part that’s actually because I think we’re still seeing American Auto OEMs lean in. We’re still seeing battery manufacturing in America progress even despite some risks to the tax credits from these FEOC rules that we talked about earlier. There’s all kinds of activity right now. LG Energy in partnership with a couple of different automakers is standing up battery manufacturing facilities and electric vehicle manufacturing facilities associated with them. So I still think we’re seeing mostly positive signals from the market on the consumer side, on the commercial front, I’m less bullish in the near term, and I will say it’s, it’s not just the big bill.
There’s this other administration action that I think will make a real impact, which is clamping down and stopping California from pursuing its own and vehicle emission standards under this waiver from the Clean Air Act, which California under those standards had extremely ambitious, aggressive targets, not just for consumer EVs but for zero emissions vehicles, which basically means electric vehicles at the commercial level as well. Honestly, targets that I would consider probably overly ambitious, and I’m a big believer in electrification and a bunch of other states had adopted those standards under the same waiver that California had as well. And so there’s now a lawsuit going on between a bunch of those states and the Trump administration. But if those states are no longer, if they are indeed no longer allowed to set more aggressive zero emissions vehicle mandates for commercial vehicles, I think that makes a big difference too. At the same time as you’re losing the tax credit
Shayle Kann: And that $40,000 commercial for mid heavy duty vehicles, that $40,000 tax credit is meaningful and that market and has less of a foothold, right? Consumer EVs, there’s a market there already that there’s reasonably high penetration in some places, not true yet in the medium and heavy duty world. So it feels like you’re sort of battering that market when it doesn’t yet have solid footing, which I think is concerning.
Andy Lubershane: And also commercial entities, fleet owners, they’re making decisions about whether to electrify and how much of their fleet to electrify mostly on an economic basis, right? They’re not unlike consumers who are like, oh, I really want an ev. Oh, it’s a little bit more expensive this year. No big deal. Commercial fleets are very sensitive to cost. And so when EVs are the right economic choice and they feel confident in the infrastructure availability and in the performance, the range that they can get, they’ll buy them, I think, and that’s what we will still see that happen to a certain extent, but this sets that decision back by a few years at least, I would imagine.
Shayle Kann: Alright, well that was five interesting questions coming out of this bill. I’m sure there will be a dozen more as the market unfolds a little bit, but as usual, fun to talk to you about it. Andy, I think you’ve retaken the crown for a number of podcast appearances, but we’ll have a nap back on. You guys can keep booked up.
Andy Lubershane: That was really my goal here, and also to force myself to think more clearly about the impacts of this bill. And I guess we’re all waiting on pins and needles for 45 days in particular, 42 days now. I don’t remember when the EO came out. I
Shayle Kann: Don’t know how many days it is. The point is you thought it was done, it’s not done.
Andy Lubershane is my partner at Energy Impact Partners and our head of research. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today’s topics. Latitude is supported by Prelude Ventures. This episode was by Daniel Woldorff. Mixing and theme song by Sean Marquand. Stephen Lacey is our executive editor. I’m Shayle Kann, and this is Catalyst.
