If signed into law, America’s Inflation Reduction Act (IRA) would allocate a historic amount to reducing greenhouse gas emissions and boosting renewable energy sources.
The EIP climate tech index, which tracks the performance of public companies providing tech that supports decarbonisation, jumped on the news that the IRA had got the approval of the US Senate. But what does the move mean for Europe — both for European founders headed stateside, and for the continent’s policymakers?
Tom Jensen is the CEO of Freyr Battery, a Norwegian firm producing lithium-ion batteries for energy storage. It’s got one gigafactory under construction in Norway and is set to build another in the US.
For battery makers, the IRA has a number of clear incentives for them to head to the US. Manufacturers are given a $35 incentive for every kilowatt hour of battery they produce.
“In an environment where battery cell costs are $100 to 150 it’s quite a significant incentive,” Jensen says. The bill also puts incentives on standalone energy storage plants, which will help manufacturers working on batteries to power the grid (as opposed to those working on batteries for vehicles).
The US is going to be a key market for gigafactories. “The US market will be the leading energy storage market globally,” Jensen says — America’s grid is predominantly fossil fuel-based, and will need a lot of storage capacity if it’s to transition to renewables.
“The European battery scene is a couple of years ahead of the US battery scene in many ways, especially for gigafactory development,” Jensen says. There are a number of European players, he says, who are in a position to go to the US and be in a stronger position than their American counterparts — something further incentivised by the IRA.
“Not all of Europe’s battery suppliers will survive,” Jensen says, “but the ones who succeed will clearly benefit from this bill in the US.”
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And what does it mean for European policymakers — now tasked with making sure they incentivise businesses to expand here too?
Europe doesn’t offer manufacturing incentives per kilowatt hour like the US; countries are more likely to back individual projects. The Norwegian government has indicated loans of up to €400m to Freyr, for example, and Britishvolt, a UK-based gigafactory project, received £100m in state support.
America’s bill is hard to match in terms of the sheer amount of capital it promises. “It's very incentivising, so it will probably trigger a need for Europe to sort of have a look at their own incentives,” says Jensen.
“There are very decent incentive programmes in Europe but, at first glance, the US incentive packages out compete them a little bit.”