The US Energy Information Administration projects that by 2050 total US solar capacity, which includes both utility-scale solar and rooftop solar in the commercial and residential sectors, could range from 532 GW to as high a figure as 1399 GW. EIA’s Annual Energy Outlook 2023 (AEO2023) presents 16 scenarios that project long-term energy trends in the United States through to 2050.
EIA’s ‘Issues in Focus: Inflation Reduction Act Cases in the AEO2023’ focuses on 4 of the 16 cases that vary the amount of tax credits that clean energy technologies receive under the 2022 Inflation Reduction Act. In one case without the IRA, solar capacity reaches 726 GW by 2050. Three separate cases that assume various uptake levels of the tax credits project up to 274 GW more solar capacity by 2050 than there would be without the law.
Under the IRA, qualifying clean energy projects can receive additional bonus tax credits stacked on top of a base tax credit value if they satisfy certain requirements. A qualifying solar project can choose either a credit for the investment in clean energy, called an Investment Tax Credit (ITC), or a credit for producing or selling clean energy, called a production tax credit (PTC).
To describe a likely instance – EIA assumes that in the AEO2023 Reference case owners of solar projects in the electric power sector prefer the PTC, which has a base value of $5 per MWh for the first 10 years of electricity sales. The value is five times higher for projects that receive a bonus credit for meeting labour requirements. Other bonus credits raise the credit value even higher if projects are built domestically or are located in the IRA’s definition of energy communities.
These three cases examine the IRA, while holding other input assumptions constant to their AEO2023 Reference case values. The AEO2023 Reference case, which serves as a baseline, or benchmark, reflects laws and regulations adopted through mid-November 2022, including the IRA. The other three cases are the High Uptake case, which assumes, where applicable, that qualified projects receive the maximum bonus tax credits; the Low Uptake case, which assumes most qualified projects only receive the base tax credit; and the No IRA case, which excludes energy-related IRA provisions.
In the Reference case, US solar capacity, including rooftop solar, reaches 920 GW in 2050, about 194 GW more than in the No IRA case. Solar capacity still grows in the No IRA case, in part, because of declining capital costs. US solar capacity grows the most when more bonus credits are applied. In the High Uptake case, where the maximum bonus credits for grid-scale solar are applied, solar capacity reaches just under 1000 GW. The Low Uptake case is similar to the No IRA case and results in just over 720 GW of solar.
‘Issues in Focus: Inflation Reduction Act Cases in the AEO2023’ has detailed data and additional information on how the EIA’s IRA tax credit assumptions differ among the four cases. For solar PV projects in the electric power sector, the Low Uptake case applies only the base tax credit. The Reference case applies the base credit and prevailing wage and apprenticeship bonus credit. The High Uptake case applies the base tax credit as well as the prevailing wage and apprenticeship, domestic content, and the energy communities bonus credits.
In the commercial sector, EIA assumes that solar PV projects receive the base credit in the Low Uptake and Reference cases. In the High Uptake case, it assumes that projects also receive the domestic content bonus credit.
For residential solar, qualified projects do not receive bonus credits under the IRA’s residential clean energy credit provision. Therefore, it is assumed that residential solar projects receive a 30% credit in all three cases (Reference, Low Uptake, and High Uptake) that phases down to 0% in 2035.
Image: Effect of the IRA on the US Annual Energy Outlook