Backers hope Inflation Reduction Act incentives spur business in Southwest Virginia
Small communities in Southwest Virginia, like McClure in Dickenson County, could stand to benefit from the Inflation Reduction Act. (Sarah Vogelsong / Virginia Mercury)
This story is being published through a partnership between the Mercury and the Medill News Service.
As the Inflation Reduction Act ushers in generous new tax credits linked to renewables, backers are hopeful that regions once dependent on coal, like Southwest Virginia, could be among its beneficiaries.
“If it’s not a watershed moment for a place like Southwest Virginia, then the goal has failed,” said Autumn Long, a project director for Appalachian Voices, an organization focused on environmental protection and economic development in the region.
Her colleague Chelsea Barnes, director of government affairs for Appalachian Voices, is even more optimistic. “I think it’s just going to blow doors open,” she said. “It’s going to make possible all the things that folks in this [space] have been trying to do with limited success.”
Domestic tax credits and other America-first provisions of the IRA could provide an economic lifeline for the region and a more resilient renewable energy supply chain for the country. But the rollout of the landmark spending package has drawn outrage from U.S. allies and rivals around the world. Experts are mostly optimistic the law will spur healthy competition in the global race to mitigate climate change, but some are worried it will cause a trade war with devastating impacts to the planet.
To date, the U.S. has mostly relied on equipment shipped from overseas to ramp up its renewable energy capacity. The U.S. Department of Energy estimates that three-quarters of solar panels used in the U.S. are imported.
China manufactures about 75% of the world’s solar equipment – resulting in a dependence that Andrzej Ancygier, an international climate policy expert, says is risky.
“The situation in which one country is producing [most] of the solar panels, as is the case now with China, is a very dangerous situation,” he said. The country’s ability to transition to renewable energy would be threatened “if China introduced an embargo on solar panel exports in reaction to, for example, sanctions that we introduced on China,” he continued.
In Southwest Virginia, some economic development and environmental groups say the region could play a part in boosting U.S. solar panel production.
Barnes said the area has been trying to build out capacity for solar manufacturing for over a decade.
“As the coal industry has declined, folks in the region have really grabbed on to the idea [that] we can retain our energy producing heritage,” Barnes said. “And there are other less emotional, more technical reasons why that’s appropriate as well.”
Southwest Virginia, according to a study commissioned by the Solar Workgroup of Southwest Virginia, has an abundance of vacant industrial sites for factories and access to several major interstate highways. Barnes added that the labor force, which includes many current and former coal industry workers, is well-equipped for work in solar manufacturing.
But the region still needs support to take advantage of these opportunities, according to Long, who leads Appalachian Voices’ Southwest Virginia Energy Storage and Electrification Manufacturing Jobs Project. That initiative, which has gotten almost half a million dollars in support from the public-private GO Virginia partnership, is meant to help local manufacturers move away from the coal industry and explore new opportunities in energy storage and electrification.
“The IRA is providing a lot of new opportunities and incentives and is really pushing the gas pedal down toward the floor in a lot of ways,” she explained. “But I wouldn’t go so far as to say it will change everything. We still need to help these companies.”
Courting solar manufacturers
Southwest Virginia has come close to attracting solar manufacturing before. In 2018, a company known as SolSunTech announced it would open a new manufacturing facility in Russell County. Its announcement boasted the facility would use cutting-edge technology and create 132 highly skilled jobs within the first year. The project was slated to receive $220,000 in state support through the Virginia Economic Development Partnership, so long as the company at least partially fulfilled its job creation promises.
Can Southwest Virginia remake itself as a laboratory for renewables?
But the project never materialized. Top economic development officials for the county and the region said they were mostly unfamiliar with the effort.The Virginia Economic Development Partnership confirmed there are no longer plans for it.
Barnes is optimistic the IRA means future projects won’t meet the same fate. For businesses that considered Southwest Virginia in the past but never came to the region, the IRA should “give enough of a boost to push it over the edge,” she said.
The law promises billions of dollars in subsidies and tax breaks for energy-related goods produced fully or partially in the U.S. It includes clean energy and fuel tax credits for businesses as well as consumer-facing rebates meant to increase the affordability of clean energy projects on residential properties, such as a 30% credit for home energy efficiency improvements through 2032.
For the solar manufacturing industry, the law extends existing production and investment tax credits for projects that use steel, iron or manufactured components produced in the U.S. It also adds a new 30% tax credit for net-zero emission electricity generation or energy storage projects that meet certain conditions, including some related to domestic manufacturing.
“I’m very optimistic about what the vast slew of programs can provide and the outcomes that can be achieved,” Long said. However, she added, it is up to community leaders to advocate for themselves and take advantage of the IRA’s unprecedented opportunities.
The Southwest Virginia Energy Storage and Electrification Manufacturing Jobs Project is dedicated to that cause. Since 2021, the program has used state funding to assess local markets and explore ways to bring renewable energy manufacturing to the region.
We are actively working as an entire county ... to get everything in place for solar companies.
– Ernie McFaddin, director of the Russell County Industrial Development Authority
No solar manufacturers have announced plans for facilities in the region yet, but Barnes thinks some could be coming soon. “I feel like we’re right at the edge,” she said.
Ernie McFaddin, the director of Russell County’s Industrial Development Authority, said he was aware of two or three different companies in the area actively working on projects — “some from the smallest at 20 acres, and there’s one actually working on securing like 400 acres,” he said.
“We are actively working as an entire county – not just the IDA – to get everything in place for solar companies,” he said. Among those efforts is a major overhaul of the county’s zoning ordinance to prepare for potential manufacturing facilities.
Lagging solar supply chains
There’s a clear sense of urgency among local groups to land these projects and take advantage of IRA funds. But there will be a delay before these investments can meaningfully support the U.S.’ growing demand for solar energy.
Demand for domestically manufactured solar products is growing a lot faster than supply can keep up with, explained Nisha Thirumurthy, an energy economist and founder of advisory and engineering firm Vybe Energy. “Making the switch from overseas to domestic is going to take time,” she said.
Ryan McAllister, the owner of Secure Solar Futures, a business that plans solar projects across Virginia, said there is a severe shortage of American-made solar equipment.
“The supply lines frankly do not exist right now,” he said. One of his domestic suppliers has been “bought out through the end of 2024.”
“We had to put a deposit down to secure modules back in October of last year, before we even had contracts with customers,” he added. “That’s something that we never would have done before.”
Access to domestically produced solar products is not a new problem, industry experts say. But new incentives have driven up demand and exacerbated shortages.
“It was a problem before the IRA, but the IRA is just incentivizing adoption of these technologies,” Thirumurthy said.
The Department of Energy is hopeful supply will be able to meet demand before long. “2025 is when we would expect to have a lot of activity coming online in the U.S.,” said Becca Jones-Albertus, director of the Solar Energy Technologies Office.
In the meantime, the U.S. will need to continue relying on foreign suppliers to boost solar energy production.
Jason Bordoff, the founder of Columbia University’s Center on Global Energy Policy, recently wrote that the U.S. must continue prioritizing international cooperation to fulfill the demand for renewables and keep a disastrous trade war from happening.
“To achieve its full climate potential, U.S. diplomats and trade officials must now ensure that the large subsidies and domestic manufacturing requirements in the law spur the right mix of competition and cooperation from other countries, rather than feed the growing forces of protectionism that could stymie a clean energy transition,” he wrote.
As implementation of the IRA ramps up, other countries are decrying provisions of the law they see as overly protectionist, or unfairly beneficial to U.S.-based manufacturers.
Subsidies and tax breaks linked to American-made requirements will unfairly harm overseas businesses looking to develop their clean energy supply chains, critics say.
Several countries have responded to the IRA by introducing their own incentive schemes. In February, for example, the European Union announced a plan to give member states more leeway to support their own domestic industries. A recently leaked proposal would also require 40% of new clean technology deployed in the EU to be manufactured domestically by 2030.
Ancygier, the international climate policy expert, said this type of response demonstrates the IRA’s potential to promote energy independence and more secure supply chains.
“The IRA is forcing, or encouraging, countries to generate manufacturing capacities in their own countries,” he said.
Bordoff has argued alternative options, such as retaliatory tariffs, would slow crucial deployment of solar energy in the U.S., which has fallen behind on its climate targets. A study by the Rhodium Group, an energy and research consulting firm, found the nation’s greenhouse gas emissions actually increased in 2022.
Tariffs, Bordoff said, would increase the price of internationally made equipment and make it harder for the U.S. to make progress toward those targets before its own domestic manufacturing capacity is built out.
According to Thirumurthy, solar manufacturing isn’t where the problems end.
“There’s a lot of emphasis on solar manufacturing and the ability to meet energy storage – but there are other components,” she said, such as a shortage in transformers used in electrical distribution systems. “Once you address one bottleneck, another bottleneck pops up.”
In her view, it’s important for the U.S. to control the entire value chain. “That’s critical, as opposed to just moving one piece of it here and leaving everything else overseas.”
For people in Southwest Virginia like Barnes, the hope isn’t to solve all of the United States’ renewable energy problems.
“We aren’t expecting the southwest to become where all the solar panels in the U.S. are now made,” Barnes said. “But we can be a part of the supply chain.”
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