Today we will talk about the government’s economic stimulus packages for clean energy in the US. Let’s look at the American Recovery and Reinvestment Act signed by Barack Obama in 2009, and the Inflation Reduction Act signed by Joe Biden in 2022. Let’s analyse the impact of these documents on the development of green energy in the country.
America’s Recovery and Reinvestment Act
The US economy was hit hard by the financial crisis in 2008. By 2009, unemployment had reached 10.2%, the highest level in 25 years. The government needed to take urgent measures to recover the economy and create new jobs. The American Recovery and Reinvestment Act (ARRA) was drafted.
This act provided for investments of 90 billion USD in clean energy. At that time, this was the largest investment in the energy sector in the history of the United States. This economic stimulus package laid the foundation for dramatic changes in the energy system. There was a massive electrification of land transport and an increase in the amount of energy from renewable sources.
Electrification of the automotive industry
In 2008, Elon Musk’s Space Exploration Technologies Corporation (SpaceX) and Tesla Inc. (NASDAQ: TSLA), which were on the verge of bankruptcy, were rescued by NASA contracts. In 2010, the U.S. Department of Energy gave Tesla Inc. a USD 465 million loan to back it up.
It can be assumed that the active development and growth of this car company has triggered a global and accelerated electrification of the global car industry. Many manufacturers have supplemented their model ranges with electric and hybrid cars. According to EV-Volumes, the number of environmentally friendly cars on the road has increased from a few hundred thousand to nearly 27 million units over the past 10 years.
In 2010, Tesla Inc. was the only publicly traded company in the US that focused exclusively on electric vehicles. The return on investment in this corporation by 2020, before the COVID-19 pandemic-induced crisis, exceeded 5500%.
Promoting alternative energy sources
According to the Energy Information Administration (EIA), from 2011 to 2021 inclusive, wind power generation increased by more than 200% to 132,753 MW. Solar power generation increased 88-fold to 93,151 MW. In addition, solar photovoltaic modules, which are capable of producing 1 W of energy, have fallen in price from USD 2.15 to USD 0.27.
At the time of writing, the largest US solar energy companies by capitalisation were Enphase Energy Inc (NASDAQ: ENPH), First Solar Inc (NASDAQ: FSLR) and Sunrun Inc (NASDAQ: RUN). They were capitalised at USD 33.4 billion, USD 18.7 billion and USD 5.9 billion, respectively.
In addition, energy-saving technology has become widespread, and a classification of household appliances according to their energy efficiency level has emerged. Fluorescent lamps, which used to be used mainly in industrial plants, have been introduced in the home. Less efficient and more energy-intensive incandescent lamps were gradually replaced by more economical LED lamps.
Why a law to reduce inflation was passed
The situation in the USA today is very different from what it was after the 2008 crisis: unemployment is at a low level and inflation is in positive territory – there was deflation in 2009. But now the government is facing a new challenge – the likelihood of continued high inflation.
This has been facilitated by reduced investment in conventional energy sources, which has led to a reduction in hydrocarbon production and a significant rise in the cost of hydrocarbons. A significant part of the cost of many products is the cost of hydrocarbons, which are used to generate electricity and to transport products and components.
To reduce these costs, a national green energy investment plan has been developed. It includes increasing the amount of electricity from renewable sources, modernising existing electricity networks and increasing the share of green transport in total land transport.
Where the money will go
The Inflation Relief Act is not just about investing in green energy: it also covers health care, tax reform and budget deficit reduction. However, the largest amount of money – USD 391 billion out of USD 738 billion – will be allocated to energy modernisation and climate savings.
Development of renewable energy sources
260 billion USD will be earmarked for clean energy development. The funds will be allocated in the form of tax subsidies and credits for those working with and closely associated with renewable energy sources. The aim of the investment is to make it more cost-effective for utilities to build green power plants than to build conventional energy facilities.
The beneficiaries of such investments may be companies that manufacture solar panels, batteries and wind turbines. The leaders in power plant turbines are General Electric Company (NYSE: GE) and Siemens Energy AG (XETR: ENR), and the leaders in wind turbine blades are TPI Composites (NASDAQ: TPIC). In the solar energy sector, the leading positions are held by the already familiar Enphase Energy Inc. and First Solar Inc.
Development of electric transport and modernisation of the electricity grid
USD 80 billion will be allocated for rebates for the purchase of electric cars and induction cookers, the installation of home solar panels and the renewal of the home electric grid. It can be assumed that this will have a positive impact on the business of producers and sellers of the above-mentioned products.
The largest electric car companies in the US are General Motors Company (NYSE: GM), Ford Motor Company (NYSE: F) and Tesla Inc. Note that the first two companies are increasing production of electric cars and decreasing production of internal combustion engine vehicles.
Tesla has not yet reached the peak of its production and is still increasing its production space. Consequently, the total number of electric vehicles sold at this company still depends on production volumes. It is not unreasonable to mention the smaller US electric car makers Rivian Automotive Inc. (NASDAQ: RIVN) and Lucid Group Inc. (NASDAQ: LCID).
ETFs for investing in green energy
- First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ: QCLN) invests in US companies that work with renewable energy sources.
- iShares Global Clean Energy ETF (NASDAQ: ICLN) – invests 80% of its assets in stocks of clean energy-related firms.
- Invesco Solar ETF (TAN) – the portfolio is based on the MAC Global Solar Index, which includes stocks of solar energy companies.
Conclusion
A few years before the COVID-19 pandemic crisis, ESG investments began to gain popularity in the stock market, with pollution reduction as one of their three parameters. The coronavirus crisis diminished the importance of this issue for a while, but the public is likely to revisit this topic in the near future.
The law to reduce inflation is the first signal of the need to keep climate change and the importance of the global environment in mind. In addition, this economic stimulus package suggests that the next decade could be a good time for companies that are in some way associated with clean energy.
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