USA – CALIFORNIA Trends and Developments Contributed by: Nora Sheriff and Samir Hafez, Buchalter
Likely Roll-Back of Inflation Reduction Act Tax Breaks The Inflation Reduction Act’s tax breaks spurred USD831 billion in planned investment in low- carbon electricity solutions, with the largest incentives intended to support power plants that would not emit greenhouse gases. The incentives were intended to stay in place until the power sector’s greenhouse gas emissions dropped 75% from 2022 levels, which would have taken a long time. On 22 May 2025, however, the US House of Rep- resentatives passed HR 1 – otherwise known as the One Big Beautiful Bill Act – which repeals most of the Inflation Reduction Act’s clean ener- gy tax breaks. As of May 2025, only USD321 billion of the planned investments in solar farms, wind resources and battery factories was spent, leaving USD522 billion outstanding in compa- ny-driven investments in US-based manufactur- ing, utility-scale clean electricity, and industrial decarbonisation facilities. According to the Clean Investment Monitor’s May 2025 report, Texas, Georgia, North Carolina, Michigan and Nevada attracted a significant portion of investments in clean technology manufacturing since the Inflation Reduction Act’s enactment. The same report estimated that the pipeline of planned investments was expected to play a significant role in job creation in these states. Uncertainty is causing many of these planned clean energy projects to pause, and HR 1’s passage would likely ensure that they remain delayed indefinitely. Under the current proposal, projects unable to begin construction within 60 days of the federal legislation’s passage (and to begin operations by the end of 2026) would lose access to tax credits. If the Inflation Reduction
These credits had catalysed planned investment in domestic cell and module assembly facilities, with numerous projects announced across the Midwest and Southeast. However, much of that capacity remains under construction, and the USA still lacks meaningful domestic produc- tion of upstream inputs such as cathode active material and synthetic graphite anodes. These components are capital-intensive to manufac- ture, and require complex industrial facilities that take years to develop. Yet, even where domestic production has begun, much of it remains under construction, and the threat of new tariffs on imported precursors and manufacturing equip- ment is driving input costs even higher. Some in the industry see opportunity amidst the disruption. To avoid the geopolitical and supply risks associated with lithium, cobalt and nick- el, some firms are advancing sodium-ion bat- tery chemistries, which can be produced using more abundant US-sourced materials such as sodium carbonate, iron and phosphorus. Propo- nents argue that sustained Section 45X support, combined with targeted tariff relief and regulato- ry clarity, could accelerate the commercialisation of these alternatives and build a more resilient domestic battery ecosystem. At the moment, however, storage developers are forced to choose between absorbing higher costs, renegotiating contracts or delaying pro- jects altogether. This poses a risk to resource adequacy, especially in regions counting on new storage to replace retiring fossil assets. Califor- nia again serves as a bellwether: the state’s sum- mer peak reliability increasingly depends on new battery energy storage system installations that are now being repriced or paused.
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