On Sunday, the U.S. Senate passed the Inflation Reduction Act. If passed by the House of Representatives, the bill will mark a tremendous milestone for investments in climate technology and infrastructure, providing $369 billion to turbocharge the energy and sustainability transition.
At Energize, we’re very excited about the momentum behind the Inflation Reduction Act and the opportunities it will unlock if passed. As investors at the intersection of sustainability and software, we strive to help the physical world scale more efficiently and sustainably by boosting software-enabled solutions. We anticipate opportunities for climate tech companies to market and scale their market-ready software solutions will skyrocket with its passing.
The bill’s provisions would bring about a fundamental and unprecedented shift in the trajectory of the U.S.’s clean energy transition. Importantly, its implementation would lower costs for renewable energy developers, allowing them to pass savings on to consumers. Based on our experience investing and operating in these markets, here is a small subset of the provisions we expect to be impactful:
Solar: The Inflation Reduction Act’s prescribed tax credits include a 10-year extension of solar project investment tax credits (ITCs) – which include a 30 percent baseline tax credit with the potential for an additional 20 percent if projects are domestically sourced and serve qualifying disadvantaged communities.
Battery storage: It also includes a 30 percent credit for battery storage and would open up these cost savings to all projects, not just those linked to solar as with the current requirement.
Electrification of mobility: For electric vehicles (EVs), the bill directly incentivizes both consumer purchases and investment in the infrastructure buildout by offering $7,500 and $4,500 tax credits for new and used EV purchases, respectively, as well as $3 billion worth of direct investments in EV charging infrastructure. If passed, this would place U.S. policy on par with the most supportive policy regimes of European countries, increasing the likelihood the U.S.’s EV market will follow Europe’s S-curve adoption of EVs.
The cumulative effect of the bill’s incentives and investment could be foundational for transforming our economy and enacting Energize’s thesis of electrifying everything to decarbonize. Incentivizing domestically sourced products and services will help onshore manufacturing, creating more domestic jobs, relieving the supply chain and lowering costs. With a big push in EVs, solar and other energy products, we are all going to see and feel the energy transition more overtly and more often.
At Energize, we envision four pillars of the Inflation Reduction Act that are embodied by our investment thesis and enabled by our portfolio:
Nearly every Energize portfolio company is positioned to help propel the economy to meet these energy security and climate change goals. Some examples of overlap between the new climate bill and the companies we back:
Accelerating renewable energy buildout and adoption
Aurora Solar: With the new bill, homeowners will continue to receive tax incentives to lower the effective cost of a solar installation, further enabling the high growth of rooftop solar installers and increasingly driving demand for Aurora’s solar software suite.
DroneDeploy: Utility-scale solar and wind are major winners in this bill. DroneDeploy works with renewables developers like Invenergy to fly utility-scale solar sites during development, and they are considered a leader in large-scale aerial analytics. This next stage of the energy transition will require technology stacks like DroneDeploy’s.
Incentivizing EV infrastructure
Volta Charging: The bill provides incentives for EV adoption and capital allocations to encourage utilities to build out EV charging networks, and Volta Charging has built the most utilized EV charging network in the U.S.
Sitetracker: The U.S. is expected to build 500,000 EV charging ports in the next decade, and Sitetracker is poised to enable this buildout as the de facto software backbone for EV charging deployment.
Smartcar: As EV adoption continues to increase, most EV charging will be done at home. The relationship between EVs and utilities for managed charging and load balancing will overlap, and as an API platform for connected car data, Smartcar can help enable that relationship.
Sourcemap: The energy transition is materials intensive. In the Inflation Reduction Act, the tax incentive will only be available for EVs that can prove that 50 percent of the battery components came from North America and 40 percent of the minerals in the EV battery came from countries with free trade agreements with the U.S. The end-to-end supply chain due diligence software Sourcemap offers will be a pivotal resource in that verification.
Investing in decarbonization technologies
TWAICE: The bill also includes $30 billion for clean energy technologies such as utility-scale batteries enabled by TWAICE, the predictive battery analytics software. Additionally, many original equipment manufacturers (OEMs) like Merecedes-Benz and Audi are leveraging TWAICE’s software to build the battery systems for their next-generation EVs.
NCX: Corporate emissions, tracking, best practices and offsets are all coming into focus. Sustainability technologies like the forest carbon marketplace that NCX offers will play an important role in meeting the demands of this emerging market.
Ensuring environmental and energy equity
Jupiter Intelligence: This bill rightfully acknowledges that disadvantaged communities need to be equally prepared for climate change, and Jupiter is well-positioned to be a leader in the climate equity space given its history of providing its climate risk prediction software to nonprofits and lower-income neighborhoods at steep discounts, or for free.
Volta Charging: In addition to accelerating EV infrastructure, Volta's PredictEV software platform helps provide open access to affordable and reliable EV charging.
We have intentionally structured our portfolio to align with the growth of wind, solar, batteries, climate resilience, carbon markets, EVs and other new technologies. The time is now for the sustainability transition, and we are excited for how the Energize portfolio can play an important role in accelerating the opportunities provided by the Inflation Reduction Act.
This article represents the views of the author and is provided for informational purposes only. It is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Readers should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Information is subject to change based on market or other conditions.
