Sustainability efforts often have a high price tag attached. While the long-term benefits of sustainability initiatives are well-documented, the up-front financial costs can be daunting for executives and board members.
That’s why Congress and President Biden passed landmark legislation called the Inflation Reduction Act (IRA) in August 2022. Though the name suggests a concerted effort to reduce inflation, the majority of the legislation establishes a long-term plan to incentivize companies and citizens to invest in green facilities, solutions, and technologies.
U.S. Green Energy Production Under the IRA
China and a handful of other countries have dominated green energy production for decades, cornering the market on everything from batteries to solar panels to electric vehicles. With the IRA, the U.S. government seeks to build a resilient domestic supply chain for these technologies, ensuring that American businesses and consumers won’t have to rely on overseas manufacturers to help them make greener choices.
There have been a variety of notable successes that would most assuredly not have happened without the IRA, such as:
- Almost $18 billion in planned U.S. solar manufacturing investments, representing 132 new or expanded factories
- 2023 set a record for the level of installed utility-scale solar on the grid, and 2024 is expected to double that capacity
- More than $400 million in manufacturing investments for wind power, amounting to 18 new factories across 11 states
- Nearly $180 billion in investments to manufacture electric vehicles and associated batteries
- A significant increase in the amount of carbon capture and storage (CCS) projects in the U.S., with 16 commercial-grade projects in operation and 154 total CCS facilities planned or operating near the end of 2023
- Just under $80 billion of investments in battery manufacturing and $53 billion in energy storage technologies
That last bullet point is particularly important for the renewable energy push. Solar panels don’t work at night and windmills aren’t much good on a calm day, making renewable energy technologies like solar and wind only minimally effective without some way to store the generated energy.
As such, the U.S. must continue to move forward with developing and producing better energy storage technologies. If all planned investments come online in 2024, the amount of total storage capacity on the U.S. power grid will essentially double—definitely a good start.
Ongoing IRA Success and Industrial Real Estate
The ongoing success of the IRA has significant implications for industrial real estate. Some of these include:
- Growing demand for green energy support facilities – With the expansion of renewable energy projects, there will be a need for factories that make solar panels, wind turbine components, and other green technologies. As a result, industrial real estate near transport hubs and raw material sources could see increased demand.
- Existing facility upgrades/retrofits – Existing industrial properties may see a wave of retrofits to improve energy efficiency and qualify for IRA tax credits and incentives. Property owners might consider investing in upgrades such as solar panels, energy-efficient HVAC systems, and improved insulation to attract tenants and meet the rising bar for sustainability standards.
- Increased land use for renewable energy – Sites like solar and wind farms or energy storage facilities are typically zoned for industrial use. An increased need for viable land for these sites will likely become a demand driver for industrial real estate in the near future.
- More opportunities for public-private partnerships – The IRA encourages collaboration between private companies and local and state governments to develop sustainable industrial projects. As the IRA continues its success, we will likely see the development of specialized industrial zones that focus on green technology and energy production, driving growth in specific regions.
The ongoing success of the Inflation Reduction Act is poised to reshape the industrial real estate landscape as it creates new opportunities and challenges for developers, investors, and tenants. Embracing these changes can lead to a more sustainable, profitable, and resilient industrial real estate sector.
About Phoenix Investors
Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.
