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Who’s Enabling the US Energy Transition?
Identifying and evaluating transition-enabling firms is one area of focus for institutional investors looking to finance the climate transition. Since the U.S. Inflation Reduction Act (IRA) passed in August 2022, companies upstream from the power-generation value chain (i.e., clean-energy equipment manufacturing, batteries, electric-vehicle components and mineral processing) have announced over USD 137 billion of investments in areas where the IRA offers manufacturing and investment incentives.1 Battery-storage-related investments accounted for two-thirds (66%) of this, followed by electric-vehicle components (16%) and solar-panel parts (12%).2
In all, 57 companies have announced investments valued at over USD 500 million:
- A minority (8) of these companies such as Tesla Inc. and First Solar Inc. might be seen as “first-movers” that mostly rely on selling clean-tech products.3
- Most companies (27) may more closely resemble a “potential pivoter”: companies like Toyota Motor Corp. or General Motors Co. that are established, larger entities who do not currently rely heavily on clean tech for revenue but are announcing significant investments aligned with IRA incentives.
- The presence of 22 “new-entrants” — privately-owned startups, some of which are international joint ventures — show a breadth of companies and private capital eager to explore innovative collaborations to access IRA-related investment opportunities.4
The global renewable-power industry — a major source of demand for these products — has faced challenges from higher financing costs and supply-chain delays.5 However, the combination of three U.S. market conditions including the IRA’s specific incentives to boost the U.S.’s domestic clean-energy supply chain, expected growth in energy demand from data centers and utility investments in upgrading grid infrastructure may open up opportunities for clean-energy-aligned manufacturing and materials processing companies. For investors, understanding the energy-transition trend across industries, could be key in identifying opportunities.
Public companies announcing IRA-related investments
Data as of Sept. 6, 2024. The chart shows constituents of the MSCI ACWI Investable Market Index (IMI) that have announced more than USD 500 million of investments. Most investments came from large-cap auto companies focused on battery cells, followed by a blend of mid-, small- and micro-cap equipment companies in battery packs and mineral processing. Source: MSCI ESG Research.
Company investment in US clean-tech projects
Data as of Sept. 4, 2024. Source: MSCI ESG Research
1 “Building America's Clean Energy Future,” U.S. Department of Energy, Aug. 26, 2024.
2 Ibid. Investments categorized by the U.S. Department of Energy since the passage of the IRA to batteries totaled USD 90.8 million, USD 21.5 million for electric-vehicle components and USD 16.7 million for solar panels. Batteries and solar saw a two-fold and six-fold increase, respectively, from pre-IRA levels (January 2021 – August 2022) of announced investments, whereas electric-vehicle investments were slightly less (10%).
3 We selected the following categories of sustainable-impact revenue estimates in our data that most closely map to IRA-targeted areas: alternative energy, energy efficiency, energy storage and electric vehicle, as defined by MSCI Climate Change Metrics. For full methodology, please refer to “Climate Change Metrics Methodology,” MSCI ESG Research, Oct. 17, 2023. (Client access only).
4 Two examples include battery-factory investments by Korean companies Hyundai Motor Group and SK Innovation Co. Ltd, and by Redwood Materials Inc., a battery-recycling company with Series C investors such as T. Rowe Price Associates Inc, Goldman Sachs Asset Management, Baillie Gifford & Co, Canada Pension Plan Investment Board and Fidelity International. “Hyundai, SK On to Establish EV Battery Cell Production Joint Venture in US,” Hyundai press release, April 25, 2023. Tom Randall, “Tesla Co-Founder JB Straubel Built an EV Battery Colossus to Rival China,” Bloomberg, April 18, 2024.
5 “Financial headwinds for renewables investors: What’s the way forward?” International Energy Agency, Dec. 3, 2023.
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