Hanwha Solutions, CS Wind Stand to Benefit
The authors are analysts of NH Investment & Securities. They can be reached at ys.jung@nhqv.com. -- Ed.
The US Senate approved the IRA, which includes provisions that will extend existing renewable energy incentives and create new incentives for production of green products in the US. A boost is also expected for green manufacturing and power generation facilities
Extension of existing incentives and creation of new tax credits
On Aug 7, the US Senate approved the Inflation Reduction Act (IRA), a bill to combat climate change and raise taxes. The new package includes the highest investment in US history to tackle global warming—US$369bn to reduce GHG emissions to 40% below their 2005 level by 2030.
The Act includes four energy-related targets, including: 1) reducing energy costs in the US: 2) strengthening energy security; 3) expanding investment across all areas of the economy to achieve carbon neutrality; and 4) supporting local communities via profit sharing. The current renewable energy tax credits—eg, production tax credit (PTC, applied for wind power facilities) and investment tax credit (ITC, applied for solar and offshore wind power facilities)—were initially planned to be reduced or phased out. But, the Act will extend both the PTC and ITC for projects that begin construction before Jan 2025. Also to be introduced are: 1) PTCs for clean hydrogen; and 2) PTCs (US$30bn) and ITCs (US$10bn) to spur US manufacturing of wind turbines, batteries, and solar modules, thus reducing reliance on China for renewable energy and creating green jobs.
Companies with manufacturing facilities in US to benefit most
The IRA has already passed through the US Senate, and chances are high that it will soon be approved by the House. As for the renewable energy industry, the passage of the bill should remove policy uncertainties stemming from the upcoming subsidy sunset, thus promoting investment in renewable power plants. At the same time, with the bill including various benefits—including tax credits—for companies with manufacturing facilities on US soil, related firms are expected to enjoy accelerating top-line growth going forward.
Currently, Hanwha Solutions operates a 1.7GW PV module plant in the US, and it plans to expand the facility by 1.4GW in 2Q23, with the added capacity starting operations from 2H23. Assuming a 7c/watt tax credit and Hanwha’s actual production at 2.4GW in 2023, tax credits from the IRA should amount to W218.4bn (regardless of module sales and margins). Meanwhile, following its acquisition of a 21.34% stake in REC Silicon, Hanwha Solutions has now acquired (potential) 16,000 tons of poly-si production capacity in the US. Moving ahead, we expect the firm to pursue: 1) additional capacity expansion; and 2) establishment of vertical integration in the PV industry in the US.
Having taken over a wind tower factory in the US from Vestas in 2021, CS Wind plans to ramp up production capacity and expand its client portfolio. Thanks to the passage of the IRA, wind orders are forecast to rebound in the US, and demand for wind towers made in the country should pick up, enhancing profitability faster than expected at the firm’s US subsidiary.