The clean energy subsidy race is on

Hello and welcome back to Energy Source.

Amanda here, back from a trip to Washington, where US President Joe Biden’s clean energy tax credits are the talk of the town. Thousands of foreign investors attended the commerce department’s annual summit last week in National Harbor, Maryland, eager to talk shop with Biden officials and state governors. Project funding was the inescapable theme.

Meanwhile, less than 30 minutes away on Capitol Hill, all eyes are on Biden’s meeting with Republican House Speaker Kevin McCarthy over the debt ceiling crisis. The GOP wants to repeal the tax credits that engendered so much enthusiasm — in order to fund the government. Nearly all House Republicans voted in support of the proposal, despite the fact that the majority of clean energy dollars are headed to Republican-controlled congressional districts. The repeal proposal is dead on arrival, but it highlights a growing conundrum for the GOP over its views on clean energy and the value of federal spending. I’ve got more on this below.

Also in today’s newsletter: Myles reports on asset managers loading up on oil and gas stocks, and Data Drill has good news for proponents of new nuclear (and Oliver Stone): people don’t seem to hate it.

Thanks for reading. — Amanda

Biden officials amp up the big green subsidy charge 

More than 4,000 foreign investors, ambassadors and government officials descended on National Harbor last week to find out how to best take advantage of new federal subsidies.

SelectUSA, the commerce department’s annual summit on foreign investment, saw a record turnout this year, supercharged, analysts say, by subsidies in the Inflation Reduction Act and Chips and Science Act for clean energy and semiconductor manufacturing.

“Get a part of it or you’re going to miss out on a huge opportunity,” Don Graves, deputy secretary of commerce, said to a crowd of investors regarding IRA tax credits.

Here are three takeaways from the summit:

1. States are racing to top Biden’s subsidies 

The competition to secure investment isn’t just the US vs the world; fierce fights are also happening between American states themselves. Representatives from 55 states and territories attended the summit, including a record number of governors.

“I’m trying to take Oklahoma to the world, bring the world back to Oklahoma,” said governor Kevin Stitt, one of two Republican governors to attend the summit, in an interview with the Financial Times. While Stitt voiced fiscal concerns about the scale of Biden’s tax credits, he said they have “absolutely” helped kick-start investment in his state.

More than $200bn in manufacturing investments have been announced since the passage of the IRA and Chips Act. The race to secure projects has driven states to roll out their own incentives.

Last month, Oregon passed $210mn in semiconductor subsidies to lure companies. New York, Idaho and Pennsylvania have also offered sweeteners to semiconductor companies. Illinois’ state legislature is working to expand tax credits for renewable manufacturers.

“It’s a bit like the nuclear arms race — everyone is in the incentives game,” said Pat Wilson, commissioner for Georgia’s department of economic development. The state awarded Norwegian battery company Freyr $358mn in incentives for its $2.6bn gigafactory in November, beating more than two dozen states to secure the project.

2. US still beats out Europe

For months, Europe has accused the US of luring investors away from the continent and undermining its manufacturing base.

While tensions have eased since the US loosened the rules on electric vehicle subsidies and the EU unveiled its own rival industrial plan, companies say the US remains their top market.

The latest is Norway’s Nel, which announced a $400mn hydrogen electrolyser manufacturing project in Michigan during the summit last week — the largest-ever investment of its kind in the US.

“It’s easier to envision the fast ramp-up of the hydrogen economy in the US at the moment,” said Nel’s chief executive, Håkon Volldal.

Rich Voorberg, president of Siemens Energy North America, echoed the sentiment.

“We encourage [Europe] to go fast . . . We struggle to see anything in reality before 2024, 2025, and this market needs it now,” Voorberg said. Siemens Gamesa, the company’s wind energy arm, announced $500mn for a nacelle factory in New York in February and plans to reopen furloughed factories in Iowa and Kansas.

3. A scramble for workers 

Investors are worried about the workforce.

“We have all of these projects that will begin at the same time,” said Ajay Kochhar, chief executive of battery recycling company Li-Cycle. “How can you make sure that you get the labour?” 

At least 82,000 clean energy and semiconductor manufacturing jobs have been announced since the IRA and Chips Act passed last August — putting pressure on a tight labour market and an ageing blue collar workforce. Associated Builders and Contractors predicts that the project boom will bring a shortfall of 500,000 construction jobs this year. (Amanda Chu)

Big asset managers stock up on fossil fuels

Big investment firms are choosing cash over climate as they load up on oil and gas stocks despite green pledges.

A report from Carbon Tracker, a London-based non-profit, found asset managers including BlackRock, Fidelity and Capital Group — all of which signed up to the net zero push — significantly increased average stakes in big oil and gas producers last year.

This, the report authors say, flies in the face of climate pledges and the groups’ membership of the Net Zero Asset Managers initiative.

“Asset managers that join coalitions such as the Net Zero Asset Managers initiative are signalling to the market that they will invest in line with the Paris target of holding global warming to 1.5C,” said Maeve O’Connor, an analyst at Carbon Tracker. “If they invest in oil and gas companies that are not aligned with this target, they risk their reputation among climate-conscious asset owners.”

“It is hard to see how asset owners seeking credibly 1.5C aligned portfolios can own financial interests in companies that are not themselves 1.5C aligned.”

The report comes amid a growing stand-off over whether asset managers are practising what they preach on climate — as they contend with competing pressures to dump fossil fuel stocks, but also make returns for investors.

The dilemma has become increasingly political with Republicans in recent months stepping up attacks on financial institutions, such as BlackRock, that they say have become hostile to the oil and gas industry.

The report looks at the holdings of 25 big asset managers in 15 oil and gas companies that it deems “unaligned” with the goals of the Paris climate accord, including oil majors and big shale drillers. It finds BlackRock increased the average size of its stake in companies analysed from 6 per cent to 6.6 per cent last year; Fidelity from 1.3 per cent to 1.8; and Capital Group from 3.4 per cent to 4 per cent. 

The three companies either declined to comment or did not respond to a request for comment. But many big asset managers have pointed out in the past that large holdings in oil and gas are often due to significant passive fund businesses, which track indices that include fossil fuel companies.

Soaring commodity prices last year in the wake of Russia’s full-scale invasion of Ukraine fuelled a broad rise in oil and gas stocks — giving them a greater weighting in many indices and pushing up passive investors’ exposure.

Carbon Tracker acknowledged that some of the increases can be attributed to passive products. But it said this raises questions about the compatibility of such index products with the Paris goals.

Vanguard — which has the biggest fossil fuel holdings of the companies analysed and mainly manages passive funds — bowed out of NZAM in December, saying the alliance’s position on fighting climate change had led to “confusion about the views of individual investment firms”.

A few years ago, when oil and gas stocks were tanking, green promises and making returns for investors aligned nicely for money managers. Now, with the industry ascendant again — and making big money — those pledges are being put to the test. (Myles McCormick)

Data Drill

Last week’s newsletter featured an interview with Oliver Stone on the release of his new film, Nuclear Now, which looks to rehabilitate the image of atomic power.

Stone and other nuclear crusaders will certainly welcome a study on public opinion of nuclear power. Polling carried out by four pro-nuclear think-tanks finds broad support for new nuclear technologies across developed economies.

Still, advanced nukes have a long way to go before they make up just a small part of the global energy matrix. Even the leading developers do not expect to have a reactor online until the tail end of the decade. And in this industry, delays are commonplace.

Power Points

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Energy Source is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg. Reach us at [email protected] and follow us on Twitter at @FTEnergy. Catch up on past editions of the newsletter here.