Five big questions emerging from the OBBB

Summary

Podcast Summary: Catalyst with Shayle Kann Episode: Five Big Questions Emerging from the Big Bill
Release Date: July 17, 2025
Host: Shayle Kann, Energy Impact Partners
Produced by: Latitude Media

---

Introduction

In this episode of Catalyst, host Shayle Kann delves into the intricate nuances of the recently passed Big Bill (referred to as the "Big Bill") and its implications for various sectors within the climate tech landscape. Joining him is Andy Luberschain, partner at Energy Impact Partners and head of research, to explore five critical questions arising from the legislation.

1. Understanding the Big Bill and Its Shorthand

Shayle and Andy begin by discussing the terminology surrounding the new legislation. While some refer to it as the "One Big Beautiful Bill" (OBBB) or "Obb," they settle on calling it simply "the Big Bill" for ease of conversation.

Notable Quote:

• Shayle Khan [04:52]: "The bill."

2. FIAC Restrictions and Their Implications

A central point of discussion is the Foreign Influence and Competitive (FIAC) restrictions embedded in the Big Bill. These restrictions primarily aim to limit the involvement of Chinese companies in critical clean energy sectors, thereby reshaping supply chains and manufacturing processes in the U.S.

Key Insights:

• FIAC impacts key areas such as renewable tax credits (ITC and PTC), storage projects, and manufacturing tax credits (45X).
• For wind projects, FIAC poses minimal challenges due to the established presence of non-Chinese manufacturers.
• Solar projects face more complexity. While the industry has diversified supply chains away from China, critical components like ingots and wafers remain predominantly sourced from Chinese entities, posing future compliance challenges.

Notable Quotes:

• Shayle Khan [05:40]: "FIAC is the biggest question mark because it's so omnipresent."
• Andy Luberschain [07:08]: "The solar industry has done a pretty good job already diversifying to India and some other countries in south and Southeast Asia."

3. Impact on Solar and Battery Manufacturing

The Big Bill fosters a boom in domestic manufacturing, particularly for solar and battery components. However, the introduction of FIAC restrictions creates uncertainty about the viability and cost-efficiency of new manufacturing ventures.

Key Points:

• Solar manufacturing has largely circumvented FIAC issues by outsourcing critical components to non-Chinese suppliers.
• Battery manufacturing faces significant hurdles due to the concentration of key materials like graphite anode powders in China.
• The future of battery cell production in the U.S. hinges on sourcing sufficient non-FIAC-constrained materials, potentially increasing costs and creating supply bottlenecks.

Notable Quotes:

• Andy Luberschain [10:28]: "If you were to start up a new solar cell manufacturing facility in the US today, you could probably qualify even buying wafers from China."
• Shayle Khan [12:15]: "It introduces FIAC, right. So it's like a very complicated equation to determine is it still worth it to stand up your new, I don't know, battery cell factory in the US."

4. Tax Credits for Wind and Solar Projects

The episode highlights the uncertainty surrounding the tax credits for wind and solar projects, especially with the new commencement construction rules introduced by the Big Bill and subsequent executive orders.

Key Insights:

• Developers face a dilemma on how to commence construction to qualify for tax credits without clear guidelines.
• Historically, tax credit expiration leads to boom-and-bust cycles in renewables investment. The current ambiguity may result in market instability.
• Larger, well-capitalized developers are better positioned to navigate the uncertainties, potentially sidelining smaller players.

Notable Quotes:

• Shayle Khan [19:24]: "There's so many mini boom and bust possibilities that I actually don't know how to frame it."
• Andy Luberschain [22:10]: "The economics still look really good. You know, I think there is also just an open question in, in the market that we're in today."

5. Future of Nuclear, Geothermal, and Carbon Capture

Shayle and Andy explore how the Big Bill's extended tax credits for nuclear, geothermal, and carbon capture technologies might influence their development and integration into the energy mix.

Key Points:

• These technologies require longer development timelines and significant investment, making tax credits crucial for their viability.
• Nuclear energy, while essential for providing a stable and large-scale clean energy source, remains economically less competitive compared to natural gas unless faced with resource constraints.
• Geothermal energy is geographically limited but can complement solar and wind without direct competition.

Notable Quotes:

• Andy Luberschain [28:13]: "Nuclear is really, you know, we turn to nuclear as a hedge against natural gas resource constraints."
• Shayle Khan [30:55]: "Geothermal is much more geographically constrained."

6. Hydrogen Projects and Tax Credit Challenges

The discussion turns to hydrogen, a sector that has experienced significant volatility due to shifting tax credit policies and stringent qualification criteria.

Key Insights:

• The Big Bill extends the deadline to commence hydrogen projects by 2027, offering some respite but maintaining strict three-pillar guidelines for clean energy sourcing.
• Limited flexibility in sourcing clean power and high competition for renewable resources pose substantial barriers to hydrogen project viability.
• Political and economic factors have diminished the momentum for hydrogen, leaving the sector with limited growth prospects under current regulations.

Notable Quotes:

• Shayle Khan [37:09]: "It's probably not that important. I think that said, nuclear and geothermal really do need the tax credits."
• Andy Luberschain [36:17]: "I actually could imagine more projects getting done or getting started in the next two and a half years. Absent that, given we're also seeing all this uncertainty around renewables build..."

7. Electric Vehicle (EV) Tax Credits and Market Outlook

The final topic addresses the implications of reduced EV tax credits on consumer and commercial electric vehicle adoption.

Key Points:

• Despite the expiration of substantial tax credits, Shayle and Andy remain optimistic about the long-term growth of the EV market driven by inherent product advantages and increasing manufacturer commitment.
• Consumer EV adoption, while impacted by tax credit reductions, continues to grow, albeit at a potentially slower pace.
• Commercial EV adoption faces more significant challenges due to higher price sensitivity and the recent rollback of aggressive emission standards, potentially delaying fleet electrification.

Notable Quotes:

• Andy Luberschain [39:20]: "EVs are a better product. I think they are going to win in the medium term."
• Shayle Khan [42:41]: "The $40,000 tax credit is meaningful and that market has less of a foothold."

Conclusion

Shayle and Andy conclude the episode by acknowledging the complexities and uncertainties introduced by the Big Bill. They emphasize the critical waiting period of 45 days for the Treasury to finalize rules, which will significantly influence future developments in clean energy sectors. The discussion underscores the delicate balance between incentivizing domestic manufacturing, adhering to geopolitical constraints, and fostering sustainable growth across various renewable technologies.

---

Connect with Catalyst: For more insights into climate tech and the latest developments in clean energy, visit Latitude Media and follow Catalyst on your preferred podcast platform.

Transcript

[Latitude Media]

Latitude Media covering the new frontiers of the energy transition.

[Shayl Khan]

I'm Shayl Khan and this is Catalyst. I think you can make a case that solar in particular would be relatively robust to an expiration of the tax credits, but I think that the semi existence of tax credits really complicates things.

[Andy Luberschain]

It's cliche to say it, but like you know, capitalism loves certainty and that's like I completely agree with you.

[Shayl Khan]

Coming up, the wonkier questions that emerge from the One big beautiful bill.

[Energy Hub]

Imagine a world where connected devices like EVs, home batteries and smart thermostats work together to support a more efficient, reliable and affordable power grid. Energy Hub is making this vision a reality today. With Energy Hub's Edge Derms platform, utilities can create virtual power plants through customer centric flexibility programs, making it easy to manage distributed resources and balance the grid. Unlock grid flexibility and reliability through cross der management with Energy hub, the trusted edgederms leader. Visit energyhub.com to learn more. Catalyst is brought to you by Antenna Group, the communications and marketing partner for mission driven organizations developing and adopting climate solutions. Their team of experts help businesses like yours identify, refine and amplify your authentic climate story. With over three decades of experience as a growth partner to the most consequential brands in the industry, their team is ready to make an impact on day one. Get started [e-mail] need to accelerate procurement.

[Latitude Media]

For an upcoming solar or storage project. ANSA is your best source of intel to stay on top of current policy, tariff, domestic content and supply chain issues. ANSA's team of experts is available to help you adjust procurement strategies, secure safe harbor products and find existing inventory in the US as policy continues to evolve. Learn more about ANSA subscription and service options to help you navigate an uncertain [e-mail] Latitude.

[Shayl Khan]

I'm Shel Khan. I invest in early stage companies at Energy Impact Partners. Welcome. Well, the O Triple B, as I guess some people call it, has passed and like the original Inflation Reduction act itself, it contains a lot. So rather than speculating at the high level about every sector it affects, what I thought we should do here is pull out a few of the more nuanced questions that I think fall out of the legislation and talk about what they might portend for the various markets that are affected, from batteries to wind to solar to hydrogen to ccs. And as usual, my partner in prognostication for this one is Andy Lubrichein, who is my partner at EIP and our head of research so, before Andy and I get into it, I'm hosting an ask me anything episode coming up. I think the third or fourth of these that we've done. I will attempt to answer as many of your questions as I possibly can. We've actually already gotten a bunch of really good questions, so thank you for sending them in. Please keep them coming. Email us@catalyst latitudemedia.com that's Catalyst latitudemedia.com episode will be soon. And in the meantime, here's Andy. Andy, welcome.

[Andy Luberschain]

Hey, thanks, Shale. Always great to be back on Catalyst.

[Shayl Khan]

Speaking of being back, I had, as you know, our mutual friend Nat Bullard back on a few weeks ago to talk through some interesting utility tariff finding stuff and utility docket stuff. And he pointed out to me both there and then publicly thereafter, that he thinks he's the most frequent guest on Catalyst, beating you out as number two recently. I wonder how you think about that.

[Andy Luberschain]

I heard through the grapevine that Nat was boasting about that, and I just want to set the record straight that if you include both Catalyst and your prior podcast, the Interchange, I think I win hands down. Although I will say, like, it's clearly not a fair competition just because I think I have the home court advantage. You have me on speed Slack, so.

[Shayl Khan]

It'S true, though you get a lot of credit for the deep cut of the previous iteration of this podcast. Anyway, let's just. We'll use this one to one up. Nat, for you.

[Andy Luberschain]

I did it.

[Shayl Khan]

Yeah. All right. There's so much to talk about on this. Okay, first of all, what's your shorthand for this bill? What do you call it when you're just like, in conversation, I've heard people say, O, triple B, obb, the beautiful bill.

[Andy Luberschain]

I haven't had to refer to it in that many times, like I obbba. But that's too long.

[Shayl Khan]

Too long.

[Andy Luberschain]

Yeah.

[Shayl Khan]

The bill.

[Andy Luberschain]

The big.

[Shayl Khan]

We just call it the bill.

[Andy Luberschain]

The bill. Let's call it the Big Bill.

[Shayl Khan]

All right. There's a lot to talk about on the Big Bill, as there was with the IRA in the first place when it passed. And this, this bill is mostly changing the ira, at least as it pertains to the stuff that we're going to talk about here. But I think what we want to do, rather than applying the. At the really high level, is just focus in on some areas that we think are the biggest, most important open questions that emerge from the bill. So we're going to run through five of them that you and I identified before. Let's start with the first one, I'm going to call this one what the fiac. So FIAC restrictions abound in this bill. Talk me through, I guess at the high level, the FIAC restrictions, like where do they come into play and then your high level view on what it means.

[Andy Luberschain]

I think FIAC is the biggest question mark because it's so omnipresent. You know, it cuts across like the three most important categories, at least in my opinion of, of the tax credits that are being modified here. And those are the ITC and PTC for renewable projects and storage projects, I mean deployed projects, that is. And then the manufacturing production tax credit, the 45x, all of which are subject to slightly different versions of FIAC restrictions, which very simply in my mind I'm just thinking about as you can't buy stuff that is originating in or controlled by companies in China, basically it's more complicated than that. I'm sure lawyers would jump down my throat and point out all the nuance there, but that's the basic gist of it, at least as far as I think I need to understand. And you know, that has really different impacts across each of those categories. Right. So for wind projects it's not a huge impact because it's very easy to source components from non China sources. There's plenty of wind turbine component manufacturing in America and Europe, etc. Not a big deal. Although you know, wind has other troubles in the, in the, the big bill for solar and battery storage, it's more complicated, right? I think. Yeah. And then for manufacturing, I think it's probably the most complicated.

[Shayl Khan]

For solar projects, I think it's manageable largely because the supply chain has already moved outside of China. This is where you get into the nuance of it. Right. Like we're already not really buying solar panels from China. We are buying solar panels that have wafers from China. We are buying solar panels from companies that are based in China, manufacturing in Southeast Asia. And so the nuances of all the FIAC restrictions get really complicated there. When it comes to solar projects, I think on solar manufacturing side, it seems more clearly a challenge.

[Andy Luberschain]

Yeah. For solar projects I think. I agree. I think we're pretty much fine when it comes to fiat. Like I think most solar projects already can figure out a way to avoid that restriction, mainly because like you said, we've already, the solar industry has already been avoiding companies and sources that are associated with China or that have already been found to be circumventing tariffs on China in certain Southeast Asian countries, for example. And it sounds like Everything I'm hearing and reading is that the global solar industry has done a pretty good job already diversifying to India and some other countries in south and Southeast Asia.

[Shayl Khan]

Yeah. And there will probably be more of that and there are new tariffs that could be introduced separate from this. There's an ongoing ADCVD case, anti dumping case on a bunch of Southeast Asian countries. Like it's, you know, the solar supply chain has gotten increasingly messy and complicated, but the fact that it has already been somewhat messy and complicated in some ways insulates us a little bit from the basically the battery equivalent which we're going to talk about in a second, which is where the introduction of the FIAC restrictions in this bill. The again FIAC being foreign entity of concern, which basically means China present a unique challenge. I think there's a challenge in solar, but doesn't seem like it's not the end all be all because the solar supply chain has already been spreading out.

[Andy Luberschain]

Yeah, I agree with the exception potentially for solar manufacturing like you noted, in which the one area in which the solar supply chain has not become a lot more flexible yet is in ingot and wafer manufacturing. In fact, like if you look across all of the areas of clean energy that we care about and everything that the IRA was focused on, I think ingot and wafer manufacturing is actually probably the most concentrated of all of those supply chain steps in China still. And from what I can gather, that's okay today. If you were to start up a new solar cell manufacturing facility in the US today, you could probably qualify even buying wafers from China. Right. Because together the ingot and wafer manufacturing steps are ballpark somewhere around a third of the cost of a complete cell. And you only need 50% non FEOC components starting in 2026, but by 2029 you need 85% non FEOC components. And so that could present a problem if you were still reliant on Chinese wafers by that point.

[Shayl Khan]

Right. And that gets to this, I guess this bigger thing which is going to be the segue into talking about batteries here, which is on the manufacturing side. Right. So the big thing about the IRA was that brought with it this boom in planned domestic manufacturing of solar, as you said, lots of solar cell and module stuff, but I think even more so of batteries and battery components. And that was driven by like this combined carrot and stick approach where you had tax credits for the ultimate consumption of a thing that were that were tied to either FIAC restrictions or in the case of batteries, complicated stuff around friendly countries. And so on. But then also the carrot on the manufacturing side, which is really the bigger one, which is the tax credits for the manufacturing itself. And so there is this incentive. But a lot of that manufacturing is not, has not been stood up yet. A little bit of it has, but a lot of it hasn't actually been built yet and was planned. And so the question is what happens to all of that manufacturing in light of the changes to the ira, which sort of remove or at least place an early sunset on a lot of the demand side incentives, the EV tax credit, for example, or you know, the ITC PTC for solar and wind, which expires earlier than it would have in the, in the IRA, but on the other hand keeps 45x which is the manufacturing tax credits all the way through the early2030s. So you still have, but of course introduces FIAC, right. So it's like a very complicated equation to determine is it still worth it to stand up your new, I don't know, battery cell factory in the US.

[Andy Luberschain]

It'S super interrelated and that's why it's so hard to parse. But I actually think that battery manufacturing, simulating battery manufacturing, in my opinion is probably the most important thing that the IRA was trying to do when it, when it comes to making clean energy manufacturing overall more more robust and less subject to geopolitical risk and tension in the US and one you know. So I think it's worth starting at the beginning which is like, can you comply with these FIAC restrictions and make battery cells in the US and it's tricky. I think there's some real uncertainty there and it really depends on the kind of batteries you're making because especially if you're making NMC cells, so the more expensive cathode material cells, then that cathode active material can be roughly half the cost of a cell. Now there is supply outside of China. There's some relatively minimal supply of that material today coming in out of the US with some more on the way. But, but if you add up that cam the cathode active material and then anode material, which is much more concentrated in China, that's graphite anode powders, which is another, say 10 to 15% of the cost of a cell, then it's hard to comply with FIAC if you were buying those materials from China today, because right out of the gate starting in 2026, you need 60% non China components in your battery cells. And so you're going to need to find another source probably of cathode materials. And again today it exists outside of China, but the market is more limited. And so at the very least you could see that make it more expensive to produce battery cells in the US and there could also be just pure bottlenecks on supply if you were trying to ramp up a bunch of new cell manufacturing all at the same time, which we can talk a little bit more about when I think when we get to EVs. But I am still pretty confident in the fundamental trend of electrification of vehicles even in the US And I think there are still some pretty good signals, pretty strong signals that battery manufacturing is moving forward. Just to give you one quick anecdote, our colleague Brian Ebright, who heads up our research and commercialization efforts at EIP focused on electric mobility, he sent me an article earlier today about Ford. It was in the New York Times that Ford has basically said we're moving ahead with this $3 billion battery plant in Michigan where they're licensing lithium iron phosphate technology from catl, the Chinese battery giant. And they claim in the article that they'd been in contact with the administration frequently throughout the drafting of this bill and they believe that they have a pathway to FIAC to complying with the FIAC rules. And I guess I'll add one more point. This I think illustrates how the architects of the ira, especially around battery manufacturing, were being pretty clever in that they were really trying to insulate the way that they were rolling this out from political risk. And that Ford plant, for example, is in a county that President Trump won by 56%. It's going to be serving battery cells to two new EV facilities in also in red districts, I think in Kentucky and one other state that reliably votes Republicans. So there are a lot of jobs now on the line in Republican supporting counties that are dependent on these EV battery plants moving forward.

[Shayl Khan]

Well, I'll tell you one thing about this whole FIAC fiasco, so to speak, which is it's great for lawyers. There's just going to be so much to do to determine compliance, to set up a supply chain for compliance. Great situation for the lawyers. All right, let's, let's move on from the Fiat bit. I mean, it's still relevant to everything else that we talked about. As you said, it sort of, it lays above a bunch of the other credits. But let's talk about the other thing that I think is a big open question. Certainly we're sitting in a 45 day period right now, we're in the midst of it where there is a big Remaining open question, which is around the wind and solar, itc, ptc, the tax credits for wind and solar, where the rules are set in the bill such that you can commence construction by the end of 2026 and then not be subject to a restrictive placed in service date. And so, per the historic precedent of the definition of commencing construction, there's a couple of different ways that you can go about doing it. You can, you can begin groundwork and so on, but a lot of people would also do what's called safe harboring, which is to buy some of the equipment, 5% of the cost worth of the equipment that allows you to safe harbor and then consider yourself to be in construction and then you can have a few years to, to then begin operation. Important of course, because when the solar developers don't necessarily control the timeline under which they can enter operation, that is a function of interconnection amongst many other things, which is tough to predict. So that is the bill that passed. Then of course there's an executive order that came right afterwards that says that treasury basically needs to go look at the rules for safe harboring and commence construction, amongst other things and presumably take a more aggressive stance on those. So we're not 45 days haven't passed yet. We don't know what those rules are going to come out to be. And so we're in this really weird limbo period right now. And I've spoken to a bunch of developers about this too where like, clearly you want to get as much of your pipeline into quote unquote, construction as possible as, as quickly as possible. But how to do that and what will definitely qualify is uncertain. So it results in a kind of a strange, I think, outlook for the next 2, 3, 4, 5 years of wind and solar, maybe particularly solar, where historically, whenever the tax credits would be about to expire, you'd see a boom. And then if the tax credits seemed like they were going to expire, there'd be a bust right afterwards and then the market would kind of cycle and it would come back here. There's so many mini boom and bust possibilities that I actually don't know how to frame it. Right.

[Andy Luberschain]

Yes, yes. I mean I started really like my career focused on renewables and clean tech, looking as an analyst covering the wind energy industry. And I remember like the first boom, bust cycle I lived through was 2012 to 2013, where we went from like 12 gigawatts of wind build because in 2012, when everyone was expecting the tax credits to expire and then Nothing basically in 2013, it was, it was the steepest drop really possible. I don't think we're going to see that again. But this is probably the biggest area of uncertainty and it's not really because of the bill. It's because of this executive order and associated reporting around that executive order which suggests that treasury is going to be pretty aggressive in terms of redefining start of construction and Safe harbor rules. I think for the 45 days, until we have clarity there, and hopefully it is only 45 days, I don't think that much happens. I think people kind of sit on their hands. And then after that, if the rules are anywhere close to what we've seen in the past for Safe harbor, where you can spend 5% of a project cost and kind of continuously make progress, then I think we see a lot of the biggest developers who have balance sheets to buy to Safe harbor those components like inverters or modules, and also who have enough visibility and enough diversity in their project pipeline that they know there'll be a project to eventually put them into, which favors the bigger, more well capitalized developers, by the way. But that's just one other side effect of this, I think. I think we'll still see, you know, probably another three, four years, well past 2017 of, of pretty, pretty solid, consistent wind and solar additions because previously the bottleneck has been interconnection. Like you pointed out, it really hasn't been demand. And especially if they continue to qualify for the tax credits, the economics still look really good. You know, I think there is also just an open question in, in the market that we're in today. And I want to be careful about this because the tax credits clearly matter. They make a huge difference to the economics of a wind or solar project. But it's not clear how that much they matter to the near to medium term opportunity to build more wind and solar because of the demand conditions that we're seeing out in the power market.

[Energy Hub]

Catalyst is brought to you by Energy Hub. Energy Hub helps utilities build next generation virtual power plants that unlock reliable flexibility at every level of the grid. The Energy Hub platform takes the guesswork out of balancing energy supply and demand. It uses machine learning to control customer owned distributed energy resources like EVs, home batteries and smart thermostats to precisely shape load profiles for grid flexibility and reliability. As the industry leader, Energy Hub helps more than 80 utilities manage 1.7 million devices, more than any other edge derms on the market. Click the link in the show notes to learn more or go to energyhub.com Catalyst is brought to you by Antenna Group, the OGS of PR and marketing for climate tech. Is your brand a leader or challenger? Are you looking to win the hearts and minds of customers, partners or investors? If you're a startup investor, enterprise or innovation ecosystem that's helping drive climate's age of adoption, Antenna Group is ready to power your impact. Visit antennagroup.com to learn more.

[Latitude Media]

Do you have questions about how potential policy changes or tariff adjustments could impact development and procurement plans? ANSA can help companies move fast, stay informed and make better procurement decisions. With in depth supplier relationships and 20 plus years of industry experience, ANSA's team can help buyers rapidly execute procurement strategies that hedge against trade and policy risk. ANSA offers the industry's most comprehensive platform for supplier product pricing and availability data, plus several gigawatts of US Inventory ready for purchase. Whether you are looking to evaluate risk exposure, move quickly on inventory, or simply gain better visibility into market options, ANZA is here to help. Learn more at go.anzarenewables.com Latitude.

[Shayl Khan]

I think you can make a case, and many have made the case, that solar in particular would be relatively robust to an expiration of the tax credits. But I think that the semi existence of tax credits really complicates things. Like if you, you know, if you just absolutely eliminated them overnight, the market would see a shock and every project would get repriced, some projects would die, you know, the market would have to adapt and then it would end up at the size it ends up at, right? And it probably wouldn't be as big as it is with the tax credits, but it also wouldn't be zero to me. The trickiest thing is, is if we're entering this period wherein some projects will qualify for a substantial like it's 30% tax credit if you still get the, you know, domestic content bonus, coal communities, et cetera, like you can get their big credit. So some projects will have that and some projects will not. And that to me actually might be more of a risk to the overall scale of the market than if you just had certainty one direction or the other.

[Andy Luberschain]

It's cliche to say it, but capitalism loves certainty. And I completely agree with you. I was looking at just some basic math a couple days ago just to give myself more confidence in and what I thought would happen with wind and solar if, let's say there are highly restrictive new safe harbor rules that make it really hard to qualify. And so basically 2027 is the end. And I think if you have solar, wind at $25amegawatt hour today, which is feasible. Those are good wind and solar projects, but maybe not even the best. And you, you take that, that's with the ITC or PTC in the case of wind, and you take away that subsidy, you probably go back up to, you know, $40 to $45amegawatt hour in both cases, according to a bunch of different sources and people who've really crunched these numbers with like, really sophisticated cash flow models. Right. And you know that that is a big difference because at $25amegawatt hour, you are less than the marginal cost of natural gas generation. So you can build those wind and solar resources solely, and you'll make money solely off the avoided cost of burning gas at existing natural gas power plants. Whereas at 40 to $45amegawatt hour, it's not so clear you're closer to the line. You know, it's harder to compete straight up with gas you really need. You need to want that energy as an additional resource, not just to offset gas you're already burning. And I think that's probably where the line is in the market and why you will see lower deployment, but still not. I don't exactly know how to bet on the market, but there's still a market there. It is less if the tax credits really go away in 28.

[Shayl Khan]

So that's a good segue to topic number three, which is you're referencing solar, wind versus natural gas. Now, the other category here are other forms of clean energy that did not see their tax credit expiration dates moved up. So specifically nuclear, geothermal, and I guess you could include carbon capture, which retains its credits for a longer period of time as well here. So, you know, again, it's hard to predict how this goes without knowing exactly how long solar and wind projects will still have the tax credits. But there, assuming that this version of the law holds, there will be some period of time starting later this decade sometime when nuclear, geothermal and CCS projects will get tax credits and solar and wind projects. Oh, and by the way, storage projects also will get tax credits, and solar and wind will not. So in your mind, does that change or does that significantly change the calculus for, I don't know, the volume of nuclear and geothermal we build and over what time period?

[Andy Luberschain]

Yeah, I don't think it changes my calculus within the next five years because I think for pretty much all three of those resources, nuclear, geothermal and then, and then carbon capture, gas with carbon capture and sequestration which is the other, the other one that continues to get, get subsidized. I think all of those, like nuclear in particular, obviously takes longer to develop. I don't think we're going to see. We might see a little bit in the 2030, early 2000-30s timeframe, but I think for the most part we're talking 2035 and beyond, when we'd actually have new nuclear power at scale coming online. And I think in that timeframe, the, the tax credits really help. But what matters most is how much power we need, really nuclear. My own view is really never going to look great from a pure economic basis on paper, relative to, say, just more natural gas power generation, unless we have significant natural gas resource constraints, which we might have bottlenecks in, in the U.S. but you know, there's, there's a lot of gas underground. So I think, I think nuclear is really, you know, we turn to nuclear as a hedge against natural gas resource constraints and because we want clean power more and more over time and because you just can't build and extract enough new gas fast enough. And so that's where the value in starting to develop new nuclear projects today really is. I don't think it crowds out wind or solar at all, really. I think they're sort of added for separate reasons. And probably the same thing with geothermal. You know, geothermal is much more resource, much more geographically constrained. I think we're really only talking about the Western U.S. you know, Nevada, California, places where you have heat that still rises fairly naturally, reasonably close to the surface of the Earth. And, and in those regions, probably solar is still cheaper on a levelized cost of energy basis than geothermal, even subsidized. Even when geothermal is subsidized and solar is not for quite some time. But you don't add geothermal because you're competing with. Geothermal's not really competing with solar. It's being added as an additional energy and capacity resource. And I think similarly about ccs, though the CCS story is more complicated for a bunch of reasons.

[Shayl Khan]

Yeah, I guess on the margin it advantages nuclear and geothermal over wind and solar. In practical terms, it might not be that important. I think that that said, nuclear and geothermal really do need the tax credits, I think, like, more so they are more expensive resources, at least in the near and medium term. And so if you were to remove those tax credits, it'd probably be even more painful than it is for wind and solar. So in that light, extending them further sort of makes sense.

[Andy Luberschain]

There's Just a much better economic and political argument you can make that we want these resources to come down the cost curve faster. And one way to do that is to give them a little boost. I mean, that's kind of what we did 15 years ago with wind and solar.

[Shayl Khan]

Yeah, exactly. Okay, so onto topic number four. So we've talked about wind, solar, fiac. Let's talk about hydrogen. Hydrogen went through kind of a whirlwind over the course of the drafting and changing of the legislation in the bill. As a reminder, hydrogen in the U.S. it's already been a journey, right, since the IRA. Like the. There was this extremely lucrative on paper tax credit, 3 up to $3 per kg. But then the government under the Biden administration took a really, really, really long time to actually set the rules under which you could qualify. So there was ton of uncertainty in the market. Then they set the rules, and the rules were really strict. It's this three pillars guidelines for what you have to do in order to source clean energy that qualifies you to generate the $3 tax credits, at least. And then basically immediately after that, Trump got elected, a bunch of new uncertainty got introduced. Then the bill gets sort of introduced first in the House. And most versions of the bill early on would have killed the credit for any hydrogen projects entirely that didn't begin construction by the end of this year, which is very few projects. There are, I don't know, a couple under construction, not very many. Then, of course, the final version of the bill extends that a bit. So that gets it out to beginning construction by the end of 2027, which is a big difference. Right. Two and a half years to begin construction on a project is, again, depending on the definition of commencing construction, which we talked about, it's a fair amount of time. On the other hand, those really strict guidelines for the three pillars still apply. And so I think the fundamental question in clean hydrogen is how many projects can satisfy the three pillars criteria, can source enough clean power? Like, really, you got to go buy, you know, essentially 24, 7 clean power from resources that were constructed in the last three years or new resources that are deliverable to you, that are time matched. You got to do that, and that gets you the ability to qualify for this credit. And because we're also sort of limiting the amount of new solar and wind that can get developed, and because there's all this other demand from data centers and other things, it's like really hard to find that stuff. And that stuff is getting more expensive, as we've talked about before. So it's an interesting dynamic in hydrogen where it got a real reprieve but it doesn't mean it's going to be easy to go qualify for the credits in the first place. So I wonder how you think about.

[Andy Luberschain]

That, you know, when the elect right after the election. Actually my assumption was because of some of the political economic variables around hydrogen, I assumed that actually one of the biggest I assumed that if there were a bill like this that hydrogen the tax credits would be extended similarly to ccs, largely because they're at times and again hydrogen's been through a roller coaster. But at least during the first big surge in hype around hydrogen there was a lot of excitement from the oil and gas industry which I thought would have made it more the tax credits more politically robust. And in fact my assumption was that if anything we'd get some guidance from the administration to treasury to loosen those three pillars restrictions which would make for a bigger hydrogen market. And actually I haven't heard anything about that recently. I'm curious if you have because if they were to loosen those restrictions, especially if they were to do it soon again, if you had an accelerated rulemaking timeline in the next 45 days similar to the under construction and safe harbor rules that made those restrictions looser then yeah, maybe I could imagine more projects getting done or getting started in the next two and a half years. Absent that, given we're also seeing all this uncertainty around renewables build, right. So you need new renewables but we're not sure what new renewables cost and how much you can build and all the demand we're still seeing for power, period. Clean power in particular from highly price insensitive buyers like data centers hydrogen. Anyone making hydrogen is not going to be a price insensitive buyer. They're very price sensitive. They want the cheapest clean power. I don't know, I'm not personally super bullish on this helping make hydrogen make a turnaround, but you're actually closer to this world than I am. So I'm curious if you think differently.

[Shayl Khan]

I broadly, if you're looking at it from the high level market perspective, I think that's right. I think you won't see a booming hydrogen economy as a result of this bill and the extension from end of 25 or I guess the early expiration being not as early as it could have been. It does mean I think some projects are going to move forward. Very, very, very few would have moved forward if the rule was commenced construction by the end of this year. The extra two Years will make a difference. It's not zero projects. It's not one or two projects that can figure out how to source enough clean power, but it's probably not 100 projects either. So I think you're to get a much narrower market that generally, again, favors the larger developers, larger projects who can go buy big chunks of clean power and piece together multiple resources and so on.

[Andy Luberschain]

Yeah. And it's interesting because you think about the two pathways, right? The bill was trying to incentivize clean hydrogen and it was trying to incentivize battery manufacturing in the US Battery manufacturing moved fairly quickly and we now see a bunch of new plants getting up and running today or already under construction. And again, building constituencies for those tax credits because they are hiring jobs in specific locations where they're going to make a big difference for the community. Hydrogen, because of all the uncertainty around qualification for the ptc, because of the pretty, pretty strict three pillars didn't get off the ground under Biden. And so there's not a constituency for it to advocate. And I'm not sure that two and a half years and a few more projects builds a constituency, just from a political economy standpoint, to make much of a difference.

[Shayl Khan]

The hydrogen hubs. The hydrogen hubs were where there was a, a constituency. And this is why you saw, I think, like Senator Shelley Moore Capito from West Virginia talked a bunch about hydrogen. She seemed to be one of the advocates of, of continuing those tax credits. There's a hydrogen hub there. I think that's the extent there was. You're right. But, yeah, I mean, this was one of the areas where the slow rollout of guidance during the Biden administration, I think hurt the political heft of the, of the nascent market. Nonetheless, let's see what happens. I think there will be certainly more hydrogen, large clean hydrogen projects in the US Than there would have been under previous versions of the, the bill. Certainly fewer than there would have been had the IRA held entirely and the guidance come out sooner. Okay, last one. EVs. So EVs took a beating from a tax credit perspective in the bill, and the tax credits expire pretty quickly. You alluded to this earlier. You know, you have a pretty sanguine view, I think, on, on consumer EV demand despite this. So make your case.

[Andy Luberschain]

Yeah, I, I continue to be very bullish on electrification. I think at a fundamental level, EVs are a better product. I think they are going to win in the medium term. Globally, in fact. Globally, we're already seeing that happen. And I think we've basically just gotten to the point at the consumer level where the $7500 tax credit, of course it makes a difference on the margins. There's no question about that. And would the market be bigger next year if the tax credit remained in place? I have no doubt that it would be somewhat bigger next year and every year thereafter. But I don't think this changes the timing of the curve, but I don't think it changes the shape of the curve all that much. And it certainly doesn't kill the market because consumers are not buying cars still, for the most part, on all that rational economic grounds. Right. If you are an EV consumer, you're buying still today, especially in the US where we're at around 10%, new vehicle purchases are electric. It's still a pretty unusual consumer who's buying an electric vehicle, and that person is probably not as price sensitive. So, yeah, it makes a difference. But I think the market goes on and I still have high confidence in the medium term. And in part that's actually because I think we're still seeing American auto OEMs lean in. We're still seeing battery manufacturing in America progress, even despite some risks to the tax credits from these FIAC rules that we talked about earlier. Like, there's all kinds of activity right now. LG Energy, in partnership with a couple of different automakers, is standing up battery manufacturing facilities and electric vehicle manufacturing facilities associated with them. So I still think we're seeing mostly positive signals from the market on the consumer side. On the commercial front, I'm less bullish in the near term. And I will say it's not just the big bill. There's this other administration action that I think will make a real impact, which is clamping down and stopping California from pursuing its own vehicle emission standards under this waiver from the Clean Air act, which California, under those standards had extremely ambitious, aggressive targets, not just for consumer EVs, but for zero emissions vehicles, which basically means electric vehicles at the commercial level as well. Honestly, targets that I would consider probably overly ambitious. And I'm a big believer in electrification. And a bunch of other states had adopted those standards under the same waiver that California had as well. And so there's now a lawsuit going on between a bunch of those states and the Trump administration. But if those states are no longer. If they are indeed no longer allowed to set more aggressive zero emissions vehicle mandates for commercial vehicles, I think that makes a big difference too. At the same time as you're losing the tax credit. Yeah.

[Shayl Khan]

And that $40,000 commercial for like mid heavy duty vehicles. That $40,000 tax credit is meaningful and that market is less. It has less of a foothold. Right. Like consumer EVs, there's a market there already. There's reasonably high penetration in some places. Not true yet in the medium and heavy duty world. So it feels like you're sort of battering that market when it doesn't yet have solid footing, which I think is concerning.

[Andy Luberschain]

And also commercial entities, fleet owners, they're making decisions about whether to electrify and how much of their fleet to electrify, mostly on an economic basis. Right. Unlike consumers who are like, oh, I really want an ev. Oh, it's a little bit more expensive this year. No big deal. Commercial fleets are very sensitive to cost. And so when EVs are the right economic choice and they feel confident in the infrastructure availability and in the performance, the range that they can get, they'll buy them, I think. And that's what we will still see that happen to a certain extent. But this sets that decision back by a few years at least, I would imagine.

[Shayl Khan]

All right, well, that was five interesting questions coming out of this bill. I'm sure there will be a dozen more as the market unfolds a little bit. But. But as usual, fun to talk to you about it, Andy. I think you've retaken the crown for a number of podcast appearances, but we'll have nap back on. You guys can see that was really.

[Andy Luberschain]

My goal here and also to force myself to think more clearly about the impacts of this bill. And I guess we're all waiting on pins and needles for 45 days. In particular, 42 days now. I don't remember when the EO came out.

[Shayl Khan]

I don't know how many days it is. The point is you thought it was done. It's not done. Andy Luberschain is my partner at Energy Impact Partners and our head of research. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. This episode was produced by Daniel Waldorf. Mixing in theme song by Sean Marquan. Stephen Lacy is our Executive editor. I'm Shayl Khan and this is Catalyst.