The Inflation Reduction Act (IRA) is expected to significantly impact the cost of lithium-ion batteries in several ways:
Cost Reduction through Tax Credits
- Production and Investment Tax Credits: The IRA offers tax credits of up to 30% of capital investment for new battery manufacturing projects under the Advanced Energy Project Investment Tax Credit (48C). Additionally, it provides a production tax credit of $35 per kilowatt-hour (kWh) for domestically produced battery cells, which can help reduce production costs.
- Potential for Lower Costs: Analysts predict that these incentives could reduce the average production cost of lithium-ion batteries in the U.S. from around $111.8/kWh to as low as $76.8/kWh by 2029.
Changes in Battery Composition
- The IRA includes requirements for sourcing critical materials domestically or from countries with free trade agreements, aiming for 80% of materials to meet these criteria by 2027.
- This could lead to a shift in battery composition, favoring lithium iron phosphate (LFP) batteries over nickel-cobalt-manganese (NCM) batteries, as LFP does not use cobalt or nickel, making it easier to comply with the sourcing regulations.
Increased Domestic Production and Supply Chain Development
- The IRA encourages the development of domestic supply chains for critical minerals like lithium, which is crucial for reducing dependence on imports.
- However, achieving the ambitious goals, such as securing sufficient domestic lithium supply, will require significant investment and innovation in the mining and recycling sectors.
Impact on Global Competition
- The increased competitiveness of U.S. battery manufacturing could challenge China’s dominance, particularly if the U.S. successfully builds a robust domestic supply chain and adheres to the Act’s sourcing requirements.
Overall, the IRA positions the U.S. to become a major player in the lithium-ion battery market, potentially reducing costs through tax incentives and promoting a domestically sourced supply chain. However, achieving these goals hinges on successful implementation and compliance with the Act’s requirements.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-will-the-ira-impact-the-cost-of-lithium-ion-batteries/
