LCoE reduction up to 9% for US onshore wind due to IRA

The levelised cost of energy (LCoE) in the US for onshore wind today would decrease by 5% because of the Inflation Reduction Act (IRA) if one of the two tax breaks in the legislation was secured and by 9% if both were used, according to BloombergNEF.

The LCoE for onshore wind in the US is set to fall with the use of the tax breaks in the Inflation Reduction Act (Image credit: Rich Crowder/GE Renewable Energy)

The IRA was signed into law in August 2022. Onshore wind projects are typically eligible for the production tax credit (PTC), which the IRA extended by ten years. In addition to the $26/MWh PTC, they can also secure a 10% domestic content bonus or a 10% energy community bonus. 

Most onshore wind projects would qualify for the domestic content bonus, said Oliver Metcalfe, head of wind research at BNEF. The US domestic supply chain is well-established. 

The energy community bonus is for siting a project in, for example, a community that depended upon the coal industry.

Offshore tax breaks

Offshore wind developers typically use the 30% investment tax credit, which had already been extended before the IRA was passed. They are not yet likely to get a 10% domestic content bonus, because the supply chain has yet to be developed in the US, but that will change as major component factories are deployed, according to Metcalfe.

Some offshore projects will be eligible for the 10% energy community bonus, since they are eligible if they connect to the grid in an energy community, he noted. 

The proposed 1.2GW SouthCoast 1 offshore wind project off Massachusetts should be eligible, he said, because it will connect via a substation at Brayton Point, the site of a former coal-generation plant. However, the Shell-Ocean Winds project is trying to renegotiate its power purchase agreements with utilities because of changing economic circumstances. 

BNEF has yet to calculate IRA’s impacts on offshore wind LCoE, and expects to do so in the second half of 2023. 

Global LCoE versus China

LCoE has been falling within China, according to BNEF, despite increases globally.

Onshore wind LCoE fell 8% within China and but rose by 14% globally, excluding China, between the second half of 2022 and the first half of 2023. 

Meanwhile, offshore wind LCoE decreased by 8% in China and rose by 2% globally, excluding China, in the same period, said Metcalfe.