Inflation Reduction Act (IRA) Boosts Benefits for K-Battery Companies in the U.S.

U.S. President Joe Biden (center) signs the Inflation Reduction Act (IRA) in the State Room of the White House in Washington. / AFP Yonhap News

K-battery companies operating in the U.S. will receive benefits worth up to 90 trillion won over the next seven years starting this year thanks to specific guidelines from the Inflation Reduction Act (IRA). The profits these companies earn in this year and next year, the first year of implementation, are expected to reach 1 trillion won per year, and by 2025 when production volume rapidly increases, it is expected to reach 10 trillion won per year. If additional new and expanded facilities are completed as planned, benefits amounting to 20 trillion won will be received annually for four years from 2026 to 2029. In the future, subsidies exceeding 1 trillion won per year are expected for new and renewable industries such as solar power and wind power as well as batteries.

On the 14th (local time), the U.S. government issued specific guidelines for IRA Advanced Manufacturing Production Tax Credit (AMPC) items and announced that it would apply starting from production and sales early this year. In August of last year, the U.S. government implemented IRA, a bill to promote local production of electric vehicles, batteries, solar power, and wind power, and decided to apply AMPC, which returns a portion of the investment of companies in question as subsidies, starting this year.

The U.S. government charges $35 per kWh (kilowatt-hour) for electric vehicle battery cells (batteries), $10 per kWh for modules (packs), 4 cents per W (watt) for solar cells, and 4 cents per W (watt) for solar cells (panels) when produced and sold locally in the United States. decided to give cash of 7 cents per W or reduce taxes. For wind power, if you produce and sell a tower locally, you receive 3 cents per W depending on the capacity of the turbine generator.

The three battery companies LG Energy Solutions, SK On, and Samsung SDI, which plan to build or expand factories in the United States, as well as solar energy company Hanwha Solutions and wind tower specialist CS Wind, will benefit. LG Ensol and SK On’s operating profit from AMPC reached 200 billion won in the third quarter of this year alone, and Hanwha Solutions also reached 35 billion won.

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When the U.S. government announced the implementation of IRA in August last year, the effects expected by the industry have become visible. As a result of rapid efforts to target the U.S. market in the early and mid-2010s, it is believed that the IRA, which the U.S. government introduced to prevent the spread of Chinese products and promote local production, has had a surprising effect on these industries.

Status of domestic battery, solar, and wind power companies entering the U.S.

◇Quickly targeting the US market… IRA as a gift

LG Ensol, the world’s second-largest electric vehicle battery maker after China’s CATL, broke ground on a battery factory in Holland, Michigan in 2010 and began commercial production in 2012. Even though the electric vehicle market had not been fully developed to the point where it could only be seen at motor shows, orders were increased by targeting global automakers such as GM.

As the electric vehicle market showed signs of rapid growth with the emergence of Tesla, LG Ensol established Ultium Cells, a joint venture with GM in 2020, and began battery production at its Ohio plant at the end of last year. SK Ondo also opened a groundbreaking ceremony in Georgia, USA in 2019 and has been operating a 21.5GWh plant since last year. As a result, the amount that the two companies benefited from AMPC in the first to third quarters of this year amounted to 426.7 billion won and 376.9 billion won, respectively. In the third quarter alone, it is 215.5 billion won and 209.9 billion won, respectively.

Hanwha Solutions, which had lost its domestic market to Chinese companies, quickly headed to the United States. The production capacity of the solar module factory, which began production in June 2019, increased by 3.4GW (gigawatt) this year, earning 35 billion won in the third quarter alone. CS Wind, the world’s No. 1 wind tower company, which acquired Denmark’s Vestas’ Colorado plant in order to enter the North American market in 2021, will also receive an estimated subsidy of 100 billion won by the end of the year.

◇Ira excludes China and strengthens the global competitiveness of domestic companies

As domestic companies begin full-scale local production in the United States, the effects of IRA are expected to increase and competitiveness to further strengthen. LG Ensol’s production scale will increase to 300GWh in 2025, three times the current level, and SK On will reach 140GWh, six times more than the current level. Samsung SDI, which does not yet have a U.S. factory, will also begin operating a joint factory with Stellantis in 2025. Because of this expansion, the IRA benefits of our companies will increase rapidly.

However, industries that have been hit by IRA, such as electric vehicles, which still do not receive subsidies, and secondary battery materials, where the burden of raw material procurement and joint ventures have increased due to designation as a Foreign Organization of Concern (FEOC), are in dire need of measures. Sang-sik Jang, head of the trend analysis department at the Korea International Trade Association, said, “The United States’ public checks and AMPC subsidy benefits will provide Korean companies with the opportunity to catch three birds with one stone: increased sales, increased profitability, and improved technological competitiveness at the same time.” He added, “This will lead to the hollowing out of the domestic industry.” “A decline in the ability to create domestic jobs is a task for the future,” he said.

2023-12-15 11:50:58
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