South Korean clean energy companies become major winners from Washington's sweeping climate law as they benefit from tax credits and a shift away from China.
South Korean solar equipment maker Hanwha Solutions Corp., which has manufacturing and research sites in North America, said it’s expecting to receive more than $200 million in tax credits annually starting from 2023.
CS Wind Corp., a wind farm developer which operates the largest US facility for constructing wind towers, is also expecting a big windfall from the credits. The two businesses are looking into making more investments in the U.S. as result of the law.
The Inflation Reduction Act (IRA), which President Joe Biden signed into law last week, earmarks $374 billion for cutting carbon emissions and expanding domestic manufacturing of wind, solar, batteries, and green hydrogen. The U.S.’ goal to cut reliance on Chinese equipment should also gives Korean firms a competitive advantage.
“Without the Chinese firms in the picture, Korean companies in the clean energy sector are the clear winners,” said Shin Jin-ho, co-chief executive officer at Midas International Asset Management Ltd. “Given that the legislation is designed to cut American dependence on Chinese supplies, that should offer benefits to even auto and battery makers in the long term.”
Since the law has been approved, Hanwha is preparing a multiyear, multibillion-dollar investment in rebuilding its US solar supply chain, according to a company spokesman, adding that the firm will also obtain more credits as its capacity rises. CS Wind also said it is considering additional investments as the law has turned the environment more favorable.
However, Korean automakers, EV battery manufacturers may face challenges, said Hyundai Motor Co., LG Energy Solutions Ltd. and SK On Co., as they need to move more production to the U.S. and use less Chinese materials, which could undermine their competitiveness.
Hyundai Motor is spending $300 million to expand a facility in Alabama and is also investing $5.5 billion to build an EV assembly and battery plant in Georgia.
Japanese financial holding company Nomura Holdings Inc. said in note that it may be more challenging for South Korea to collect critical minerals for batteries from regions such as the U.S. and its Free Trade Agreement partners. China dominates the EV battery supply chain and accounts for more than 50% of lithium processing capacity.
Industry Minister Lee Chang-yang said on Aug. 22 that South Korea will “actively” consider filing a complaint to the World Trade Organization, as the law excludes tax benefits for EVs made outside of the US, which is against their bilateral free trade agreement.
The bill has been boosting the share prices of Korean companies. Both Hanwha Solutions and CS Wind have soared by about 40% from their mid-July lows. Solar modules and cells maker Hyundai Energy Solutions Co. has also experienced a sharp increase, while the share price of Doosan Fuel Cell Co., which engages in hydrogen projects, has increased over the same time period as well.
“Within Asia, South Korea stands out as one of the major beneficiaries,” said Ulrik Fugmann, senior portfolio manager and co-head of the environmental strategies group at BNP Paribas Asset Management. “It’s clear that the climate bill is the US response to take on Asia as a leader in environmental technologies, and the IRA has a heavy emphasis on domestic supply chain.”