Norway-based Equinor exited several countries in recent years to refocus its international portfolio—but the Inflation Reduction Act (IRA) played a direct role in the U.S. becoming a significant destination for the company’s capital.

“We do have a bit of an optimized oil and gas portfolio here, but because of the IRA we are starting to invest in other forms of transition businesses,” said Chris Golden, Equinor U.S. upstream and country manager. Prior to the IRA’s passage, it was difficult for the company to build a broad energy business domestically because of economics.

The IRA, coupled with other favorable laws, brought benefits such as investment and production tax credits among other incentives to support renewable energy development in efforts to lower greenhouse gas emissions.

However, with a new incoming administration, concerns have centered on what changes are to come for President Joe Biden’s historic climate law, which was opposed by every Republican.

Of particular interest is what will become of tax credit provisions not yet finalized—and unobligated funds—as President-elect Donald Trump gears up for his second term.

“I’m not going to speculate on policy changes, but I can tell you what’s really important as an operator who has the opportunity to invest globally: we need predictability and stability in policy,” Golden said during a recent energy conference in Houston. “It’s really about where do we feel the most comfort in investing significant dollars in large, complex projects and how does that compete in a global landscape with policy certainty being a key component of how competitive is that project.”

The energy producer has invested more than $55 billion in the traditional oil and gas business in the U.S. Equinor’s 350,000-boe/d portfolio is expected to grow to about 430,000 boe/d next year following its $1.25 billion acquisition of non-operated assets from EQT Corp.

Equinor is also developing one of the nation’s largest offshore wind farms, the 2.1-gigawatt Empire Wind in the New York Bight. In the Smackover Formation, Equinor partnered with Standard Lithium. It’s working with TotalEnergies and Chevron on the large-scale Bayou Bend carbon capture and storage project. Equinor also holds a lease offshore California for floating wind.

“And we have battery storage projects with East Point Energy out here in Texas,” Golden said. “We’re screening several other opportunities as well. But again, these opportunities need to continue to compete with our global opportunities.”

Uncertainties

The ability to secure tax credits is a significant factor in some renewable energy projects’ ability to clear financial investment decision hurdles. With the absence of a carbon tax in the U.S. to incentivize more renewable energy uptake, direct subsidies are still relied upon to help spur growth as operators and technology developers work to bring down costs further.

The IRA enhanced or created more than 20 tax incentives for clean energy and manufacturing, according to the Treasury Department. The energy industry is awaiting final guidance on how to qualify for some credits, including the hydrogen production tax credit.

“In an environment where you don’t know what the rules of the game will be, that’s going to chill activity,” said George Bilicic, vice chairman and global head of power, energy and infrastructure for Lazard, a financial advisory and asset management firm.

Political and regulatory uncertainty may cause some instability at some companies that need to raise capital in the short term, he said during the conference session.

The IRA has attracted capital to areas that wouldn’t have otherwise. However, he added renewables have been around for a while with investments from utilities, among others. “The cost of these projects has gone down and the reliability of the projects have gone up.”

Bilicic noted that it is interesting how capital providers are evaluating the sector now, going from euphoria decades ago with full value given to unrealistic development pipelines to much more scrutiny today. “If you look at the total addressable market for investment just in energy transition areas, there’s so much capital needed.”

Still, capital is flowing.

He sees areas of concern not so much related to the political environment as it is to capital.

“Is capital going to be attracted to the relevant thing we’re working on? Is there enough capital? Is capital formed the right way? Are they going to pay you for what you’ve developed?”

Regulatory uncertainty, however, is not expected to have a chilling effect on innovation.

Duane Sherritt, vice president of low carbon solutions for Halliburton, pointed out the changing behaviors of industry, particularly for oil and gas, where innovation can be a competitive advantage and “there wasn’t a lot of sharing across industry.”

The low-carbon and renewable energy arenas are different.

“In this environment, there is a lot of collaboration across industry with policymakers, with academia, with the service sector and the operators. What we need is stability. ... We need predictability and sustainability.”

For carbon capture, utilization and sequestration (CCUS), standard protocols are also needed to improve auditing and verification processes, he added.

Other concerns

Despite the regulatory uncertainty, Golden said the U.S. remains one of the most important countries for Equinor because of its potential to “help us achieve our vision of a broad energy company.”

The company, he said, is committed to all of its U.S. investments. “We’re currently screening for additional opportunities in multiple buckets, if you will, whether it be renewables or CCUS or lithium or what have you. I think for us and probably for a lot of industry, it’s a little bit about pace right now, because there’s other challenges.”

Inflation is making projects more expensive, which cuts into the benefits of policy incentives, Golden said.

Inflation, along with interest rates and supply chain delays, were among the reasons several offshore wind developers canceled or scaled back projects in recent years and sought to renegotiate contracts. Equinor was among them.

Susan Nickey, executive vice president and chief client officer for investment company HASI, addressed the impact of interest rates on capital deployment.

“The market adjusts pretty quickly in terms of the cost of capital at the financing stage,” Nickey said. One of the lessons learned is to make sure contracts have inflation or cost-to-capital adjusters to avoid having to recontract power purchase agreements, she said.

HASI invests more than $2 billion per year in clean energy assets, she said.

“Our clients want to make sure their projects are economic when they ... hit the marketplace,” Nickey said. “Having demand for your product and having more demand with supply is really a great opportunity.”

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