Supply Chain Finance Helps Enterprises Capitalize on U.S. Clean Energy Legislation
By 4 minute read• Published August 24, 2022 •
The Inflation Reduction Act signed into U.S. law on August 16, 2022 (the ”Act”) is the biggest clean energy investment in American government history. Over $300 billion of the $430 billion bill will be invested in climate change mitigation activities that will boost clean energy and energy innovation. Examples include incentives for creating a stronger domestic renewable energy infrastructure as well as incentives for electric vehicles and home energy efficiency.
But what does this mean for the supply chains most affected by this legislation?
While the Act promotes investment in domestic manufacturing, there are several stringent sourcing requirements. One example is the EV tax credit. It can only be applied towards vehicles that have been built with locally extracted and processed critical minerals. To meet increased demand for qualifying EVs, many manufacturers will have to make significant changes to their operations and supplier portfolios, and many new companies will need to be started.
It goes without saying that the transition to local sourcing and production is not an easy task – particularly right now. Many supply chains are already stressed by labor, materials and transportation shortages. In some ways, this legislation aims to solve these problems by bringing production closer to American shores. But it’s a long game. It will take time to resolve all the required challenges. Meanwhile, the rush of consumer demand and a rush towards suppliers that can help manufacturers meet sourcing requirements will be immediate. Many suppliers won’t share in the same government subsidies even as they have their own changes to make, which will result in many financial and operational stresses.
That’s where the problem lies. The changes that buyers and suppliers need to make will require capital, an injection of liquidity if you will; and one that goes beyond federal incentives. Economic destabilization and dislocation across the supply chain is a very real risk.
Funding Change Throughout the Supply Chain
Fortunately, supply chain finance has the power to stabilize supply chains as they recalibrate their operations. It’s a way for businesses to make material improvements to free cash flow to fund climate change-related initiatives – whether these are changes to infrastructure or changes to their supplier portfolios. Just as importantly, supply chain finance allows companies to help their suppliers accelerate cash flow so they can do the same.
Multi-funder supply chain finance delivers an added benefit – the ability for businesses to partner with financial institutions that have designated green funds. These banks are eager to deploy those funds cost effectively into qualifying programs. Through PrimeRevenue’s platform, financial institutions with these designated “green funds” can look through the platform and develop relationships directly with suppliers that meet their requirements. This allows financial institutions to know their designated funding is going directly to support the desired activities.
If you’d like to learn more about how supply chain finance can help your company tackle some of the opportunities and challenges created by the Inflation Reduction Act, contact us.