After almost a year and a half of debates, on August 7th, the U.S. Senate passed the Inflation Reduction Act of 2022. The act is known as H.R.5376 – Inflation Reduction Act of 2022 and is over 700 pages of IRS staffing, corporate taxes, healthcare, and energy regulations. With nearly $370 billion dedicated to promoting green energy and reducing harmful emissions, many changes are in store for the future. Join us as we discuss how the bill helps put money back in consumers’ pockets and how it is changing purchasing of solar.
ITC- Investment Tax Credit
For years individuals and businesses have been able to claim tax reductions through tax credits. One such tax credit was the federal residential solar energy credit. This credit was dropping in value and was set to expire in 2024. The Inflation Reduction Act of 2022 changed this and has paved the way for the next ten years.
The Breakdown of ITC
The ITC is increasing to 30% and applies to both residential and business projects. Starting with solar energy projects installed in 2022, the ITC will last till the end of 2032. Not only can the tax credits be applied to the owners themselves, but they can also be transferred or sold to other taxpayers.
The credit will begin to decrease after 2032.
An Additional 10%
Solar power projects that are eligible for the complete 30% also have an option for an extra 10% tax credit. If the project uses domestically produced hardware, the project is eligible for the additional tax credit.
Energy Storage Projects
Previously ineligible for your tax credits, energy storage projects are now eligible. The new act has removed the previous requirements of needing a direct connection to solar panels, making it available for stand-alone facilities. This will allow you to write off your backup systems even if they are disconnected from the solar panels.
Net Energy Metering is a California program through Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison (SCE) territories. NEM is how metering is processed with your power company and your solar panels. Currently, there is a proposal to change the current NEM 2.0 to NEM 3.0. Here are the major changes you need to know about:
- Lower Energy Credits
- Changes in Time Of Use Plans
- Additional Monthly Fees
Energy credits will decrease from between $.022/kWh and $0.36/kWh to between $0.047/kWh and $0.058/kWh. Time Of Use Plans will shift to higher electricity rates during peak hours. There will be a monthly Grid Participation Charge of $8/kilowatt for all enrolled in the NEM 3.0 program.
The biggest change with NEM 3.0 will be the monthly solar tax. NEM 3.0 will “add new monthly fees to the electricity bills of future solar owners, and reduce the amount of time people on NEM 1.0 and NEM 2.0 can receive bill credits under those programs.” While $8/kilowatt does not sound drastic, it can end up costing homeowners $600 more a year. Net Energy Metering is changing and will cost the consumer more as prices increase.
Title 24 is California’s Building Energy Efficiency Standards. They can be found in the California Code of Regulations, Title 24, Part 6. Standards are updated every three years and are based upon a 30-year lifespan of the building. These standards consider the homeowner’s cost-effectiveness, new energy technologies, and construction processes.
According to the California Energy Commission, “The 2022 Energy Code encourages efficient electric heat pumps, establishes electric-ready requirements for new homes, expands solar photovoltaic and battery storage standards, strengthens ventilation standards, and more.” Buildings that these standards apply to are not just new homes but also any additions and alterations to residential and non-residential buildings.
In short, every new build will have to have solar or another source of alternative energy. While the standards will differ depending on your climate zone, all new construction will have to adopt the new regulations. Local governments will set the regulations regarding solar regarding solar. If you are looking to build a new home or add an addition to your home, you will have to follow Title 24’s new energy standards.
What This Means For You
Now is the time to buy solar. With 30% tax credits being offered and a reduction in the amount you pay to your electric company, your panels will pay for themselves. Not to mention the ability to transfer or sell your ITC to others.
Prices of electricity will continue to rise, and tax credits will eventually expire. Don’t wait till it’s too late. Here at DC Solar Electric, we pride ourselves on having the knowledge all our customers need when purchasing solar. We will walk you through every step, from bidding to the best ways to make your money back. Give us a call today and join the movement for a greener future (aka more money in your pocket!)