What Does the Inflation Reduction Act do for Clean Energy?

Many people want to make their homes and businesses more environmentally friendly, and often the only thing stopping them is the expense. But now, with the passage of the Inflation Reduction Act, there are more financial incentives to help make these clean energy projects more affordable for many of us. This act is the largest ever put forward by the United States to fight climate change. Its primary goal is to reduce carbon emissions and accelerate the country’s energy dependence away from fossil fuels.

The Federal Investment Tax Credit within the Inflation Reduction Act (IRA) provides 161 billion dollars in clean electricity tax credits. The credit runs through 2032. After that, they will begin to taper off. 

How To Take Advantage of the Federal Investment Tax Credit

This tax credit can be claimed on federal corporate income taxes for 30% of the cost of a solar photovoltaic (PV) system during the tax year.

One of the biggest things this does is provide builders more opportunities to expand energy storage. Previously standalone battery storage units were only given credit if attached to a solar project, but now with the IRA, standalone storage is available within the Investment Tax Credit (ITC). 

The projects that fall under the ITC include solar, solar + storage, and standalone storage. It’s also important to note that even though the IRA passed recently, your project qualifies as long as it began by January 1, 2022. 

Eligible projects will receive a 5x multiplier on the ITC rate by meeting the Prevailing Wage and Apprenticeship Standard, also known as the Labor Multiplier. Another bonus with the ITC is that direct pay is now an option for some entities, such as those that are tax-exempt. 

Another additional tax credit provided under the ITC worth noting is that the cost a developer pays to a utility for interconnection may be applied to the ITC as long as that cost is paid or incurred by the taxpayer.

What You Can Do With the Solar Production Tax Credit

Solar is now included in the Production Tax Credit (PTC) with the Inflation Reduction Act. The rate of the credit depends on the size of your project. 

The PTC has a Domestic Content Credit and “Energy Community” Credit. The Domestic Content Credit is met by having:

  • 100% steel or iron produced in the US, AND
  • A share of the total costs of manufactured products made in the US

Energy Community Credits are defined as the following:

  • Superfund sites
  • Statistical areas with 
  1. 17% of unemployment or 24% of local tax revenues related to fossil fuels
  2. Unemployment rates above the national average
  • Census tracks adjacent to a coal mine that closed after 1999 or a coal-fired power plant that retired after 2009

Where Inflation Reduction Act Might Impact Your Projects

The Inflation Reduction Act predicts it will increase solar and storage deployments by up to 43%. There are supply concerns for the first year or two of the bill, but the hope is that once those are resolved, these projects will be able to pick up the pace.

The IRA also allows credit to be applied against payroll taxes and other expenses, such as technology and product development.

More Clean Energy for Low-Income Areas

Projects deployed in low-income areas can get up to a 20% bonus credit. There are going to be large parts of the country that qualify for this extra credit. To qualify, the solar project must:

  • Be placed into service after December 31, 2021, and begin construction before January 1, 2025
  • Be located in a low-income community or part of a low-income benefit project
  • Have a maximum net output of fewer than 5 megawatts

For an area to be considered low income, it must be on a census tract where the poverty rate is at least 20% or the average family income is less than 80% of the state’s median family income. 

More Markets Open Up for Standalone Battery Storage

There will be more sections across the country where standalone battery storage will have a significant impact. Many projects deployed to date have been tied to storage, but now standalone battery storage no longer has to be connected to solar to qualify for the tax credit. 

How We Can Help You

Whether you’re ready to begin your project or just starting the research phase, we can help you. Financing options are available, and we’re prepared to answer any questions you may have to help you make the best decisions for your particular project. 

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