6 things to know from the Inflation Reduction Act, and some to watch

The legislation deploys billions of dollars into renewable energy projects, electric vehicles, US manufacturing, carbon neutral technologies such as hydrogen and nuclear, and creates stability for investors looking to deploy capital into our sector.  In addition to climate, the legislation also tackles healthcare and taxes. 

While there are some open-ended questions still, here are our key takeaways so far.

1. The 30% Investment Tax Credit (ITC) for Solar projects is to be expanded
2. A new 30% Stand-alone Storage ITC which will be available for storage only projects, regardless of how storage is charged
3. The Act introduces additional bonus credits (10% each) up to 60% total available to projects that (1) include domestic content, (2) serve low to moderate income communities and are less than 5MWac (Megawatt after conversion), or (3) are in “energy communities” which are brownfields or have been economically impacted by the shuttering of facilities such as coal plants or coal mines
4. For solar projects less than 5MWac, interconnection costs will be ITC eligible
5. Solar projects now have the option to claim ITC or Production Tax Credits (PTC) of $0.26/MWh, adjusted each year for inflation, for 10 years.
6. The act allows not-for-profit and municipal customers to qualify for Direct Pay

While the Act is good news for all large energy users, it is especially game changing for municipal and not-for-profit organizations, such as higher education institutes, as it will allow them to take advantage of tax credits via “direct pay,” Which were formerly reserved for only tax-paying entities. Direct pay is a method in which the IRS will cut a check to the entity via their tax return for the ITC (similarly to if you overpaid taxes and the government sent you a check).

There are additional contingencies on these credits, intended to boost the US manufacturing and labor markets, which require prevailing wage and union labor in some cases. In addition, the legislation incentivizes focus on energy communities, defined as those who are identified as disproportionately impacted by energy production due to proximity to traditional generation with a bonus for projects created in such communities and an increased ITC for low-income communities.

We are continuing to dig into the details of the legislation to ensure that we are able to capture the additional incentives available to your projects. Reach out to your local Account Executive to discuss what the Inflation Reduction Act might mean for you!