For the past few years, the solar industry has been concerned about the aftermath of the investment tax credit expiration. IRA 2022 removed that concern, and below you will learn more about it.

 

RA (Inflation Reduction Act) of 2022:

The Inflation Reduction Act of 2022 is a bill passed by the 117th United States Congress in August 2022 that aims to curb inflation by reducing the deficit, lowering prescription drug prices, and investing into domestic energy production while promoting clean energy solutions. The Department of the Treasury states that the Inflation Reduction Act of 2022 will make America more competitive, lower health and energy costs for families, create high-quality jobs, bolster our energy security, sharply lower emissions, reduce the budget deficit, and increase long-term economic growth. 

IRA for the solar industry:

The Investment Tax Credit has been increased from 26% to 30%. The 30% applies to both business and residential projects, including projects installed in 2022, and will last until the end of 2032. The residential tax credit is not transferable. Energy storage projects were previously ineligible for tax credits unless they were connected directly to solar power projects. The Inflation Reduction Act allows energy storage projects to receive the same 30% tax credit, even if they are stand-alone facilities. Starting in 2025, the Investment Tax Credit will be retired and turned into a much broader, technology agnostic credit, that applies not only to solar power, but to many emission reducing techniques.  For projects of more than 1 MWac and above attention to employment requirements is necessary. By default, the tax credit is 6%. To be eligible for the additional 24%, laborers and mechanics installing the solar power projects must be paid prevailing wages, and must be part of an electrical apprenticeship program. These tax credits will begin to apply to projects in 2023.

Tax credit adders:

  • Domestic Content: Solar power projects eligible for the full 30% tax credit can increase their tax credit by an additional 10% – to 40% in total – by purchasing domestically produced hardware. Historically, for goods to be classified as Made in the USA, they must be composed of at least 55% domestic content.
  • Project siting: Projects that are located in former ‘energy communities’ can earn an additional 10% tax credit. Energy communities are first defined as brownfields, and secondly as locations associated with fossil fuels over the last generation.

Clean electricity production credit:

The Production Tax Credit is now fully applicable to the solar power industry. This credit is titled the ‘Clean Electricity Production Credit’. If a solar power project meets the prevailing wage requirements, then it will receive a tax credit of 2.5 cents/kWh for the first ten years of a project’s life, otherwise, it will earn only 0.3 cents/kWh before adjustment for inflation. Going forward, the production credit will be inflation adjusted.

Domestic solar hardware manufacturing:

The Ossoff Manufacturing Credits recently made it into the bill. Now, there are tax credits for manufacturing the various solar panel, inverter, and racking components, as well.

60% tax credit opportunity:

There is also a 10% adder for solar power projects that sell their electricity via community solar projects to low-income individuals. If we add the 30% tax credit base, 10% for domestic content, 10% for being located in a former fossil fuel energy community, and 10% for selling the electricity via community solar to low income families – the tax credit could potentially reach 60%.

Solar industry’s reaction to passage of the IRA:

The landmark legislation has been met with celebration in the US solar industry as it prepares for a record decade of deployment.

Sources:

https://pv-magazine-usa.com/2022/08/12/whats-in-the-inflation-reduction-act-for-the-solar-industry/

https://pv-magazine-usa.com/2022/08/15/solar-industry-reacts-to-passage-of-the-inflation-reduction-act/