Bullseye: Nailing Prevailing Wage Requirements
The Inflation Reduction Act opened up more than $300 billion for clean energy investments, but to leverage all the money available to clean energy projects, developers will have to meet certain prevailing wage and apprenticeship requirements. Additionally, California now requires that all net-metered projects above 15 kW meet prevailing wage requirements. The tough thing is: those requirements are constantly changing, and it’s up to developers to meet them.
What are prevailing wage requirements?
Way back in 1931, Congress passed the Davis-Bacon Act, which required that all laborers and mechanics working on federally-assisted work be paid the prevailing wage for their job in their labor market at least once a week. Typically, these “prevailing wages” corresponded to the relevant union wage. Controversial in its origins, the Davis-Bacon Act still plays a crucial role in the labor market today. Since the passage of the IRA, some of the Davis-Bacon Act’s guidelines now stipulate how contractors can take advantage of increased incentives available in the IRA, namely the 30% ITC.
In addition to prevailing wage laws, these increased incentives in the IRA also require adherence to certain apprenticeship employment requirements. Apprenticeship employment rules incentivize the growth of the clean energy industry into the future by ensuring that generations ahead will have skilled workers to contribute to the clean energy economy.
If a clean energy project can meet both the prevailing wage and apprenticeship requirements, it becomes eligible for a tax incentive (credit or deduction) worth 30% of a project’s cost - that’s five times the base amount. The difference between 6% and 30% of a project’s cost is huge (that’s the difference between $9,000 and $45,000 on a $150,000 project), so listen up!
A moving target is hard to hit
The Department of the Treasury and the IRS recently shared guidance on how these wage and labor requirements apply to clean energy projects, which aims to provide more clarity for both employers and workers.
Meeting these requirements can be a challenging task, especially when the requirements themselves are confusing and evolving. This complexity makes it all the more important to partner with an experienced and reputable developer who can guide you through the process to ensure you squeeze the most financial support out of the available incentives to maximize your ROI.
Changes in California
In addition to the federal guidelines released by the Department of the Treasury and the IRS, the California Assembly recently passed a bill that establishes certain guidelines for its net metering program.
Assembly Bill 2143 mandates that all projects applying for net-metered interconnection after December 31, 2023 must pay prevailing wages, and requires that 20% of the labor be carried out by certified apprentices - this includes any energy storage associated with the project. The requirements apply to projects greater than 15 kW, although exceptions are made for multi-family homes under two stories and modular homes.
Net metering plays a huge role in a solar energy system’s ROI, because it allows the owner to further reduce their energy bill with the credits they generate. That makes these changes all the more important: If your system does not meet prevailing wage and apprenticeship standards, your system does not qualify for net metering, which severely lengthens the system’s payback period and greatly lowers your ROI.
Nailing it: Checking all your bases to ensure success
As with most processes, preparation is key to success. Having all your ducks in a row makes it that much easier to apply for increased incentives, given the developer needs to prove that your project meets all the required prevailing wage and apprenticeship requirements necessary for approval. With that in mind, here is a general guide for how clean energy projects can meet these requirements:
Prevailing wages: Laborers working on a federally-assisted clean energy project must be paid at least their prevailing wage for their position in their job market, in addition to any fringe benefits as established by the “Secretary of Labor when performing construction, alteration, or repair of a qualified facility, project, property, or equipment.” Contractors can determine the prevailing wage using sam.gov.
Apprenticeship requirements: A contractor employing four or more workers on a clean energy project must employ at least one apprentice. Additionally, the apprentice (or apprentices) must perform at least 12.5 percent of the working hours on the project for projects beginning in 2023. That percentage rises to 15 in 2024 and after.
Record keeping: Like we said earlier, it is the contractor’s responsibility to maintain records of having met all of these requirements.
Corrections: If any of these stipulations are failed to be met, the contractor can make payments to amend the penalty. Doing so will allow them to claim the increased incentive.
Bullseye!
Prevailing wage and apprenticeship requirements are complicated, convoluted, and constantly evolving. But with net metering eligibility and a 5x credit multiplier on the line, that extra work is more than worth it. Picking the right partner can ensure you receive the complete increased incentive for your project, and reduce the overall cost of your project as much as possible.
Promise Energy has deep policy experience in the clean energy industry, and is your partner for the ride. Get in touch with us today and let us show you how we work with our clients to ensure success in the Age of the IRA.
Our Integrated Approach
At Promise Energy, we understand that every facility has unique needs, especially when it comes to solar, storage, and the interconnection process. Promise’s integrated approach to energy is what differentiates us from the crowd, and you can count on our energy experts to custom-design a system to meet the unique energy needs for your business.
Contact Promise Energy at info@promiseenergy.com for a complimentary energy evaluation of your facility.
At Promise Energy, we don’t believe that one size fits all. We pride ourselves in designing and installing customized energy solutions that provide the greatest long-term value and energy control for our customers.