CHP, the ITC, and “Safe Harboring” Your Project
CHP and the IRA Investment Tax Credit
The landmark Inflation Reduction Act (IRA) provides a myriad of tax incentives to developers for constructing renewable energy projects. Among those is the Investment Tax Credit (ITC), which provides a tax credit worth up to 50% of a project’s cost, depending on certain qualifications that must be met. For renewable energy and energy efficiency installations at businesses around the country, this can be a game-changer.
In fact, under the IRA, CHP systems can now qualify for the ITC (yes, all 50%). However, beginning January 1, 2025, CHP systems will only qualify for the ITC if they qualify as a “clean energy technology.” That means in order to qualify, your CHP system must be a zero emissions system. That said, businesses should act now to “safe harbor” their project, and ensure their CHP system can qualify for the full ITC value.
What is the ITC?
Simply put, the ITC is the hallmark of the IRA. It’s what many say catalyzed the renewable energy industry from the beginning, and it continues to incentivize the development of renewable energy technologies across the country. At its base level, the ITC offers 6% of the project cost in the form of a tax credit. However, if your project meets certain criteria, it can qualify for much more. Here’s how the ITC would break down for a project that costs $5,000,000:
| Original project cost: | $5,000,000 |
| Immediately qualifies for 6% base credit: | $300,000 |
| 6% base credit is multiplied by 5x if: | |
| - Prevailing wage is paid | |
| - Apprentices are employed | |
| $300,000 x 5 = | $1,500,000 |
| 10% credit adder for domestic content: | $1,500,000 + $500,000 = $2,000,000 |
| 10% credit adder if located in an “energy community”: | $2,000,000 + $500,000 = $2,500,000 |
| Total project cost with maximum ITC incentives: | $5,000,000 - $2,500,000 = $2,500,000 (50% of project cost!) |
Keeping an eye on the clock
With the kind of incentives available today, it has never made more financial sense to install a CHP system for your business. However, your CHP system won’t qualify for these incentives by this time next year unless it’s a zero emissions system. That’s because the ITC will be changing to the “Clean Energy ITC” in 2025, meaning that the type of technology that qualifies for the credit will change as well.
Because of this eventual change, it’s important to act now to make sure your CHP system qualifies for the full ITC. Beginning the construction process this year can “safe harbor” your project to ensure it qualifies. There are two ways to do this:
Incur 5% of the total project cost, or:
Begin physically working on the project.
Either of these approaches will “safe harbor” your project, and qualify it to receive up to 50% of the project cost through the ITC.
Act now to maximize savings
CHP can create a variety of benefits for your business. Whether you are operating 24 hours a day, looking for relief from demand charges, or want system redundancies within your energy profile, CHP can improve the energy efficiency of your operation by 30%! By acting now to “safe harbor” your project, you can reap both the benefits of energy savings AND lower the cost of installation with the ITC. Waiting until 2025 could cost you - so reach out to Promise today!
Our Integrated Approach
At Promise Energy, we understand that every facility has unique needs, especially when it comes to solar, storage, and CHP. 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.