IRA for Solar, Storage, and CHP
The Inflation Reduction Act
After nearly two years of back-and-forth, congressional Democrats have struck a deal to put forth the largest investment in climate change action in history, putting solar energy for businesses back in the fast lane. The Inflation Reduction Act, which was signed by President Joe Biden on August 16th, invests nearly $369 billion in energy security and climate measures, from both consumer rebates and manufacturing credits, to loans for the Department of Energy. Wondering how your business could reap the benefits of this historic bill? This article outlines the IRA’s planned initiatives in solar, energy storage, and energy efficiency - and what that means for your next energy upgrade.
Commercial Solar Provisions
The Federal Investment Tax Credit (ITC)
The original flagship policy of the solar industry is the federal Investment Tax Credit (ITC), which lowered upfront costs, improved ROI by speeding up solar’s payback period, and spurred a true market boom. The ITC for commercial solar, which was slated to sunset in 2024, has been extended to 2025, and upped to 30% of the cost of installation. For those systems producing more than 1 megawatt (MW), certain hourly wage and benefit standards must be met, and a certain percentage of the workforce must consist of apprentices to qualify for all 30% of the credit. These standards must be upheld for 5 years following the start of service. Otherwise, the credit baseline stands at 6% of the cost of installation. The ITC provisions also encourage domestic manufacturing by providing credit adders for domestically-produced components. In fact, if all of the adder stipulations are met, the ITC could be worth 50%.
The ITC’s continuation after 2025 is dependent on the electricity sector’s emissions reductions. Essentially, the credit is valid for seven years following 2025, or until the electricity sector has seen a 75% reduction in emissions from 2022 levels. This updated timeline creates more long-term financial certainty for businesses looking to go solar, which stands out in our uncertain economic climate.
The Federal Production Tax Credit (PTC)
Whereas the ITC is for the installation of solar systems, the Production Tax Credit is for the actual energy produced by renewable energy systems. Previously phased out in 2006, the PTC for solar energy has been reinstated in the IRA, meaning that energy produced through via commercial solar systems is eligible for the PTC. As it stands, the PTC is $0.026 per kWh, and rises with inflation. For a system to qualify, the same hourly wage and benefit standards as in the ITC apply, as well as the apprentice workforce stipulation. However, for the PTC, these standards must be upheld for 10 years. Those who install commercial solar can opt to receive either the ITC or PTC.
Credit Transferability
Previously, only large institutions with the means to finance these projects could invest in renewable energy. Now, smaller companies can transfer both ITC and PTC tax credits, which opens the door to smaller projects being financed via credit transfers. This means great things for smaller-scale commercial solar, which has historically struggled to attract the support of large institutional investors.
Projects that deliver long-term value can often be delayed or deprioritized due to budget constraints, especially if they have a high price tag. By removing the upfront cost barrier, on-bill financing enables you to secure energy projects that pay for themselves through lasting operational savings. This frees up your capital to manage other priorities, which is especially helpful in uncertain times. Plus, any surplus savings from your energy project can also be allocated to address deferred maintenance projects or other unfunded capital improvements.
The IRA takes the renewable energy tax credit system further by implementing a “direct pay” option. Essentially, this election option allows the individual to write off the credits they would have received under the ITC or PTC as taxes they paid. This allows them to collect the monetary value of these credits as refunds.
A Big Win for Energy Storage
As an emerging technology, energy storage has thus far been largely left out of impactful policy. But did you know that energy storage can dramatically expand the capacity of a solar system? An energy storage system basically functions as a well for electricity, consuming the excess from your system, and distributing it when called upon. Included in the Inflation Reduction Act is an important provision for energy storage, in the form of the new, expanded ITC.
The Federal ITC for Energy Storage
Previously, in order for the cost of an energy storage system to qualify for the ITC, it had to be connected to a qualifying energy system. Under the Inflation Reduction Act, standalone energy storage systems now qualify for the same 30% tax credit that solar energy systems do.
Energy Efficiency Upgrades
Energy efficiency can have huge impacts on your bottom line. You might be wasting money on powering an inefficient air conditioner, or losing heat through poorly insulated windows. While investing in new equipment might sound costly upfront, they provide major savings down the line. The Inflation Reduction Act also does a lot for building energy efficiency, in the form of tax credits and rebates for consumers. In some cases, the credits could even amount to the new equipment’s entire cost.
What often goes overlooked in discussion of the new ITC is its extension to apply to combined heat and power systems. Under the upgraded and extended ITC, CHP systems can benefit from a 30% tax credit on systems used to heat and cool buildings.
Consumers can benefit from up to $8,000 for a heat pump for heating and cooling, and up to $1,700 for window insulation to keep that warm or cool air in. For those looking to retrofit as opposed to going with new equipment, there is $2,000 available for improvements that save 20% or more energy, and as much as $4,000 if that efficiency improves by 35% or more. Unsure of where to begin, you can utilize the bill’s $150 stipend for an energy audit, to determine where best to put your money.
These energy efficiency credits are available for customers to use multiple times, too! This means that you can make one upgrade one year, and another the following year.
Big Changes for a Growing Industry
Overall, the Inflation Reduction Act provides a lot of money for solar energy installation and production, energy storage, and energy efficiency. For those looking to install solar on their commercial premises, the extended and upgraded ITC provides a major launching pad. Standalone storage also becomes a viable option, whereas previously it was only affordable to most if it were included in the installation of a solar system. Building energy efficiency also gets a slice of the pie in the form of consumer rebates for efficiency-improving equipment.
Ready to see how much you can save with solar and storage? Contact Promise Energy at info@promiseenergy.com for a free evaluation.
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.