Encouraging Investment in Solar with The Inflation Reduction Act
With the goal of reducing carbon emissions by 40 percent by 2030, the U.S. Congress passed the Inflation Reduction Act of 2022 in early August. The legislation provides the industry with a predictable energy policy for the next decade as well as $369 billion in spending to deploy renewable energy, spur domestic manufacturing, and reduce pollution. The bill largely passed along party lines with Vice President Kamala Harris casting the tie-breaking vote in the U.S. Senate.
Boosting solar by increasing tax credits
To encourage investment in solar, the Act increases the Investment Tax Credit (ITC) from 26 percent to 30 percent. The credit applies to both business and residential projects, including solar projects installed in 2022, until the end of 2032. To encourage the development of new clean energy technologies, after 2024, the renewable energy production tax credits will shift from being technology-specific to being emissions-based.
The following energy storage projects are now eligible for the 30 percent tax credit:
- Energy storage projects regardless of whether they are directly connected to solar power projects, a previous condition for eligibility.
- Stand-alone energy storage facilities also qualify for the tax credit.
- Batteries connected to a solar power project qualify for the credit even if they are no longer being charged by solar power.
For projects smaller than 5 megawatts AC, interconnection costs will also be included in the tax credit.
Spurring domestic manufacturing
By purchasing domestically produced hardware, solar power projects may qualify for a 40 percent total tax credit—the ITC plus an additional 10 percent.
To qualify for the additional 10 percent, all of the steel and iron used in the project must be manufactured in the United States. Manufactured goods used in the project, including solar panels, inverters, and electrical equipment, must be 40 percent U.S. manufactured, a percentage that will increase in the future.
For solar module manufacturing, the tax credits are expected to include:
- Solar cells – 4 cents per DC watt of capacity
- Solar wagers – $12 per square meter
- Solar grade polysilicon – $3 per kilogram
- Polymeric back sheet – 40 cents per square meter
- Solar modules – 7 cents per DC watt of capacity
For inverter manufacturing, the credit would be applied per watt of AC:
- Central inverter – 0.25 cents
- Utility inverter – 1.5 cents
- Commercial inverters – 2 cents
- Residential inverters – 6.5 cents
- Microinverters – 11 cents
Historically, goods designated as “Made in the USA” must be composed of at least 55 percent domestic content. The Act includes loopholes to the domestic content requirements that allow project teams to increase the use of imported goods, including goods that:
- Are of unsatisfactory quality
- Are not produced in sufficient quantities
- Would increase the project cost by greater than 25 percent
Helping communities tied to fossil fuels
The Act defines the concept of “energy communities,” which may benefit from an additional credit: Projects located in brownfields or in communities associated with fossil fuels may qualify for an additional 10 percent tax credit.
These communities are those with significant extraction jobs associated with coal, oil, or natural gas as of December 31,1999. If a coal power plant or mine has closed in the same window, the area and its surrounding census tracts are also eligible.
Driving community solar projects
The Act includes an additional 10 percent tax credit for solar power projects that sell their electricity via community solar projects to low-income individuals. With this additional 10 percent credit, some projects may qualify for a whopping 60 percent tax credit. To reach 60 percent, the project would need to qualify for the following:
- 30 percent ITC plus
- 10 percent for domestic content plus
- 10 percent for locating in a former fossil fuel energy community plus
- 10 percent for selling the electricity via community solar
Creating up to 1.5 million new jobs
The investments in the Inflation Reduction Act could help the U.S. take greater control over its renewable energy future. By fostering a domestic energy manufacturing sector, the Act could create up to 1.5 million new U.S. jobs in 2030 in construction, manufacturing, and service. [1]
Next steps
If you are a business owner considering an investment in solar, contact us for a free assessment. Making a switch or diversifying your energy sources with a solar energy system can be a safe, financially smart, and profitable decision in the longer term. If going solar is something that sounds right for your business, there are many things to consider. We can help you make sense of the entire picture. To learn if solar is the right
[1] https://energyinnovation.org/wp-content/uploads/2022/08/Modeling-the-Inflation-Reduction-Act-with-the-US-Energy-Policy-Simulator_August.pdf