The Inflation Reduction Act (IRA) has the potential to give a significant boost to the US renewable energy industry. The IRA focuses on two primary levers to stimulate US renewable energy production: tax incentives and direct government funding programs.
In this blog, we will dive into the tax incentives offered by the IRA, how they work, and how they can help you benefit from solar energy.
Investment Tax Credit (ITC)
The ITC is offered to companies or individuals who purchase or invest in renewable energy-producing assets, including solar-powered street lights, benches, and bus shelters. The credit is tied to the total investment amount required to install eligible renewable energy assets. The ITC was enacted in 2006 and has since served as a significant catalyst for the industry.
Before the IRA, the ITC was scheduled to step down from 26% to 22% in 2023, and 10% in 2024. However, the IRA has increased the ITC from 26% to 30% and extended it for 10 years.
How can you benefit from the ITC when purchasing EnGoPlanet's solar products?
Tax-paying customers of EnGoPlanet can leverage the ITC to subsidize their purchases. The IRA has extended the ITC to cover energy storage projects, which were previously excluded. This is also important for EnGoPlanet customers because they can apply the tax credit to the whole system, not just the solar components. The project can receive an additional 10% credit if located in a low-income community or on Indian land or an additional 20% credit if such a project is part of a qualified low-income residential building project or qualified low-income economic benefit project. Standalone energy storage is not eligible for this credit, but energy storage installed in connection with wind and solar projects may be eligible.
Production Tax Credit (PTC)
The Production Tax Credit (PTC) is a US federal income tax credit given for each kilowatt hour of electricity generated by certain types of renewable or zero carbon emission projects. The PTC can be applied to solar, wind energy, and battery components, and will be available for all clean energy projects after 2024. Customers of EnGoPlanet can elect a tax credit of 1.5 cents per kWh produced for up to 10 years, but this cannot be combined with the Investment Tax Credit (ITC). Certain wage and labor requirements must be met to receive the increased credit of 1.5 cents.
To sum up
● Extending the ITC and PTC for projects beginning construction through 2024, and removal of the phase down.
● Expanding the PTC to include solar.
● Expanding the ITC to include energy storage projects.
● Adopting a base/bonus rate structure for many credits under which the bonus rate
requires satisfaction of prevailing wage and apprenticeship requirements.
● Adopting additional credit amounts for domestic content, energy communities, and low-income communities.
● Adding direct payment (for non-taxpayers and, in a few cases, taxpayers) and transferability (for taxpayers) in lieu of claiming nonrefundable credits.
● Adopting the technology-neutral clean energy ITC (CEITC) and clean energy PTC (CEPTC) for projects placed in service after 2024.
● Adding an ITC and a PTC for clean hydrogen.
● Adding the advanced manufacturing production credit available for, among other things, components of solar, wind, and battery projects.