In the continuing governmental trend toward the energy transition, congress passed the Inflation Reduction Action (IRA), legislation to combat climate change and strengthen domestic renewable energy technologies. President Biden recently signed this legislation on August 16. The IRA is a significant victory for the climate and renewable energy technologies, including tax credits for advanced manufacturing production, renewable and clean energy production, investments and clean fuel.
Renewable energy tax credits
The Inflation Reduction Act contains multiple new and extended tax credits for renewable energy technologies. These include:
- Wind: Tax credit extended from 2022 to 2025.
- Solar/fuel cells/geothermal: Tax credit is at 30%. Residential solar tax credit is extended by 10 years.
- Geothermal: Tax credit is extended by 10 years.
- Clean energy investment/production tax credit: 30% investment tax credit (ITC) for qualified facilities placed in service after Dec 31, 2024, and before Dec 31, 2032 –wind, solar and storage qualify.
- Enhanced subsidy for wind/solar that provides power to low-income communities
These renewable energy tax credits are restored in the bill to full rates for projects put in service from 2022 through 2032. Further, these credits are coordinated to begin phasing out when the United States greenhouse gas emissions reach a 75% reduction from 2022 levels.
The Inflation Reduction Act includes significant incentives for clean hydrogen production, including both production tax credits (PTCs) and investment tax credits (ITCs). This credit is available for 10 years, starting on the date the facility is placed in service. A four-tiered scale is used to calculate the credit amount depending on the levels of greenhouse gas that is removed with a maximum of 4 kg of CO2 equivalent per kg of hydrogen. If met, the PTC will be $3.00 per kg of clean hydrogen, with further bonuses available. Further requirements for the clean hydrogen incentives include:
- Projects must begin construction by 2033.
- Eligibility includes retrofit facilities.
- Cannot stack with the Carbon Capture and Sequestration Tax Credit (45Q).
- Includes Direct Pay and Transferability
- Intensity calculated with GREET model.
Read: What is Green Hydrogen?
Additional Tax Credit Bonuses
The Inflation Reduction Act also feature further tax credit bonuses for facility development. These bonuses, typically up to an additional 10% tax credit, incentivize domestic manufacturing, construction in certain areas and standard wage rates. Specifically, these bonuses include:
- Domestic Content (Made in America) Bonus – The credit will be increased by up to 10% if the project manager certifies that any steel, iron, or other materials used for facility construction was produced in the United States.
- Energy Community Bonus – The credit will be increased by a further 10% of the base amount if it is located in an Energy Community. An Energy Community is defined as either,
- A CERCLA brownfield site
- An area with significant employment (as determined by the Secretary of the Treasury) related to coal, oil, or natural gas
- A census tract in which a coal mine has closed after December 31, 1991, or a coal fired electric generating unit has been retired since December 31, 2009.
- Prevailing Wage and Apprenticeship Requirements: To receive the full credit, new facilities that begin construction more than 60 days after the launching of the IRA must pay at least the prevailing wage to all construction workers and include a minimum percentage of apprentices in the construction workforce.
The IRA provides a significant boost in incentives for renewable energy production and facility construction while pushing the country closer to energy transition goals. Tax credits benefit both new and existing developments, incentizing the further broadening of domestic clean energy production, transport and storage.
With these increased incentives and tax credit opportunities, now is the ideal time to start your energy project. Partnering with EnergyLink will expedite the process of designing, building and funding energy solutions across multiple project scales for your organization. Get started by clicking the button for a free quote. Want to stay up-to-date on the latest energy industry news? Fill out the form below.