The Inflation Reduction Act of 2022 invests a total of $369 billion in energy security and climate change measures, with the goals of increasing employment, decreasing inflation, and supporting US progress towards achieving a net-zero economy by 2050 (and reducing net GHG emissions by 40% below 2050 levels by 2030).
District energy systems may benefit from:
- The base rate for renewable energy tax credits, adjusted for inflation. The credit amount can be increased by a factor of five if the project meets new wage and apprenticeship requirements (including payment of prevailing wages and employment of qualified apprentices).
- The extension of the production tax credit (PTC) and investment tax credit (ITC) for renewable energy projects (including wind, solar, geothermal, hydropower, biogas, waste energy recovery, CHP, and microgrid properties) that begin construction before January 1, 2025. Solar projects may also now take the PTC in lieu of the ITC.
- Projects placed into service in 2022 or later, the base credit for wind projects is worth .3 cents/kWh, and raised to 1.5 cents/kWh if the wage and apprenticeship requirements are met.
- The ITC establishes a base rate of 6% with an increased rate of 30% if wage and apprenticeship requirements are met
- Additional credits are available for projects located in low-income or “energy” communities, or that use a minimum level of domestically manufactured content.
- The extension of the 30% ITC to stand-alone energy storage projects, provided the project receives, stores, and delivers energy for conversion to electricity (with a capacity of at least 5kWh), or if it stores thermal energy. To qualify, stand-alone storage must be placed in service after 2022 and before 2025. The ITC is also available for modifications to storage projects put into service before 2023 if the modifications increase the nameplate capacity.
- A stand-alone storage facility automatically qualifies for a base credit of 20% of the ITC, a bonus of 80% of the ITC if the wage and apprenticeship requirements are met, and additional credits if it satisfies domestic content or energy community requirements.
- This allows owner/operators to claim both a PTC on wind or solar projects and the ITC for paired storage projects.
- Availability of both the PTC and ITC for clean hydrogen projects.
- For both the ITC and PTC, projects with a max net output of less than 1 MW are exempt from the labor requirements, and receive the labor bonus automatically. For the ITC that means 30% credit with the bonus, 6% without. For the PTC, that means 1.5 cents per kWh with the bonus, 0.3 cents without.
- In 2025, both the ITC and PTC transition to new tech-neutral credits. Power generation facilities placed in service after 2024, regardless of the technology used, qualify for the credits if they generate no (or negative) CO2 equivalents based on the Treasury Department emissions table (not yet published). The new credits are equivalent to the ITC and PTC rates above, and are subject to a 4 year phase out beginning in 2032 at the earliest.
- The clean electricity ITC can also be applied to new units placed into service after 2024 in existing facilities. The credit would correlate to the increased amount of electricity produced at the facility.
- Many of the tax credits included in the IRA allow direct payments to be made in lieu of a reduction in tax liability (“direct pay”) and/or an option to monetize the credits by transferring them to an entity with greater tax liability (“transferability”). Direct pay is limited to certain tax exempt and governmental entities for most of the eligible tax credits.
- The new Nuclear Production tax credit. Existing nuclear power plants are eligible for a new PTC, for power sold beginning in 2024 and ending 2032, regardless of when the plant was brought into service.
- The IRA establishes a new $27 billion Greenhouse Gas Reduction Fund, which provides grants and technical assistance to states, tribal governments, and other non-profit organizations to enable communities to deploy (or benefit from) zero-emission technologies. $15 billion are specifically dedicated to providing financial and technical assistance in low-income and disadvantaged communities.