How individuals and businesses seeking to invest in clean energy can benefit from this new legislation
After more than a year of debate over costs, taxes, tax credits, and regulations, President Joe Biden finally signed the Inflation Reduction Act (IRA) - a sweeping tax, health, and climate bill - into law on August 16th. Despite the fact that this is a significantly reduced version of the original $1.75 trillion Build Back Better plan, we are still tremendously excited about the growth that this law will bring to the clean energy and electric mobility industries.
Specifically, the new law includes a $369 billion investment in climate and energy policies, $64 billion to extend a policy under the Affordable Care Act to reduce health insurance costs, and a 15% corporate minimum tax aimed at companies that earn more than $1 billion a year.
As an energy-focused company, our primary interest here is understanding the key provisions of the climate and energy policies established within the new law. We hope to show you that there are valuable financial incentives for all sorts of energy-related investments.
Below is Donovan Energy’s take on the specific provisions by subcategory.
Incentives For Energy Efficiency & Building Electrification
The IRA brings considerable funding to local governments, state governments, and competitive federal grants to advance energy efficiency in buildings. Importantly, this is only the second time in history that the Energy Efficiency and Conservation Block Grant (EECBG) program has been funded (the first was in 2010). The EECBG program will provide funds directed towards larger cities to invest in efficiency projects in their government buildings and communities.
This law includes funding to update local energy codes and incentives to make it less expensive for developers to incorporate sustainable materials into new projects. Existing home and building owners will also benefit
IRA provides funding to utility companies so their customers will convert to an all-electric energy infrastructure through enhanced rebate programs.
$27 billion is allocated to green bank funding. The property assessed clean energy (PACE) market is advocating for ways to deploy these funds into loan loss reserves to back PACE deals in a favorable way.
Streamlining Renewable Energy Projects
Included in the IRA are funds enabling communities to become “solar ready”. The funds will be used to streamline permitting processes and reduce the time and cost of going solar when interfacing with local governments and utilities.
More money will also be allocated to on-shoring manufacturing (also in the CHIPS bill, or “the Chips and Science Act”). This will most likely result in lower-priced solar systems.
More Funding for Electric Vehicle Charging Infrastructure
In addition to all of the current funding trickling down to the electric vehicle (EV) industry from the previously-enacted Infrastructure Bill, the IRA brings even more money to individuals and businesses seeking to adopt, or transition to, electric vehicles. Specifically, businesses may be eligible to receive the Clean Commercial Vehicle Credit for 30% of the difference between the cost of the clean vehicle and its gas-powered counterpart, up to $40,000 per medium/heavy-duty commercial EV. To incentivize the buildout of vehicle charging infrastructure, the Alternative Fuel Vehicle Refueling Property Credit for 30% of total costs of purchase and installation of charging equipment (up to $100,000 per charger) may also be available.
This funding will generally originate at the state level, which will then be allocated to communities and partners to underwrite the cost of EV charging and related planning and infrastructure.
Personal and Business Tax Incentives for Energy Efficiency, EVs, and Renewable Energy
The Energy Policy Act (EPACT) 179D can give commercial building owners some substantial tax deductions, based on the square footage of their building(s). Under certain conditions, the available deduction increases from $1.80/SF to $5.00/SF for advanced energy measures that impact the efficiency of a facility’s lighting system, HVAC system, and building envelope.
The Energy Efficient Commercial Retrofit Credit allows a deduction of $2.50-$5.00/SF for energy efficient retrofits to buildings that are five years or older.
The existing $7,500 tax credit for the purchase of new electric vehicles has been extended out 10 years– adding a $4,000 credit for the second time an EV is sold as a used car.
The Solar Investment Tax Credit (ITC) provides a reinstatement of the full 30% credit and locks it in for 10 years. This creates a great deal of stability that has been absent in the market. There are also provisions that allow for the monetization of that credit to take place in the first year that a new solar system is built and brought into service, even if this is in excess of the company’s tax burden.
Will you take advantage of this clean energy windfall?
In summary, the IRA puts the United States back on track to meeting its Paris Agreement commitment and reclaiming the mantle of global climate leader. We see it as a means to keep the United States competitive in global markets by protecting American industries; further driving the global competitiveness necessary to avoid dangerous climate change by limiting global warming to well below 2°C. To get there, this new legislation offers rich incentives to individuals and businesses.
Donovan Energy is at the forefront of clean energy technology. We empower business leaders to redefine their approach to energy with solutions that simultaneously provide superior financial returns and increase the underlying value of their assets and organizations. Our solutions more than pay for themselves by decreasing energy costs, simplifying project financing, reducing energy usage, and increasing renewable energy production.
Let us show you how to make energy-efficient improvements that save you money. If you are interested in learning more about implementing clean energy projects in your business and claiming the benefits offered under the IRA, we’d love to help.