The Inflation Reduction Act (IRA) of 2022 has been a huge topic of discussion within the renewable energy industry since it became law in August 2022. It invests close to $370 billion into clean energy technologies, supply chains, and infrastructure to help lower energy costs and expand the use of clean energy all over the US. For commercial and industrial solar installations, many of these tax credits and funding programs are essential to bring project costs down and entice more facilities to adopt solar. Colite Technologies’ off-grid renewable lighting systems are also eligible for these incentives and look great paired with rooftop solar!

Much of the initial information on the IRA is vague and requires further clarification for any practical application to a renewable energy project. Therefore, this page is intended to be a high-level resource of select pieces of the law relevant to commercial and industrial applications, and to keep up with new updates as guidance is released by the Treasury Department. Click the resource links for more detailed information in each section and consult with your accounting team to understand how the IRA would apply to your business, specifically.

Keep checking back for new information and contact us if you would like to speak to one of our specialists! We’re constantly following new developments in the renewable energy space and are able to help you make sense of all the recent changes. These two additional blog posts may also be of interest: 

Summary

The most valued portion of the Inflation Reduction Act for commercial and industrial solar projects is the business Investment Tax Credit (ITC). The IRA has increased the credit amount to 30% and extended it until 2032 or when energy sector emissions reach 25% of 2022 levels, whichever comes first. At that point, the tax credit will phase down over multiple years. The ITC becomes technology netural, opening it up to a wider variety of clean energy technologies including battery storage, and is now eligible to be transferred and received as a direct payment for certain entities.

The table below shows a summary of the ITC and potential bonus adders if a project meets certain requirements. The bonuses are stackable – meaning if the project meets multiple requirements, you can claim multiple bonuses. This brings the total maximum credit potential to 70%!

Transferability & Direct Pay

• Transferability: can transfer the ITC amount to another taxpayer once, unless the need for multiple transfers is demonstrated
• Direct pay: can recieve the ITC amount as a direct payment if you are one of the following
  • Tax exempt entity
  • State government (or political subdivision)
  • Tennessee Valley Authority
  • Native American tribal government
  • Alaska Native Corporation
  • Rural electric co-op

In the future, direct payment recipients will need to ensure their project meets domestic content requirements to receive the full incentive amount. If the requirement is not met, the ITC amount will decrease as follows:

• 2024 – 90% of direct pay amount
• 2025 – 85% of direct pay amount
• 2026 and after – 0% of direct pay amount

(Inflation Reduction Act Guidebook pg. 14)

Prevailing Wage & Apprenticeship

A prevailing wage is the combination of the basic hourly wage rate and any fringe benefits rate, paid to workers in a specific classification of laborer or mechanic in the area where construction, alteration, or repair is performed, as determined by the Secretary of Labor in accordance with subchapter IV of chapter 31 of title 40 of the United States Code, also known as the Davis-Bacon Act.

More information: https://www.dol.gov/agencies/whd/IRA

Taxpayers must meet all of the following requirements to qualify for the apprenticeship tax bonuses

• Labor hour requirement: certain number of labor hours, expressed as a percentage of total labor hours, must be performed by qualified apprentices subject to ratio requirements
• Ratio requirement: numeric ratio of apprentices to journeyworkers, as applicable determined by a Registered Apprenticeship program
• Participation requirement: taxpayer and any contractors and subcontractors who employ four or more individuals to perform construction, alteration, or repair work must employ at least one qualified apprentice to perform such work

More information: https://www.apprenticeship.gov/inflation-reduction-act-apprenticeship-resources

Energy Communities

• Brownfield site
• Area with unemployment rates at or above the national average AND at least 0.17% of employment or 25% of local tax revenues are related to extraction, processing, transport, or storage of coal, oil, or natural gas at any time since 2010
• Census tracts where a coal mine closed after 1999 or a coal-fired power plant was retired after 2009

More information: https://www.resources.org/common-resources/what-is-an-energy-community/

Low-Income Communities Bonus Credit Program

The Low-Income Communities Bonus Credit program will allocate 1.8 GW of capacity available in 2023 across four categories for solar and wind projects with maximum output of less 5 MW. The bonus credit amount varies by the project category, with categories 1 and 2 receiving 10% and categories 3 and 4 receiving 20%.

• Category 1: Located in a low-income community (10% bonus)
  • Low-income community defined as any area with a poverty rate for at least 20% or the median family income does not exceed 80% of statewide median family income
  • 700 MW allocation for 2023
• Category 2: Located on Native American land (10% bonus)
  • If a project is on Native American land and is also part of category 3 or 4, the project is considered either category 3 or 4 as applicable.
  • 200 MW allocation for 2023
• Category 3: Qualified Low-Income Residential Building Project (20% bonus)
  • The project is installed on a residential rental building which participates in an affordable housing program and the financial benefits of electricity produced are allocated equitably among the occupants of the building
  • 200 MW allocation for 2023
• Category 4: Qualified Low-Income Economic Benefit Project (20% bonus)
  • At least 50% of financial benefits of the electricity produced are provided to households with income of less than 200% of the poverty line or less than 80% of area median gross income
  • 700 MW allocation for 2023

More information: https://home.treasury.gov/news/press-releases/jy1269

Further Resources

Inflation Reduction Act Guidebook: https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/

IRS Tax Laws: https://www.irs.gov/inflation-reduction-act-of-2022

IRA Full Text: https://www.congress.gov/bill/117th-congress/house-bill/5376