{"id":1804,"date":"2022-08-26T19:21:37","date_gmt":"2022-08-26T19:21:37","guid":{"rendered":"https:\/\/colitetech.com\/?p=1804"},"modified":"2023-02-08T20:00:32","modified_gmt":"2023-02-08T20:00:32","slug":"what-does-the-inflation-reduction-act-mean-for-renewable-energy","status":"publish","type":"post","link":"https:\/\/colitetech.com\/blog\/what-does-the-inflation-reduction-act-mean-for-renewable-energy\/","title":{"rendered":"What Does the Inflation Reduction Act Mean for Renewable Energy?"},"content":{"rendered":"

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The energy industry\u2019s attention has been laser focused on the Inflation Reduction Act of 2022<\/a><\/strong> for the last several months. With the president\u2019s signature on August 16, the Act is now law and will invest historic amounts of resources into clean energy<\/span> and emissions-reducing technologies<\/span>. <\/span>Just a week <\/span>and a half <\/span>later, we are already seeing a flurry of activity <\/span>around new <\/span>renewable energy <\/span>projects <\/span>and <\/span>the revival of old projects.\u00a0<\/span><\/span>\u00a0<\/span><\/p>\n

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US Greenhouse Gas Emissions Drop<\/h1>\n

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Princeton University\u2019s REPEAT Project<\/a><\/strong> e<\/span>stimates that the Inflation Reduction Act <\/span>(IRA) <\/span>would decrease <\/span>greenhouse gas emissions by about 1.8 billion tons <\/span>\u2013 <\/span>from<\/span> around 5.6 billion tons in <\/span>2021<\/span> to around 3.8 billion tons in 2030. This brings the US to nearly 42% below 2005 emissions levels in 2030, not quite reaching the 2030 target of 50% below 2005 levels.<\/span><\/span>\u00a0<\/span><\/p>\n

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Much of this reduction is due to the significant boost in solar and wind capacity expected <\/span>as a result of<\/span> the I<\/span>RA<\/span>. <\/span>Solar<\/span> is slated to jump from 10GW of solar PV (utility-scale) in 2020 to an average of 49GW per year in 2025, about five times the 2020 pace with growth rates increasing thereafter. <\/span>Wind capacity additions totaled 15GW<\/span> <\/span>in 2020 and are predicted to increase to 39GW\/year in 2025, about two times the pace of 2020. (pg. 11)<\/span><\/span><\/p>\n

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Further, enhancement of the 45Q tax credit will incentivize the deployment of carbon capture at natural gas and coal power plants, decreasing greenhouse gas emissions from some of the most polluting industries.<\/span><\/span>\u00a0<\/span><\/p>\n

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Clean Energy Investment<\/h1>\n

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In parallel to the capacity additions, the capital investment in new energy supply infrastructure will reach <\/span>nearly <\/span>$3.5 trillion<\/span> over the next decade. Specifically looking at solar PV and wind, <\/span>investment would double to <\/span>$321 billion<\/span> in 2030 v<\/span>ersu<\/span>s <\/span>$177 billion<\/span> under policy<\/span> <\/span>pre-IRA<\/span>. The act also includes<\/span> <\/span>\u201c<\/span>tens of billions of dollars in grants, tax credits, and loan programs to <\/span>develop manufacturing and<\/span> <\/span>supply chains for clean energy components, batteries,<\/span> <\/span>electric vehicles and critical minerals<\/span>.\u201d (pg. 12)<\/span> <\/span>The <\/span>buildout<\/span> of manufacturing and supply chains will support job creation and skilled labor development <\/span>in communities across the US <\/span>\u2013 creating a domino effect increasing investment in <\/span>adjacent <\/span>industries.<\/span><\/span>\u00a0<\/span><\/p>\n

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Tax Credit Extension and Flexibility<\/span><\/span><\/h1>\n

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Perhaps the most pertinent change <\/span>affecting<\/span> renewable energy deployment is the extension of the <\/span>business <\/span>Investment Tax Credit <\/span>(ITC) <\/span>and<\/span> <\/span>added flexibility for credit eligibility<\/span>. (This summary comes from <\/span>SEIA Inflation Reduction Act Summary<\/a><\/strong>)<\/span><\/em> For commercial and industrial energy users, the ITC is one of the major incentivizing factors for solar projects.<\/span> The tax credit <\/span>will be increased<\/span> to 30% from 26%<\/span> currently<\/span> for projects that have started or start construction <\/span>before the end of 2024<\/span>. It then continues at the 30% rate until 2032, then phases down to 0% in 2036. The ITC also becomes available for interconnection costs if the project is less than 5MW ac.<\/span><\/span>\u00a0<\/span><\/p>\n

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There are bonuses to the base ITC depending on the size of project and if they meet certain criteria. The chart below details the tax rates by project size.\u00a0<\/span>\u00a0<\/span><\/p>\n

For projects under 1MW ac, businesses can add the following bonuses in addition to the 30% ITC:<\/span>\u00a0<\/span><\/p>\n