The Inflation Reduction Act was signed into law by President Biden in August 2022. While the content of the bill is wide-ranging, of specific interest for facilities executives and commercial, municipal, or institutional building owners is the section of the Act outlining incentives for the installation of solar energy panels.
The Inflation Reduction Act restores the current renewable energy section 45 Production Tax Credit (PTC) and Investment Tax Credit (ITC) credits to their full phaseout. Projects must have an apprentice program and use prevailing wage for labor to qualify for the full 100% of the tax credit, while bonus incentives are available for construction projects that use union labor, and/or source at least 40% of their materials from domestic manufacturing. In addition, the legislation allows tax credit recipients to monetize the credits via a direct pay option, or sell those tax credits to a third party.
The credits outlined are available for any qualifying project that begins construction prior to January 1, 2025. Any project placed in service prior to 2022 remains subject to the previous phaseout dates of the PTC and ITC.
While the federal incentives are available nationwide, there are additional state and local incentives for renewable energy that may be available. In addition, projects located in an “energy community” may qualify for an incremental 10% increase to tax credits through the Inflation reduction Act. Energy Communities may include brownfield sites; areas with significant employment in industries related to coal, oil, or natural gas; communities with an unemployment rate above the national average; or communities where a coal mine or coal-fired electric plant has been retired at any point since 1999.