What the Inflation Reduction Act means for the Solar Industry

Last week, we saw the passing of the Inflation Reduction Act into United States law. The bill, technically known as H.R. 5376 - Inflation Reduction Act of 2022 is 730 pages. The document covers a wide variety of topics including healthcare, corporate taxes, staffing at the IRS, and energy related legislation. The Investment Tax Credit is what has the attention of the solar industry.

The Investment Tax Credit has been increased from 26% to 30% and may now be transferred or sold to other taxpayers. The 30% applies to both businesses and residential solar projects, including projects installed in 2022, and will last until the end of 2032. Everyone should learn how to utilize a transferable credit. While transferable credits are not as simple as cash from the government via Direct Pay, they are not nearly as complex as tax equity structures.

Energy storage projects were previously ineligible for tax credits unless they were connected directly to solar power projects. The Inflation Reduction Act removes these requirements, and allows energy storage projects to receive the same 30% tax credit, even if they are stand-alone facilities. Batteries connected to a solar power project will continue to qualify for the credit, even if they are no longer being charged by solar power. Interconnection costs will also be included in the tax credit, for projects smaller than 5 MWac. The business tax credit can be found starting on page 263, while the residential tax credit update can be found starting on page 351.

Starting in 2025, the Investment Tax Credit will be retired and turned into a much broader technology credit, that applies not only to solar power, but to many emission reducing techniques. The same terms apply for solar, which also gets a 30% transferable tax credit that lasts until September 30, 2031. After 2032, the credit will begin to decrease.

There are additional tax credits for EVs, electrical panels, heat pumps, and many other directly related to our industry. Not all of the details of the legislation are fully developed, as there are rules that the IRS and Treasury Department will need to develop, publicize, and provide guidance on for more specific detailed tax related questions. More updates to come~!

References: https://www.pv-magazine.com/2022/08/15/whats-in-the-inflation-reduction-act-for-the-solar-industry/?utm_source=dlvr.it&utm_medium=twitter; August 15, 2022 John Fitzgerald Weaver; PV Magazine.