What’s in the Inflation Reduction Act for the solar industry?

Inflation Reduction Act
Image: Sunrun

This past Sunday, the United States Senate passed the Inflation Reduction Act, and today the House of Representatives votes on the bill. It is now on its way to the President’s desk for a final signature as soon as next week.

The bill – known technically as H.R. 5376 – Inflation Reduction Act of 2022 – is 730 pages of dense legalese. The document covers a wide variety of topics including healthcare, corporate taxes, staffing at the IRS, and – of course – energy related legislation.

With that, we at pv magazine USA will try our best to extract and point to the pieces of the legislation that will directly affect our industry.

Investment Tax Credit

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 business and residential 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 agnostic 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. This technology agnostic tax credit can be found starting on page 464.

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