What the Inflation Reduction Act Means for the Solar Industry (Post-Treasury Guidance)

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First it was the American Jobs Plan, then it was the Build Back Better Act, and finally, on the eve of its passage, the Inflation Reduction Act. Legislative euphemisms aside, the IRA's passage is a giant victory for renewable energy writ large, and solar in particular. It is meant to provide the necessary fuel for the United State to reach ambitious clean energy targets.

Cheif among the law's proposals as relates to solar is the reinstatement of the Energy Investment Tax Credit to its original level of 30% after it was stepped down to 26% in 2022. This sweeping credit applies retroactively to all solar systems, and energy storage systems fed exclusively by solar, built anytime after Jan. 1 2022.

And just to be clear, this tax credit applies to the gross cost of the solar system before the application of any state or utility incentives. It is a dollar for dollar credit (not a lowering of the taxable basis) against taxes owed and is non-refundable, meaning that if you owe less in taxes than the value of the credit, you will not recieve that excess as a direct payment, but can roll the balance over to future tax years.

Equally important is that tax credits may now be sold or transferred by system owners to third parties. Prior to the IRA Act's passage, system owners who did not have the requisite tax liability could not access make use of the tax credits except through complicated tax equity partnerships with large investment houses whose structuring costs—including legal and accounting fees—made them prohibitively expensive for all but the largest projects.

Now any system owner or developer, large or small, can trade tax credits on burdgeoning tax credit markets. Companies like Reunion and others are acting as market makers for tax credits, which are currently trading at $.92 to $.96 on the dollar, with $.98 the expected return. This market, now in it's infancy, is expanding as the Treasury Department issues more and more guidance on credit trading and transfer, further stabilizing the price per dollar of credit.

And even more exciting for non-profits, local and tribal governments, and cooperatives is the tax credits may now be directly paid as cash to tax-exempt organizations! Guidance on direct pay is spelled out by organization category here.

Finally, Rivertown Solar is making sure to offer American made equipment when possible to customers, especially on larger commercial tax credits, in order to take advantage of the new domestic content bonus ITC. From the Department of Energy:

To qualify for the domestic content bonus, all structural steel or iron products used must be produced in the United States and a “required percentage” of the total costs of manufactured products (including components) of the facility need to be mined, produced, or manufactured in the United States. The percentage is calculated by dividing the cost of all domestically manufactured products and components by the total cost of all manufactured products.

Projects that meet domestic content minimums are eligible for a 10 percentage point increase in value of the ITC (e.g., an additional 10% for a 30% ITC = 40%) or 10 percent increase in value of the PTC (e.g., an additional 0.3 ¢/kWh for a 2.75 ¢/kWh).

The required percentage of manufactured products starts at 40% for all projects beginning construction before 2025, increases to 45% for projects beginning construction in 2025, 50% for projects beginning construction in 2026, and 55% for projects beginning construction after 2026.

This incredible peice of legislation is perhaps the single greatest boon to clean energy in America's history. We here at Rivertown Solar are ready to bring its benefits to our customers.