Benefit from a Clean Energy Future through the Inflation Reduction Act

Sustainability

Sep 1

By 2030, the Inflation Reduction Act signed by President Biden on August 16, 2022 will double clean energy production and cut US climate pollution by 50 percent, setting us on track to achieve net zero emissions by 2050.[1] In addition to offering families and businesses billions of dollars in incentives to upgrade to energy efficient appliances and electric vehicles, the Act aims to propel new investments in solar and wind.[2] At $740 billion,[3] it is the United States’ single most significant investment in a clean energy future.[4] The long-term stability of benefits to homeowners and business owners also ensures demand within the solar industry for the next 10 years.[5]

The IRA, which restores and extends federal solar tax credits through the end of 2032, increases the rebate on residential and commercial solar installations from 26 percent to 30 percent, regardless of a person’s income.[6] When paired with state-specific savings, the total rebate rises to 30 – 40 percent.[7] Homeowners who install solar through the end of 2032 can deduct 30 percent of the cost from their federal income taxes—and they can carry over any unused credit to the following year. Upgrades to homes or cars will also bank extra, indirect savings on fuel and utility bills.[8] Projected savings for families who take advantage of clean energy and electric vehicle tax credits exceed $1,000 a year.[9]

Community solar projects are eligible for additional benefits of up to 20%.[10] Investment credit for domestic solar begins at 30 percent, but it could be as high as 70 percent for projects under 5MW and 50 percent for larger projects.[11] Potential solar customers can maximize their economics by choosing between Production Tax Credits and Investment Tax Credits.[12]

In addition to its focus on individual family savings, the IRA places special emphasis on building a clean energy economy. For small businesses that want to make energy efficiency improvements, the IRA provides an additional credit per square foot in addition to the 30 percent credit for solar installation. The Act also expands affordable and accessible solar energy to federally subsidized housing projects by offering them an additional 20 percent bonus credit. Low-income communities will receive an extra bonus credit of 10 percent.[13], [14]

Building an economy around clean energy also means the IRA will use historic tax credits to create—and sustain—millions of good-paying, clean energy jobs in solar, wind, and related industries.[15] To expand and fortify the existing opportunities in those industries, the Act will invest in large-scale clean power generation and storage across the US. State-by-state, these investments range from $30 million to $62.7 billion.

The Act also incentivizes businesses that pay a prevailing wage by offering extra bonuses on top of the regular credits. Additionally, the bill allocates $3 billion to supporting climate-smart agriculture practices, job creation, and renewable energy projects in rural areas.[16], [17] It provides seed funds for state and local institutions that finance clean energy projects and support the deployment of zero-emissions technologies.[18]

Because of these benefits, solar installers, distributors, and manufacturers should prepare for a boom in business.

In 2021, about 2.5% of U.S. electricity was generated by solar, but that number is expected to rise to 67% in the next ten years as savings provided by the IRA result in a projected installation of 950 million solar panels by 2030. [19], [20] The Act also provides incentives for domestic solar manufacturing that will result in an influx of American-manufactured solar products, beginning in late 2023.[21]

Given the unprecedented supply chain challenges of the last two years, solar industry experts emphasize the importance for manufacturers and installers to plan ahead, establish reliable relationships with their distribution partners, and realistically assess their future business needs.[22]

[1] Jahi Wise, Special Assistant to the President for Climate Policy and Finance at The White House

[2] Analysis: Democrats Score Big Wins on Climate, Drugs With $430 Billion U.S. Senate Bill

[3] Inflation Reduction Act Includes Ag Friendly Provisions: Biofuels Industry Gets Big Boost

[4] BY THE NUMBERS: The Inflation Reduction Act

[5] David Dunlap, BayWa r.e. Solar Distribution

[6] STATE FACT SHEETS: How the Inflation Reduction Act Lowers Energy Costs, Creates Jobs, and Tackles Climate Change Across America

[7] BY THE NUMBERS: The Inflation Reduction Act

[8] Jahi Wise, Special Assistant to the President for Climate Policy and Finance at The White House

[9] BY THE NUMBERS: The Inflation Reduction Act

[10] How The Inflation Reduction Act Helps You and Your Community Go Solar

[11] IRA ‘Turbocharging’ of Clean Energy Tax Credits Could Boost Nextera, AES, Other Renewable Developers: S&P

[12] New Production Tax Credit Will Spur Solar Generation; Development Costs May Rise