Inflation Reduction Act & AB-2143: What You Need to Know
The Inflation Reduction Act (IRA) recently signed into law by President Biden grants the largest remake of our energy system in over 100 years. The law creates substantial new subsidies for “carbon-free” energy installations. The bill also adds considerable complexity to the process with severe penalties or substantial reductions of tax credits if all requirements are not met precisely.
The IRA introduces powerful new tools such as direct pay and transferability of tax credits for funding on-site energy production.
THE GOOD NEWS
The good news is projects currently under construction will see the investment tax credit increase from 26% to 30%. Projects that begin and/or complete construction by December 31, 2023, are safely harbored into existing rules but at a higher 30% tax credit.
All storage systems are now eligible for a 30% tax credit. Previously, only storage paired with a solar system could receive credits. Grid-charged standalone storage projects are now a viable option.
Projects less than 1 MW are eligible for a 30% tax credit with the opportunity to increase to 50%. Projects located in a former “energy community” may be eligible for a 10% bonus credit along with an additional 10% credit added if the project is in a low-income community or part of a “low-income benefit project.”
NEW RULES
Projects that begin construction on January 1, 2024, must meet the IRA's new requirements.
The requirements increase for projects greater than 1 MW. To receive the 30% “base” tax credit, the projects must be built exclusively by workers paid the prevailing wage. Projects that do not meet this requirement will see the investment tax credit reduced from 30% to 6%, an 80% reduction.
Projects over 1 MW are also eligible for the 10% energy community and 10% low-income adders but face the same 80% reduction for projects that do not meet the prevailing wage requirements, from 10% to 2% (more on CA’s new prevailing wage laws below).
Larger commercial projects (>1 MW) will be eligible for an additional 10% tax credit for meeting domestic content requirements. Under the law, all steel must be made in the USA. The treasury department will be issuing guidance on the minimum percentage content of manufactured goods, modules, inverters, etc. It is expected to start at 40% but increase rapidly.
SELL YOUR TAX CREDITS
Beginning in 2023, the Investment Tax Credit is no longer “use it or lose it.” Historically, these credits could only be carried over for a limited time if a project owner had limited tax liability. In 2023 these credits can be sold to anyone.
DIRECT PAY
The IRA will allow direct pay benefits to non-profit and government entities. This allows non-profit organizations to receive ITC benefits as a payment. Because of this, non-profit groups will not be pressured to go solar through a PPA agreement. Non-profit organizations and government entities can now own solar and storage systems outright and receive the ITC and other incentives.
California to Require Prevailing Wage on Net Metering Projects
On September 29th, Governor Newsom signed AB-2143 into law, a bill by Assembly Member Wendy Carrillo. It designates all commercial Net Energy Metering (NEM) projects as public works, including prevailing wage regulation and a requirement that 20% of work hours be filled with apprentices from certified programs.
The new requirements will apply to “construction [of a NEM system] after December 31, 2023.” It is not clear if that means systems permitted before that date will be exempt from the requirements or if wages for projects under construction at that time will suddenly be regulated.
The JKB team will let you know as soon as guidelines are published.
The Path Forward
Please reach out to our team with any questions regarding the IRA’s impact on current or future systems.
We are the experts here to help you navigate these changes, minimize disadvantages and maximize benefits toward a brighter future.