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The Inflation Reduction Act (IRA) AND What It Means for Solar

Publish Date: August 19th, 2022

The newly passed Inflation Reduction Act of 2022 is exciting news for the renewable energy industry. It’s designed to combat climate change primarily through incentivizing residential and commercial adoption of clean energy through an extension of the investment tax credit (ITC), also known as the federal solar tax credit, and home and vehicle electrification.

The Inflation Reduction Act also contains a lot of different factors related to health care, corporations, taxes, and more. But we’re going to focus on what the act means for clean energy and more specifically what it means for you – our residential and commercial solar customers.

There is still much to learn about the act and the rule making process to follow so we recognize that there will be gaps in the information we share at this time. For now, we wanted to outline the key opportunities for our customers.

Just give me the bullet points of the key programs

The Inflation Reduction Act includes a $369 billion investment in energy security and climate change; the largest investment in climate in United States history. The act is predicted to reduce climate pollution to 40% below 2005 levels by 2030; add 1.5 million new jobs in construction, manufacturing, and service; and save up to 3,900 lives annually by 2030 because of cleaner air. The act also includes incentives to increase domestic manufacturing and provides support to make that happen. These are big wins for our collective future, but there are also quite a few wins for you as a residential homeowner and/or commercial property owner.

  • Tax credit on solar installations: The federal solar tax credit is not only sticking around, it’s increasing to 30% for both home and commercial solar. This 30% tax credit will be in place until 2032. After that, homeowners will get 26% in 2033 and 22% in 2034, and in 2035, the credit goes away. The phase out is more nuanced for commercial (details below).This credit will continue to incentivize the adoption of solar.
  • Incentives for home electrification: The act introduced the Home Rebate Program, which means there are now rebates for energy-efficient appliances. The appliances included are heat pumps for water heaters, heat pumps for heating and cooling, electric stoves or ovens, electric heat pump clothes dryers, an upgrade to circuit breaker boxes, improvements to ventilation, and improvements to wiring. The rebate amounts will vary based on an individual’s income.
  • Tax credits for electric cars: Individuals who make less than $150,000 or married couples that make less than $300,000 can receive a $7,500 tax credit when they buy a new EV or up to $4,000 when they buy a used one. The bill does specify that the EV batteries are required to come from North America or the United States’ trading partners.
  • The Commercial Buildings Energy Efficient credit: This is an addition that allows building owners to claim a tax deduction for installing qualifying systems that reduce energy usage in buildings. Businesses achieving 25-50% reductions in energy use will now receive tax deductions per square foot for the part of building that is meeting these qualifications.
  • The Zero Building Energy Code Adoption: This invests $1 billion into making sure more Americans can live and work in zero-emission buildings. This will lower energy bills and improve health and safety. It also means a major shift for commercial properties to be greener and more energy efficient.

What does this mean for homeowners?

Based on the programs outlined above, there are a couple of takeaways for homeowners. If you are a homeowner that had solar installed in 2022, you will now receive the 30% tax credit instead of the 26% tax credit that you were previously expecting. If you do not have solar yet, you now have even more incentives to electrify your home and make it powered by the sun.

What does this mean for commercial property owners?

The Inflation Reduction Act is complex, especially when it comes to commercial properties, but here are some of the important takeaways for property owners to know about commercial solar installation:

  • The ITC is back up to 30%, including all projects that were placed in service in 2022.
  • Direct pay is now an option for non-taxable entities. This is a big one for non-profits and local governments! State and tribal governments plus certain tax-exempt entities and rural cooperatives now have the opportunity to benefit from the tax credit without needing a third-party entity. In the past, tax-exempt entities typically used power purchase agreements (PPAs) to receive a portion of the tax credit through fixed electricity rates offered by the PPA system owner.
  • Starting in 2023, you can increase the tax credit (and direct pay) through adders which are basically bonuses given for certain achievements (for example: you can add an additional 10% if the project meets the domestic content minimums). Check out this chart from the Solar Energy Industries Association (SEIA) for a list of adders.
  • You now have the option to choose between the ITC or the Renewable Electricity Production Tax Credit (PTC). The PTC is a per kWh federal tax credit for electricity generated by qualified renewable energy resources.
  • The Inflation Reduction Act also includes incentives to increase domestic manufacturing and provide support to allow that to happen.

For more in-depth information, check out this summary by SEIA and this printable PDF also by SEIA.

In Conclusion…

We are thrilled to see such a sweeping bill to make solar more accessible for homeowners, commercial properties, and non-taxable entities! It’s always a good time to go solar, but the opportunity to save with solar is now better than ever.

For homeowners, our residential design specialists will put together a custom quote so you can see how much you’d save with solar. For commercial buildings, our project development team will be closely following the rules that develop based on the Inflation Reduction Act so they can put together a project that will maximize your ROI. Start a conversation with our non-commissioned solar experts and get a hassle-free quote.