Earlier this week, President Biden made it official: The US is (finally!) in the climate policy game. Specifically, he signed into law the Inflation Reduction Act, the most sweeping climate legislation in US history. While the path to IRA passage was long and winding, and at many times seemed to be a road to nowhere, in the end the federal government has perhaps given us just what we need to turn the tide in solving the climate crisis.

For the solar industry, the benefits will be immense. For consumers, the IRA will lower the upfront cost of solar energy and make its economic benefits even more compelling. Many of the benefits are in the form of the Investment Tax Credit:

o   The ITC is extended for 10 years and is increased back to its original 30%

• Note: Projects must meet prevailing wage requirements in the tax code; otherwise, the credit is 6%

o   There is an additional 10% credit for projects meeting “domestic content” requirements

o   There is an additional 10% ITC for projects in “energy communities” (mainly, communities that have been impacted by fossil fuel retirements)

o   There is up to a 10% bonus credit for projects in low-income communities or tribal land

o   The ITC has been expanded to include storage, EV charging infrastructure and transmission/interconnection equipment

o   Perhaps most impactful, there is now a direct pay option for governments and nonprofits

Besides the impact on consumers, the IRA also aims to bolster domestic manufacturing of clean energy equipment, in a bid to make the US a global manufacturing hub for the energy transition. For solar and storage, manufacturers can expect tax credits for the following components:

o   Panels

• o   $0.04/W for cells

• o   $0.07/W for modules

o   Batteries

• o   $35/kWh for cells

• o   $10/kWh for modules

o   Inverters

• o   Commercial inverters: $0.02/W

• o   Residential inverters: $0.065/W

• o   Microinverters: $0.11/W

These are the highlights just for the solar sector. The bill also includes a plethora of other initiatives, affecting things like electric vehicles, hydrogen, wind energy, transmission infrastructure, and numerous other technologies that will play a key role in the energy transition. A recent analysis by the Rhodium Group estimates that the IRA will reduce US net greenhouse gas emissions to 31% - 44% below 2005 levels by 2030, compared to the 24-35% expected under current policy.

With the increase in extreme weather events like droughts and flooding, never has it been more apparent for the need to eliminate carbon emissions from our economy. This week, the US federal government has taken an enormous step in facilitating that transition. This will truly be the clean energy decade.

By: Jonathon Blackburn, P.E.

VP Structured Finance

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