Inflation Reduction Act: Key Takeaways

The signing of the Inflation Reduction Act provides a variety of financial incentives for energy efficiency and solar. Entegrity is closely tracking these opportunities so that we can help our clients take advantage of them, making sustainability more affordable than ever.

Below you can find key takeaways identified by Entegrity as potentially beneficial to our clients.

SOLAR OPPORTUNITY

• Solar Tax Credits: The investment tax credit (ITC) for Private entities has increased from 26% to 30% and is set as such for the next decade. Entities can now also take advantage of the production tax credit (PTC) instead of an investment tax credit, structuring the tax credit based on the yearly production of the solar array over ten years.
  • Public clients can now access the 30% investment tax credit or production tax credit through a Solar Services Agreement – or – choose to finance the purchase of the solar array and receive an equivalent direct payment from the IRS.
  • Includes microgrid controllers, interconnection, roof replacement, tangible property, batteries, and solar infrastructure.
• Further Decreases Cost of Solar: Public and Private clients can now benefit from additional tax credits. Combined, these tax credits can cover up to 60% of the cost of your solar:
  • 10% for solar located in energy communities/Brownfield sites
  • 10% for solar located in low-income communities, or 20% for solar on low-income housing projects
  • 10% for solar manufactured in the United States
• Clean Electricity Incentives: Tax incentives now extend to various clean power technologies, including energy storage, microgrid controllers, and dynamic glass.

ENERGY EFFICIENCY OPPORTUNITY

• Section 179D Tax Deduction for Energy Efficient Commercial Buildings: A significantly expanded incentive for the next ten years.
  • Moving from $1.80 per square foot to a sliding scale of $2.50-$5.00 per square foot, with a new pathway for existing building retrofits and REITs to access the deduction.
  • Maintains provision for allocating the deduction for public projects (city, state, etc.) to project designer and expands options for tribal government and non-profit entities.
• DOE Loan Programs Office: $40 billion worth of loans available until 2026 under Section 1703 of the Energy Policy Act of 2005.
  • Loans are intended to support the commercial deployment of cutting-edge clean energy technologies.

ELECTRIC VEHICLE OPPORTUNITY

• New Funding for Electric Fleets: Funding is available for conversion to electric fleets and bus vehicles. Available funding will lower the cost of the vehicle, charging infrastructure, and project installation.
• Light-Duty Vehicles: The current 30D clean vehicle tax incentive is expanded through 2032 for a $7,500 tax credit on purchases of qualifying, new clean vehicles (EV, hydrogen, etc.) that meet certain domestic content requirements by eliminating the per-manufacturer cap.
  • Implements a new credit of up to $4,000 for qualifying used vehicles or up to 30% of the sales price.
  • Maximum sales price and income limitations apply to both credits.
  • Also implements a new tax credit for clean commercial vehicles.
• Heavy-Duty Vehicles: $1 billion to be invested in clean heavy-duty vehicles for states, municipalities, and nonprofit school facilities, with $400M reserved for areas with poor air quality.
  • Eligible expenses include rebates for purchases of eligible vehicles (school buses, garbage trucks, etc.) as well as investments in EV charging infrastructure and workforce training to support the maintenance, charging, and operations.
  • For clean vehicles weighing over 14,000 pounds, tax credits can be claimed for either 30% of the vehicle cost or the incremental cost between an electric and conventional vehicle for a value of up to $40,000.
  • A tax credit of up to $100,000 is available for a single item charging infrastructure.

BATTERY STORAGE OPPORTUNITY

• Battery Storage Now Affordable: Tax credits can now be applied to battery storage projects without solar. A battery storage project can create economic savings and additional resiliency if electricity demand charges are greater than $12/kW.

OPPORTUNITIES FOR SCHOOLS

• Addressing Air Pollution at Schools: $37.5 million in grants and other funding forms available through the EPA to monitor and reduce air pollution and greenhouse gas emissions at schools in low-income and disadvantaged communities.
  • An additional $12.5 million in technical assistance is available to schools to address environmental issues and air pollution and to develop school environmental quality plans that include building, design, construction, and renovation standards.
  • Funding available through 2031.

OPPORTUNITIES FOR MULTI-FAMILY RESIDENTIAL DEVELOPMENTS

• Tax Credits for Multi-Family Developers:
  • Expanded 45L homebuilder tax credit for all size projects through 2032, including IECC reference to $2,500 for meeting ENERGY STAR and $5,000 for DOE zero-energy ready.
    • Credits do not reduce LIHT, allowing developers to take both 45L and LIHTC.
  • 25C homeowner tax credit for improvements is now 30% of eligible expenses meeting performance requirements up to $1,200/year or $2,000/year for heat pumps.
  • A 30% tax credit is available for on-site renewable energy via the 25D Residential Clean Energy Credit.
  • HUD gets additional grants and loans for sustainability and benchmarking.
  • Whole-house performance-based, electrification, and contractor training rebates are also available.

OPPORTUNITIES FOR CITIES & STATES

• Greenhouse Gas (GHG) Planning & Implementation Grants: $5 billion in grants to states, municipalities, and other public entities to develop plans for addressing GHG pollution.
  • EPA is set to award one grant to each state for the costs of developing a GHG reduction plan, and subsequent implementation grants will be awarded on a competitive basis.
• Greenhouse Gas Reduction Fund: $27 billion has been allocated to the EPA for a GHG reduction green bank initiative. The fund will provide loans, grants, technical assistance, and other financing divided into three categories:
  • $7 billion available in competitive grants for low-income and disadvantaged communities to utilize zero-emission technologies.
  • $11.97 billion for competitive grants for projects that reduce or avoid greenhouse gas emissions.
  • $8 billion in competitive grants for low-income and disadvantaged communities for climate-related activities.
• Building Energy Code Adoption – Residential & Commercial: $330 million for meeting 2021 IECC or ANSI/ASHRAE/IES 90.1-2019 and $670 million for meeting or exceeding the zero energy provisions in the 2021IECC or an equivalent stretch code.
• Neighborhood Access & Equity Grants: $3 billion for neighborhood access and equity grant program at the Department of Transportation to help states and local governments make walkability, safety, affordable transportation access, and other improvements by removing existing transportation infrastructure that adversely impacts communities.
• Environmental & Climate Justice Block Grants: $3 billion for grants of up to three years to local governments, universities, or community-based nonprofits for a variety of environmental projects benefiting disadvantaged communities through the EPA.
  • Eligible activities include community-led pollution monitoring, prevention, and remediation; low- and zero-emission resilient technologies and related infrastructure; workforce development tied to GHG reduction; mitigating climate and health risks from urban heat islands; climate resiliency and adaptation; and reducing indoor air pollution.
• Coastal Communities & Climate Resilience: $2.6 billion through the National Oceanic and Atmospheric Administration for direct expenditures, contracts, grants, and technical assistance to help coastal communities conserve, restore, and protect coastal and marine habitats and resources and to prepare for extreme storms and other changing climate conditions, among other activities. Eligible entities include governments.
• Building Resilient Infrastructure & Communities: This allows FEMA, under the Stafford Act, to use BRIC funding for low-carbon materials and incentives that encourage low-carbon and net-zero energy projects, including an increase in federal cost-share for such programs.

OPPORTUNITIES FOR FEDERAL ENTITIES

• General Service Administration (GSA) Projects:
  • $2.15 billion to acquire and install low-embodied carbon materials and products for use in the construction or alteration of GSA facilities.
    • Defines low-embodied carbon materials as those defined by EPA as having substantially lower levels of embodied carbon compared to estimated industry averages.
  • $975 million to GSA through 2026 for emerging and sustainable technologies and related sustainability and environmental programs to demonstrate innovative building technologies in federal facilities that will help reduce operations costs and stimulate market transformation.
  • $250 million in FY22 to be spent by 2031 for the GSA’s Federal Buildings Fund to convert GSA-owned or managed buildings to high-performance green buildings (as defined in section 401 of the Energy Independence and Security Act of 2007).
• Low-Embodied Carbon Materials, ESG & EPD: $250 million for the EPA to support the development, standardization, and transparency of environmental product declarations (EPDs).
  • An additional $5 million for similar efforts around corporate climate commitments.
  • There is another $100 million for the EPA to work with the Department of Transportation and GSA to develop a program to identify and label low-embodied carbon construction materials and products.

The research was taken in part from the DOE and USGBC. Further guidance is still required from the IRS for some mentioned items.