The Inflation Reduction Act Revives U.S. Solar Energy
Solar Energy Exceptions
On August 16th, 2022, President Biden signed the Inflation Reduction Act of 2022 (IRA) into law, providing historic investment in solar energy. This surpasses the Budget Control Act of 2011. The bill allocates over $300 billion to combat climate change, boost U.S. energy production, and make solar products and electric vehicles more affordable for homeowners. These policies aim to lower electricity and gas prices, support forestland owners, and benefit urban and rural communities during the transition to a clean economy.
It would provide lower energy prices, benefit customers with more clean energy choices, and create a pathway to cut carbon emissions by 40% below 2005 levels by 2030. With energy and climate investments bearing most of the legislation’s price tag, what does it all mean for both the commercial and residential solar sectors, and how does it affect the average homeowner?
A breakdown of What the Bill Provides our Nation in Reviving the Solar Landscape:
To encourage nationwide participation, the federal government plans to invest around $386 billion in energy security and climate protection. This includes $161 billion in clean electricity tax credits, $37 billion in individual clean energy incentives, $37 billion in clean manufacturing tax credits, and more. The bill aims to slightly reduce net taxes by about $2 billion annually, with energy and climate tax credits matching the new tax increase. The tax credits and subsidies will incentivize the production of renewable energy and the manufacturing of essential components like solar panels and batteries. The goal is to make green energy production cheaper than fossil fuels for utilities. Additionally, $500 million will be allocated for heat pump installation and critical minerals processing, and $2 billion will go towards accelerating breakthrough energy research at national labs.
The Inflation Reduction Act and solar energy initiatives will introduce new or extended tax credits to enhance clean energy generation, promote electrification, facilitate green technology retrofits for homes and buildings, encourage the use of clean fuels, support environmental conservation, and drive the widespread adoption of electric vehicles.
How the Inflation Reduction Act Affects the Solar Energy Industry?
$60 billion allocated to clean energy and transportation tech supply chain. Legislation includes up to $80 billion in EV rebates nationwide, $2 billion in grants to modernize auto manufacturers and create jobs. Rebates include $7,500 tax credit for new EV owners, applied at point of sale. Also applies to manufacturers no longer eligible for existing EV credits. Additional $4,000 tax credit for used EV purchases. Millions of eligible Americans, including couples earning less than $300,000 and individuals earning less than $150,000 annually, can benefit from these credits. The Inflation Reduction Act will invest in sectors like electricity production, transportation, manufacturing, buildings, and agriculture to lower emissions. By incentivizing lower costs for consumers, the government aims to lead in clean energy transformation, decarbonize the electric grid, and support economic recovery.
Looking back, the Inflation Reduction Act of 2022 benefits the U.S. solar energy industry by reviving domestic manufacturing. China has dominated silicon-based materials and components for solar panels, but with a $60 billion investment in clean energy manufacturing, the bill aims to restore American manufacturing dominance and create jobs. Tax credits and subsidies will support domestic production, making it more competitive globally.
The Ossoff Manufacturing Credits
Added in the Inflation Reduction Act mandates that solar energy modules made in the U.S. will include:
- Solar Cells – 4 cents per direct current watt of capacity
- Solar wagers – $12 per square meter
- Solar grade polysilicon – $3 per kilogram
- Polymeric back sheet – 40 cents per square meter
- Solar modules – 7 cents per direct current watt of capacity
For inverters the credit would be applied per watt of alternating current:
- Central inverter – 0.25 cents
- Utility inverter – 1.5 cents
- Commercial inverters – 2 cents
- Residential inverters – 6.5 cents
- Microinverters – 11 cents
Torque tubes for racking will receive 87 cents per kilogram, while structural fasteners will get $2.28 per kilogram.
Despite losing considerable ground on solar manufacturing over the last two decades, the U.S. can bring back tens of gigawatts in solar panel creation to American soil through the billions of dollars being invested in long-term, extensive policy in the Inflation and Reduction Act. The legislation will also extend the Investment Tax Credit (ITC) for 10 years, restoring declining benefits from 2022 to 2025 with a $10 billion allocation. Thanks to the bill, credits will stay at 30% until 2032, then reduce to 26% in 2033 and 22% in 2034. Additionally, the Production Tax Credit (PTC) will now be accessible to non-residential solar projects. Solar investors can claim a one-time tax credit based on the project’s value and power generation over 10 years. By combining tax credit add-ons and meeting requirements, the ITC and PTC offer over 50% bonuses for certain solar projects.
Solar Product Manufacturers Must Utilize Domestically Produced Steel and Iron
They should locate these projects in former “energy communities” (also known as “Brownfield” sites). The facilities must also be operational after December 31st, 2022. To qualify for the 10% manufacturing credit add-on, you must meet certain domestic content requirements. To satisfy these requirements:
- Facility components must utilize steel or iron that the U.S. produces.
- The U.S. is manufacturing 40% of facility components and turning them into manufactured products.
In order to qualify for the 10% project siting credit add-on. The facility must be located in a “Brownfield” site, metropolitan or non-metropolitan area that:
- If at any time since 2010, there was 0.17% or higher unemployment.
- 25% or higher local tax revenues tied to coal, oil, or natural gas activities.
- It has an unemployment rate above the national average for the previous year.
- A census tract with a closed coal mine post-1999
- A withdrawn coal-fired electric generating unit post-2009, or adjacent to such a tract.
The Inflation Reduction Act of 2022 lists some exceptions to these requirements for solar energy.
Importers might bring in items that fail to meet satisfactory quality standards or do not have sufficient quantities. Importers may source items outside the U.S. if it results in project cost increases greater than 25%.
Projects < 1 MW must pay prevailing wages to laborers and mechanics and ensure their participation in an electrical apprenticeship program to receive an additional 24% tax credits on top of the default 6%. These requirements will apply to projects from 2023 onwards. The Department of Labor or the relevant state apprenticeship agency sets apprentice-to-journey worker ratio requirements. Contractors or subcontractors with over 4 employees for construction, alteration, or repair work must have at least one qualified apprentice. Violations will result in fines to the Secretary of Labor of $5,000 for each laborer or mechanic who is underpaid. If we determine that the underpayment is intentional, we double the fine to $10,000 per laborer or mechanic.
Qualified apprentices must perform the following percentages of labor hours at their respective qualified facility:
- If construction starts before January 1st, 2023, apprentices will contribute 10% of labor hours for construction, alteration, or repair work.
- If construction begins during 2023, apprentices will perform 12.5% of total labor hours for construction, alteration, or repair work.
- If construction starts before Jan 1, 2024, apprentices will contribute 15% of total labor hours for construction, alteration, or repair work.
The facility can satisfy the apprenticeship requirements by complying with specific standards laid out by this legislation. Non-compliance will result in authorities penalizing the facility and charging $50 per hour for insufficient labor hours. If you purposefully disregard or ignore the designated apprenticeship requirements, the penalty will increase.
Solar power projects meeting wage requirements receive a 2.6 cents/kWh tax credit for the first 10 years, similar to ITC and PTC incentives. If a project does not meet prevailing wage standards, it will earn only 0.3 cents/kWh before adjustment for inflation. Going forward, production credit will start at 40% and increase by 5% annually to accommodate inflation. Once domestic content requirements are fulfilled, solar projects commencing construction in 2027 or beyond will settle at 55% credit. However, facilities that commence construction on a project after the “applicable year” will phase out the credit amounts for each.
- In the latter part of the year, electricity production will cut annual greenhouse gas emissions by 75% from 2022 levels.
- A solar project begins construction in 2023.
Solar system manufacturers can benefit from federal tax credits and incentives. Investing in solar power gives American homeowners significant benefits. It allows them to generate their own energy at home, reducing reliance on the electrical grid.
As Solar Energy Gains Popularity
Arizona homeowners save on utility bills without the electrical grid. Installing a solar panel system on roofs can boost tax credits too. The Inflation Reduction Act provides $9 billion in consumer energy rebates and $1 billion in grants to incentivize cost reduction of solar energy. This includes affordable options for clean electric vehicles, rooftop solar panels, electric appliances, and home energy efficiency. Homeowners interested in going solar or completing a solar project in 2022 qualify for a 30% Investment Tax Credit (ITC). The ITC helps cover the costs of installing a solar panel system and extends the program until December 31st, 2034. In the next 10 years, tax credits will aid consumers in achieving energy-efficient homes and clean energy usage.
What the Inflation Reduction Act means for Homeowners Installing Solar Panels
Homeowners who install a standalone battery system with a capacity of at least 3 kWh are eligible for the ITC. If your battery system was installed prior to the Inflation and Reduction Act and has less than 3 kWh capacity, you can modify it to meet the storage requirement for the 30% ITC qualification. Customer subsidies provide up to $840 for electric induction cooktops and up to $9,100 for improvements to electrical panels, wiring, and insulation. With these subsidies claimed by the customer, you could save an average of $1,840 per year on energy bills. Despite the initial $20,000 investment, a rooftop solar system is financially beneficial, saving on energy bills and increasing your home’s value.
The inflation reduction act and solar energy boost energy independence by generating home power and allowing homeowners to sell excess energy back to the grid. This provides a valuable return on investment and long-term savings.
The Main Takeaway from the Inflation Reduction Act and Solar Energy
The rewards of this new law outweigh the risks, positioning the United States as a renewable energy authority. The Inflation Reduction Act aims to offer solar energy options, including tax credits for solar power manufacturers, commercial, and residential use. Additionally, it encourages investment in communities that are striving to establish their identities in the energy transition. These provisions form the foundation of the bill’s priorities, bolstering the American economy as it regains its dominance. Many environmental and climate activists support this measure, and its benefits may be too good to pass up. It could revolutionize the U.S. energy sector, combat climate change, and shape future energy consumption through solar technology advancements.