The Inflation Discount Act of 2022 (IRA) updates and expands the Funding Tax Credit score (ITC) for photo voltaic and battery storage resilient energy initiatives. The ITC, which was beforehand set at a 26% credit score for 2023 and a ten% credit score for annually thereafter, has been up to date and elevated to cowl 30% of eligible undertaking set up prices. to 2032. This variation considerably will increase the anticipated financial savings for photo voltaic initiatives and can assist create market stability over the following decade.
Congress additionally expanded the ITC in three necessary methods: 1) Nonprofits with no tax legal responsibility can now apply for direct wage funds equal to the quantity of the tax credit score 2) Storage-only initiatives are eligible for ITC. 3) The ITC now contains some ‘bonus credit’, which may considerably improve financial savings for initiatives serving low-income and underserved communities. These necessary adjustments are outlined in additional element beneath.
What kind of unpolluted power know-how qualifies?
ITC beforehand may solely be used for power storage if it was put in with photo voltaic or wind energy. Now standalone storage initiatives, along with photo voltaic solely and photo voltaic mixed with storage initiatives, are eligible for ITC. The change to incorporate storage-only initiatives will improve entry to storage, together with organizations which have already put in photo voltaic and should now wish to discover including sturdy battery storage to their facility.
Can nonprofits profit from the Funding Tax Credit score?
Importantly, the ITC will profit everybody, not simply those that are answerable for tax. Nonprofits and different tax-exempt entities – equivalent to municipalities and Tribal governments – are eligible to obtain the ITC within the type of a direct cost cost.
The Division of the Treasury and Inner Income Service (IRS) will problem steerage this 12 months about how tax-exempt organizations can apply for reimbursement and after they can anticipate cost. At the moment, organizations ought to anticipate that they should pay for the price of the system up entrance (optionally with assist from a low or no-interest mortgage) and obtain direct funds inside one to 2 12 months.
How a lot is the ITC?
ITC can be elevated to 30% baseline credit score for initiatives ‘positioned in service’ earlier than 2033 (or earlier if emissions targets have been met, see New Clear Electrical energy Tax Funding 48E). This is applicable to initiatives underneath one megawatt capability and to bigger initiatives that meet the above wage and apprenticeship necessities. Tasks will probably be eligible for as much as six bonus credit that may improve the quantity of the ITC by as much as 70% of the undertaking’s eligible set up prices.
Bonus Credit
The ITC contains six completely different bonus credit that initiatives can be utilized for. 4 of the credit are throughout the Low-Revenue Communities Bonus Credit score Program, which the IRS launched preliminary steerage on February 13, 2023 (accessible to view right here). The IRS is predicted to launch extra steerage on that program later this 12 months. At present, initiatives can solely apply in a of 4 bonus credit throughout the Low-Revenue Communities Bonus Credit score Program. Because of this a undertaking can obtain a ten% or 20% bonus credit score, relying on their eligibility.
The 4 bonus credit throughout the Low-Revenue Communities Bonus Credit score Program are:
- 10% bonus for initiatives situated in a low-income neighborhood
- 10% bonus for initiatives situated on Tribal Land
- 20% bonus for initiatives if the ability is a part of a certified low-income housing undertaking
- 20% bonus for initiatives if the ability is a part of a certified low-income financial profit undertaking
The ITC additionally contains two extra 10% credit, that are stackable. Eligible initiatives could apply for each bonus credit, along with the 30% baseline credit score and one of many bonus credit throughout the Low Revenue Group Bonus Credit score Program. The IRS has not launched detailed steerage on how these credit will probably be applied.
The 2 stackable bonus credit are:
- 10% bonus for initiatives situated in an “power neighborhood”
- 10% bonus for initiatives that meet home manufacturing necessities
(Learn extra about all six of those bonus credit in a sequence of truth sheets revealed by CEG HERE.)
The next two sections concentrate on steerage launched by the IRS concerning the Low-Revenue Communities Bonus Credit score Program: what we have realized and what questions we nonetheless have.
Solutions to Incessantly Requested Questions concerning the Low-Revenue Group Bonus Credit score Program
What kind of unpolluted power know-how qualifies?
Adders throughout the Low-Revenue Communities Bonus Credit score Program can solely be used for photo voltaic or wind initiatives or initiatives to be paired with photo voltaic or wind storage. Whereas standalone storage is eligible for the 30% ITC baseline, it isn’t eligible for any adders (IR-2023-26, Part 2). The utmost web output of the system should be lower than 5 megawatts and should be lower than the ‘nameplate capability of the ability’ (Part 4.08).
When ought to I apply for these adders?
The Division of Power (DOE) will settle for functions for the Low-Revenue Communities Bonus Credit score Program within the third quarter of 2023. Eligible initiatives should apply for the adder earlier than the undertaking is put in and ‘positioned’ of service’ (Part 4.05; outlined in Part 2.06 of the IRS steerage). The appliance for 2 20% adders is open for 60-days in Quarter 3 of 2023; the applying for 2 10% adders can be utilized 60-days later within the 12 months (Part 4.07). The IRS will launch extra steerage earlier than the applying home windows start. Your developer ought to assist you to apply for these credit.
What are the probabilities that my undertaking will probably be accepted and obtain an adder?
Eligible initiatives that apply for an adder should not assured to obtain the adder. If demand exceeds provide and an eligible undertaking isn’t accepted for an adder, then that undertaking group could determine to reapply the next 12 months (Part 4.06). The Low-Revenue Communities Bonus Credit score Program will approve as much as 1.8 gigawatts value of initiatives by 2023. This system reserves 700 megawatts of capability for initiatives situated in a low-income neighborhood (10% credit score) and a further 700 megawatts of capability for certified low-income financial profit initiatives (20% credit score). Tasks situated on Tribal Land (10% credit score) and certified low-income housing building initiatives (20% credit score) are every given 200 megawatts of capability by 2023.
The IRS Division could problem extra standards for adders to prioritize functions for initiatives owned or developed by community-based organizations and mission-driven entities or that present substantial advantages to low-income communities, for instance (Part 4.02).
What if I’ve extra questions?
You may reference the newest steerage launched by the IRS (IR-2023-26) or go to the IRS web site for the Inflation Discount Act. This put up will probably be up to date when the Division of Treasury and Division of Power launch extra steerage concerning the 4 adders throughout the Low-Revenue Communities Bonus Credit score Program. It’s also possible to contact Anna from the Clear Power Group (anna@cleanegroup.org).
Alternatives for the IRS to Present Clarification in Future Steering on the Low-Revenue Group Bonus Credit score Program
Some questions stay unanswered by the present steerage:
- When will candidates obtain notification if their undertaking is eligible for the adder they utilized for?
- If an eligible undertaking applies for a 20% adder, however their utility isn’t accepted because of capability constraints, can the undertaking apply for a ten% adder in the identical 12 months ?
- Tasks should be accessible to those adders earlier than their undertaking is ‘positioned in service’. How do these adders work together with the 30% baseline credit score, which traditionally was solely used after the undertaking was positioned in service?
- With the identical 20% adder for reasonably priced housing and the 20% adder for certified low-income financial profit initiatives, the monetary advantages of the undertaking should be equally divided among the many low-income households (Part 3.03 and Part 3.04). What qualifies underneath this provision? For instance, if the monetary advantages are restricted to growth funding for shared neighborhood areas, does that qualify? If the monetary advantages are restricted to funding neighborhood applications equivalent to monetary literacy programs, does that qualify?
- How are neighborhood photo voltaic initiatives evaluated for eligibility for these adders?
Extra Sources
If you’re a neighborhood companies supplier or an reasonably priced housing supplier curious about pursuing photo voltaic+storage underneath the ITC, chances are you’ll be eligible for CEG’s Technical Help Fund. For extra info, go to the Technical Help Fund web site.
