What does the Inflation Reduction Act do?
In August 2022, President Biden signed the Inflation Reduction Act. This act encourages renewable energy methods like solar with incentives and rebates for households and vehicles that will benefit millions. This can motivate hesitant individuals, families, and businesses to invest in solar without worrying about as many constraints. Approximately $60 billion in funding is going to domestic renewable energy infrastructure and manufacturing. The IRA bill is the nation’s largest investment in clean energy, taking a considerable step toward a clean energy market transition. The bill will create good-paying jobs, revitalize communities, improve health, decrease energy bills, and increase energy independence. This sustainable economy will be achieved by:
- Doubling the clean energy workforce to employ nearly 1 million Americans
- Providing clean energy to power every American home
- Decreasing GHG emissions to 40% lower than 2005 levels
- Saving the average American taxpayer $1,000 a year in energy costs
- Delivering a range of tax incentives and rebates that provide direct, material benefits to ordinary Americans.
Tax Incentives
Some significant incentives included in the act are:
- 30% Investment Tax Credit (ITC) on residential and commercial solar from 2022 to 2032
- For the 30% ITC, stand-alone energy storage systems are also available
- There is up to a $7,000 tax credit for qualified EV and plug-in hybrid customers
- Likewise, there is up to $4,000 used EV tax credit
- For energy efficiency and electrification in single-family and multi-family homes, there is $8.5 billion in funding
- Large-scale solar arrays are now eligible for the Production Tax Credit (PTC)
- For facilities based in former coal communities, there are solar components manufacturing investment credits or production credits
- For commercial projects (for entities without a tax appetite), direct pay is available
- Transferrable commercial tax credits will facilitate minor project development
Why is it Relevant to Residential Customers?
This extension applies to business and residential projects for projects installed in 2022 through the end of 2023. With this 30% ITC extension, Solarize programs and group buy-ins will make it easier and encourage customers and contractors to participate. Although the Solarize programs have a limited duration, it allows enough time for people to make educated choices about investing in solar without worrying about many time-sensitive options.
Stand-Alone Storage Systems (SAPS)
ITC includes stand-alone storage systems, meaning that a battery system installed without solar can still receive a 30% tax credit. Likewise, these storage systems improve grid reliability and are crucial to convert the grid infrastructure into grid reliability.
SAPS is helpful for places where:
- The utility already offers a battery incentive.
- There needs to be a more reliable grid for businesses and emergency purposes.
- The utility has time-of-use rates and wants to store power during the day to utilize it at night when electricity rates are higher.
Tax Credit for EV and Plug Hybrid Vehicles
Firstly, this addition serves as an incentive for customers with lower income (with income qualifications based on taxable income of <$150k for single filers) to purchase Electric Vehicles (EVs) and plug-in hybrid vehicles. However, for the $7,500 tax credit, only EVs sedans <$55k and other vehicle types <$80k qualify. Pre-owned EVs are eligible for up to $4,000 tax credit if the vehicle is two years old and $25,000 or less. This will encourage EV price reductions, lower-income EV purchasers, and domestic battery manufacturing. The US will eventually make all EV batteries using minerals mined or recycled in North America.
What does the Inflation Reduction Act Mean for Solar?
All these benefits will encourage middle-income households to turn toward efficient and more renewable methods. The IRA offers excellent efficiency and electrification rebates to address archaic technology in infrastructure. This makes it more attainable for middle-income families to weatherize buildings, upgrade wiring and service panels, and install more efficient technologies like air source heat pumps. Lower-income families will benefit the most from the rebates, providing access to a better standard of living through lower temperature costs and improved building envelopes.
This act helps encourage sustainable methods such as solar energy. The Inflation Reduction Act will help boost our solar industry and provide feasible strategies to promote renewable energy, benefiting individuals and businesses.
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