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Inflation Reduction Act: Tax Credits Available For Utility-Scale Solar And Energy Storage Projects – Oil, Gas & Electricity



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On August 16, 2022, President Biden signed the Inflation
Reduction Act (IRA) into law. The IRA includes a myriad of tax
credits, grants and loan programs aimed at accelerating the
transition to clean energy. Among the many clean energy provisions
contained in the IRA, the IRA extends certain tax credits, expands
the eligibility for certain tax credits, creates new tax credits,
and provides a mechanism for tax exempt entities, like
municipally-owned utilities and electric cooperatives, to monetize
the benefit of tax credits. Below is a general summary of the tax
credits of the IRA available for utility scale solar and energy
storage projects.

Investment Tax Credit (ITC)

  • The IRA extends the current framework of the ITC for solar
    projects that begin construction prior to January 1, 2025, but
    creates a new base credit and increased credit structure. The ITC
    transitions to a technology-neutral credit in 2025 (discussed in
    further detail below).

  • The base ITC credit is 6%, with an increased credit of 24% (30%
    total) if:

    • the new prevailing wage and apprenticeship requirements of the
      IRA are met;

    • the capacity of the solar project is less than 1 megawatt
      alternating current; or

    • the solar project starts construction less than 60 days from
      the date the Treasury Department issues guidance on how to meet the
      new prevailing wage and apprenticeship requirements of the
      IRA.

  • Solar projects that are placed in service after December 31,
    2022 and that meet the prevailing wage and apprenticeship
    requirements are eligible for two separate 10% credit bonuses
    (above the 30%):

    • A 10% credit bonus ITC if certain domestic content requirements
      (specified in the IRA) are met; and/or

    • A 10% credit bonus ITC if the solar project is located in an
      energy community (as defined in the IRA).

    • Both 10% bonuses can be taken if the solar project qualifies
      for both.

  • Beginning January 1, 2023, solar projects with a capacity of
    less than 5 megawatts alternating current and located in certain
    “low-income communities” (as defined in the IRA) are
    eligible for an additional 10% credit bonus ITC.

  • The IRA adds standalone energy storage projects as qualifying
    facilities eligible for the ITC. Prior to the IRA, the ITC only
    applied to energy storage projects that were paired with a solar
    facility. Batteries connected to a solar facility will continue to
    qualify for the ITC, even if they are no longer being charged by
    solar power. The standalone storage ITC is available for projects
    placed in service after December 31, 2022 with a minimum nameplate
    capacity of not less than 5 kilowatt hours.

  • The IRA makes the direct pay and transfer option (discussed in
    further detail below) available for solar and energy storage
    projects that qualify for the ITC.

Production Tax Credit (PTC)

  • The IRA reinstates the PTC for energy produced from solar
    projects (the PTC for solar energy production was last available
    for solar facilities placed in service prior to 2006).

  • The IRA extends the current framework of the PTC for solar
    projects that begin construction prior to January 1, 2025, but like
    with the ITC, creates a new base credit and increased credit
    structure. The PTC also transitions to a technology-neutral credit
    in 2025 (discussed in further detail below).

  • The base PTC credit is 20% (0.3 cents per kilowatt hour), with
    an increased credit of five times or 100% of the base credit (1.5
    cents per kilowatt hour) if:

    • the new prevailing wage and apprenticeship requirements of the
      IRA are met;

    • the capacity of the solar project is less than 1 megawatt
      alternating current; or

    • the solar project starts construction less than 60 days from
      the date the Treasury Department issues guidance on how to meet the
      new prevailing wage and apprenticeship requirements of the
      IRA.

    • the PTC is adjusted for inflation every year, so the current
      rate at five times the base credit rate would be 2.6 cents per
      kilowatt hour.


  • Like the ITC structure discussed above, solar projects that are
    placed in service after December 31, 2022 and that meet the
    prevailing wage and apprenticeship requirements are eligible for
    two 10% credit bonus PTC if certain domestic content requirements
    (specified in the IRA) are met and/or the solar project is located
    in an energy community (as defined in the IRA).

  • The IRA makes the direct pay and transfer option (discussed in
    further detail below) available for solar projects that qualify for
    the PTC.

  • The prevailing wage and apprenticeship requirements of the PTC
    are virtually the same as those of the ITC, except that the
    prevailing wage requirement applies for a 10-year period after the
    solar project has been placed in service for the PTC, rather than
    5-years for the ITC.

Technology Neutral Credits

  • Beginning January 1, 2025, the traditional ITC and PTC will be
    replaced by new technology-neutral credits. Specifically, the IRA
    adds Section 45Y (Clean Energy Production Tax Credit) and Section
    48E (Clean Electricity Investment Credit) to the Internal Revenue
    Code. Projects that commence construction prior to January 1, 2025
    can opt to receive the ITC and the PTC (discussed above).

  • Eligibility for the Clean Energy Production Tax Credit and the
    Clean Electricity Investment Credit will generally require that the
    facility’s greenhouse gas emissions be no greater than
    zero.

  • Although the Clean Energy Production Tax Credit and the Clean
    Electricity Investment Credit eventually replace the PTC and ITC,
    respectively, the new credits’ eligibility requirements and
    amounts (including bonus credit amounts) generally mirror those of
    the PTC and the ITC for solar projects, and the Clean Electricity
    Investment Credit’s eligibility requirements and amounts
    (including bonus credit amounts) generally mirror those of the ITC
    for energy storage projects.

  • The IRA makes the direct pay and transfer option (discussed in
    further detail below), with certain limitations, available for the
    Clean Energy Production Tax Credit and the Clean Electricity
    Investment Credit.

Direct Pay

  • The direct pay option created by the IRA is available to
    certain entities, including tax-exempt entities, states and
    political subdivisions (including municipally-owned utilities), and
    electric cooperatives, and allows such eligible entities to take
    direct pay equal to the amount of the ITC, PTC, the Clean Energy
    Production Tax Credit, or the Clean Electricity Investment Credit,
    in lieu of a tax credit, with certain limitations.

  • Direct pay of the PTC may only be received for projects
    originally placed in service after December 31, 2022.

  • For entities that qualify for direct pay, a project loses its
    ability to receive 100% direct pay over time if certain domestic
    content requirements are not met.

Transfer Option

  • The IRA allows taxpayers to transfer all (or any portion of)
    the ITC, PTC, Clean Energy Production Tax Credit, or the Clean
    Electricity Investment Credit, to another taxpayer. Once made, the
    election is irrevocable. The transferred credit must be exchanged
    for cash and is neither included in the transferor’s income,
    nor deductible by the transferee.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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