What is it about?
On August 16th 2022, President Biden signed into law the Inflation Reduction Act. This act aims at fighting climate change, lowering health care costs, and raising taxes on corporations. It accomplishes some of President Biden’s important agenda items. Indeed, expected to provide $369 billion to fund energy and climate projects, it represents the largest climate investment in the country’s history.
One of the major climate goals of the Inflation Reduction Act is to reduce greenhouse gas emissions by 40% by 2030, based on 2005 levels when the United States were still the top CO2 emitter in the world. Of the $369 billion climate budget, it will provide $60 billion for growing renewable energy infrastructures in manufacturing solar panels and wind turbines. It will also provide individuals with several tax credits on electric vehicles (up to $7,500 for a new EV and $4,000 for a used one until 2032), on projects aiming at making homes more energy efficient, and will provide incentives for private companies to produce more renewable energy. Additionally, part of the budget will go towards environmental justice work and help communities who are suffering the effects of climate change the most.
The health care portion of this act will aim to cap annual out-of-pocket drug expenses for Medicare beneficiaries at $2,000 starting in 2025. In addition, it will allow Medicare to negotiate certain prescription drug prices starting in 2026, and will extend healthcare subsidies of the premium tax credit in the Affordable Care Act through 2025.
As part of a tax reform, the Inflation Reduction Act will impose a minimum tax of 15% for corporations making $1 billion or more in income, which will create more than $300 billion in revenue and help reduce the deficit. The act will also impose a 1% excise tax on stock buybacks after 2022, and increase the IRS budget by $80 billion over 10 years.
What does it mean for our current and future solar customers?
This law is great news for the solar industry and for our solar customers. The solar Investment Tax Credit (ITC), which is currently at 26%, was planned to step down to 22% in 2023, and then disappear in 2024 for residential customers. Thanks to the Inflation Reduction Act, the ITC will now return to 30% for 10 years, and be retroactively applied to solar systems installed in 2022! The ITC will step down to 26% in 2033, and 22% in 2034. Battery storage systems are also eligible to receive a 30% tax credit. This also means the creation of new jobs in the solar industry through the allocated budget for clean energy deployment and manufacturing.
What does it mean for non-profits?
For non-profit projects installed after 2022, there is a direct pay provision to receive cash rather than a tax credit. This can be a great opportunity to go solar for our local non-profits, interested in saving money, offsetting their carbon footprint, and directly getting money back for it. There will also be additional “adders” to the 30% tax credit, such as an extra 10% credit for projects using U.S. manufactured parts (100% of steel and iron, and 40% of manufactured goods). Another 10% for projects located in contaminated brownfield sites, areas involved with extraction, processing, transport, or storage of fossil fuels and unemployment higher than the national average, or areas with coal mines closed or coal-fired electricity plants closed. Another 10% for projects in low-income communities and Native American Land, or 20% for affordable housing projects and low-income economic benefit projects.
It is important to note that for projects over 1MW, and not meeting the required amount of U.S. manufactured parts, the percentage of direct pay will decrease over the years. Additional rules and guidance have not been released yet, and there should be more information and details shared within the next few months.
Although the Inflation Reduction Act is far from enough to solve the climate crisis, it is a major step forward that will tackle many issues and set the path for future laws and reforms. Whether it is through environmental, health care, or tax goals, many Americans will be able to benefit from this new law, and we are thrilled that our customers will be able to enjoy a 30% ITC for the next 10 years. It is our goal at Brighten Solar, to support and help our community bring more clean energy and play a role in addressing climate issues. Now is a great time to go solar: doing something great for the environment while saving money, that’s a win-win!