In a surprise victory for the solar and clean technology industries, Senator Joe Manchin and Democrats reached an agreement on a reconciliation bill, dubbed the Inflation Reduction Act of 2022. The bill includes $370 billion in spending for renewable energy and climate measures.
One of the most impactful provisions in the bill, which can be read in full text here, is the long-term extension of the Investment Tax Credit, which has been instrumental in launching the solar industry we know today. The bill calls for a 10-year extension at 30% of the cost of the installed equipment, which will then step down to 26% in 2033 and 22% in 2034.
The tax credit applies to residential adopters of solar technology. If the bill is passed, the 30% credit will be retroactively applied to anyone who installed their system since the beginning of 2022.
The 30% credit also applies to energy storage whether it is co-located or installed as standalone energy storage. This enables the retrofit of a battery to a solar array while taking advantage of the credit.
One measure that was hoped for, but is not in the bill, was the “refundability” clause. Refundability means that if the tax credit value exceeds taxes owed on the year, it would be paid as a cash refund. This provision was not included, which hampers the value of the credit for some individuals. However, the credit can be rolled over to a following year.
There are several “adders” for the tax credit depending on the type of organization, domestic product use, and project location. ROTH Capital Partners said that the investment tax credit could reach as high as 50% for some projects with the right adders applied.
The credit also includes the “direct pay” provision. This would allow a developer with little or no tax liability to treat the amount of credit as an overpayment of tax which would result a cash payment refund in the amount of such overpayment being made to the developer.
“With long-term incentives for clean energy deployment and manufacturing, the solar and storage industry is ready to create hundreds of thousands of new jobs and get to work building out the next era of American energy leadership. This is a crucial window of opportunity that we cannot miss, and now Congress must seal the deal and pass this legislation,” said Abigail Ross Hopper, president of the Solar Energy Industries Association.
The bill is expected to head to the Senate floor for a vote as early as next week.
This has been edited to properly explain the mechanism of refundability.
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