The Inflation Reduction Act: Everything You Need To Know

President Biden recently signed the Inflation Reduction Act (IRA) into law on August 16, 2022. The $700 billion bill is the most significant climate change investment to date and can help millions of Americans save money and the environment.

With the goal of decreasing the nation’s deficit and bringing down inflation, the IRA also includes provisions for investing in domestic manufacturing, prescription drug cost reduction, an expansion of the Affordable Care Act and a historic investment to fight climate change. Nearly $369 billion will be invested in clean energy and climate action. The IRA will also improve and alter many existing and new clean energy initiatives, which includes tax credits and rebates. 

To help you understand the bill and get the most out of the sunny savings that come with it, here’s everything you need to know about the Inflation Reduction Act plus 10 clean energy benefits.

Key Homeowner Incentives in the Inflation Reduction Act

The bill has many benefits for homeowners and business owners who want to save money on their electricity bill, decrease their reliance on the grid or reduce their carbon footprint. For example, do you have SunPower solar panels installed on your rooftop and you’re thinking about adding a home battery storage system to protect your home and family from outages, blackouts and Safety Power Shutoffs? Starting in 2023, you can qualify for a 30% tax credit when you add a solar battery to your home.

Here’s more information about the key benefits of the IRA and how they can impact your solar savings:

Solar Tax Credit

The extension of the federal Solar Tax Credit, now called the Clean Energy Credit, is potentially the biggest win for the solar industry and homeowners. The IRA extended the tax credit to 2035 and restored the original 30% incentive for qualified solar installations until 2033.

Here’s the new Clean Energy Credit structure under the IRA:

  • 2022 – 2032: 30%
  • 2033: 26%
  • 2034: 22%
  • 2035: tax credit expires for residential solar energy systems

Clean Energy Credit for Home Batteries

Before the passage of the Inflation Reduction Act, energy storage systems could only qualify for the federal tax credit when paired with a solar energy system and had to be powered by solar at least 75% of the time for five years. Now, stand-alone home battery systems also qualify for the tax credit (whether they’re paired with solar panels or not).

Home batteries are also subject to the same incentive schedule as solar panel installations, so any energy storage system that’s installed before the end of 2032 will qualify for the tax credit equal to 30% of the installation costs. This will also decrease to 26% in 2033 and again to 22% in 2034 before expiring in 2035.

In order to receive the full 30% of the ITC, battery storage projects for commercial properties must be larger than 5 kWh. They are also subject to the same apprenticeship and wage requirements as commercial solar projects.

Commercial Solar Projects

Commercial solar energy systems are a little more complicated compared to residential systems in the IRA. Similar to residential solar projects, the tax credit for commercial solar systems was 26% and would’ve decreased to 22% in 2023. With the passage of the IRA, commercial solar projects now qualify for a 30% tax credit until 2025. Starting in 2025, the ITC tax credit continuation depends on whether or not the solar and electric sectors can meet the U.S. Department of Treasury’s goal of reaching a 75% emissions reduction below 2022 levels.

On top of the 30% tax credit, a commercial solar project can also qualify for additional tax credits if the following criteria is met:

  • 10% tax credit if 40% of the manufacturing elements were produced in the U.S.
  • 10% tax credit if the project is in an energy community (has brownfield sites or coal plant closures)
  • 10% tax credit if the project has less than 5 MW capacity and is located in a low-income community or tribal land
  • 20% if the project is less than 5 MW and is part of a low-income residential building project or economic benefit system

Under the IRA, commercial solar projects can now qualify for the production tax credit (PTC) instead of the ITC, which was previously only available for wind projects, not solar. Through the PTC, system owners are compensated based on their system’s production levels (on a dollar per kilowatt-hour or kWh basis) instead of on the solar energy system’s upfront cost. This credit is enticing to owners with solar projects that generate a lot of energy but are relatively inexpensive to build (such as large utility-scale projects). The PTC is currently set at $0.026/kWh but does rise with inflation.

Beginning in 2023, the IRA will allow the PTC and ITC tax credits to be transferred. This means commercial solar installation projects will have more financing flexibility and won’t be limited to companies with enough tax liability.

Solar for Non-Profit Organizations

Previously, to claim the ITC, an organization had to have enough tax liability. However, the IRA now offers a direct payment option for tax-exempt entities. Homeowners and for-profit businesses aren’t eligible for this direct pay option. Before the passage of the IRA, if a non-profit organization wanted to add a solar energy system, they’d usually have to partner with a company for tax liability purposes for the installation to be affordable.

In 2024, solar projects that don’t meet certain domestic manufacturing requirements will only be eligible for a portion of the full 30% direct pay option. The specific requirements are yet to be fully defined. 

Eligibility guidelines:

  • 2024: 90% of the full ITC
  • 2025: 85% of the full ITC
  • 2026: no longer eligible for the ITC

10 Clean Energy Benefits in the Inflation Reduction Act

For a quick and easy reference, here are 10 clean energy benefits you should know about in the IRA:

Inflation Reduction Act Benefits

Conclusion

According to the federal government, the IRA aims to reduce greenhouse gas emissions by about 40% by 2030 and save the average family more than $1,000 in available incentives each year. The White House estimates 7.5 million families will be able to install solar panels on their property as a result of the IRA. The bill will also create millions of jobs for Americans and provide for a cleaner, greener future with the reduction of harmful greenhouse gasses and fossil fuels.

Overall, the future looks brighter for many homeowners, business owners, non-profit organizations and our environment. We’re excited to see the positive impact this bill will have and we’re ready to help you change the way you power your home or business and start saving more with solar. Contact us today for a free customized quote!

Shannon Hughes