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SUMMARY OF INFLATION REDUCTION ACT PROVISIONS RELATED TO RENEWABLE ENERGY



This page summarizes information in the Inflation Reduction Act related to
renewable energy project tax provisions. While EPA does have some Inflation
Reduction Act funding opportunities, the Green Power Partnership does not and is
only presenting this material for informational purposes.  This page will be
updated as Treasury and other federal agencies develop guidance and responses
related to the Inflation Reduction Act.

The Inflation Reduction Act of 2022Exit EPA’s website is the most significant
climate legislation in U.S. history, offering funding, programs, and incentives
to accelerate the transition to a clean energy economy and will likely drive
significant deployment of new clean electricity resources. Most provisions of
the Inflation Reduction Act of 2022 became effective 1/1/2023.

The Inflation Reduction Act incentives reduce renewable energy costs for
organizations like Green Power Partners – businesses, nonprofits, educational
institutions, and state, local, and tribal organizations. Taking advantage of
Inflation Reduction Act incentives, such as tax credits, is key to lowering GHG
emission footprints and accelerating the clean energy transition.’

 * Investment Tax Credit and Production Tax Credit
 * Environmental Justice ITC Adder
 * Clean Energy ITC / Clean Energy PTC
 * Tax Credit Monetization
 * Additional Resources


INVESTMENT TAX CREDIT AND PRODUCTION TAX CREDIT

The Investment Tax Credit (ITC) and Production Tax Credit (PTC) allow taxpayers
to deduct a percentage of the cost of renewable energy systems from their
federal taxes. These credits are available to taxable businesses entities and
certain tax-exempt entities eligible for direct payment of tax credits (see Tax
Credit Monetization below).

Certain projects are eligible for either the ITC or PTC, but not both.

Eligible for ITC or PTC Eligible for ITC Eligible for PTC multiple solar and
wind technologies,
municipal solid waste,
geothermal (electric), and
tidal energy storage technologies,
microgrid controllers,
fuel cells,
geothermal (heat pump and direct use),
combined heat & power,
microturbines, and interconnection costs biomass,
landfill gas,
hydroelectric,
marine and hydrokinetic

Through at least 2025, the Inflation Reduction Act extends the Investment Tax
CreditExit EPA’s website (ITC) of 30% and Production Tax CreditExit EPA’s
website (PTC) of $0.0275/kWh (2023 value), as long as projects meet prevailing
wage & apprenticeship requirements for projects over 1 MW AC.

For systems placed in service on or after January 1, 2025, the Clean Electricity
Production Tax Credit and the Clean Electricity Investment Tax Credit will
replace the traditional PTC / ITC.

Projects can qualify for additional credit amounts, described below:

Category Amount* for Projects
 less than 1MWAC
(Cumulative) Amount* for Projects
greater than 1MWAC
(Cumulative)

Base Tax Credit

ITC: 30%  
PTC:2.75¢/kWh

ITC: 6%   
PTC: 0.5¢/kWh

Wage & Apprenticeship Requirements (Requires a percentage of total labor hours
performed by qualified apprentices)

ITC: N/A  
PTC: N/A

ITC: +24%  
PTC:+2.25¢/kWh

*The ITC amount is a percentage of the total qualifying project cost basis. All
values assume labor requirements are met.

Bonus Credit: Category Amount* for Projects
 less than 1MWAC
(Cumulative) Amount* for Projects
greater than  1MWAC
(Cumulative)

Domestic Content Minimums
(% attributable to U.S.
Manufactured Products)

ITC: +10%
PTC: +0.3¢/kWh

ITC: +10%
PTC: +0.3¢/kWh

Siting in Energy Community
ex. Brownfield site, area
related to mining operations)

ITC: +10%
PTC: +0.3¢/kWh

ITC: +10%
PTC: +0.3¢/kWh

Siting in Low-Income Community
or on Indian Land
(<5 MWAC)

ITC: +10%
PTC: N/A

ITC: +10%
PTC: N/A

Qualified Low-Income
Residential Building Project or Economic Benefit Project

ITC: +20%
PTC: N/A

ITC: +20%
PTC: N/A


ENVIRONMENTAL JUSTICE WIND AND SOLAR CAPACITY LIMITATIONS UNDER SECTION 48(E)

The Inflation Reduction Act Section 48(e) offers new access to clean energy tax
credits with an emphasis on reaching disadvantaged populations and communities
with environmental justice concerns. Certain ITC projects may be eligible for
bonus credits if they meet certain environmental justice criteria. Only solar
and wind technologies are eligible in 2023 and 2024. Energy storage is eligible
if "connected to" the solar or wind project

The requirements are:

 * Projects must be less than 5MWAC
 * Requires allocation by Treasury -Capped at 1.8 GWDC per year
 * Projects can't be placed in service before applying for allocation

In 2025, becomes part of tech-neutral ITC (through 2032)

Category (Adder Percentage) 2023 Allocation Category 1: Located in Low-Income
Communities * (10%) 700 MW Category 2: Located on Indian Land (10%) 200MW
Category 3: Qualified Low-Income Residential Building Project  (20%) 200MW
Category 4: Qualified Low-Income Economic Benefit Project (20%) 700MW

*See IRC Sec. 45D(e) and IRS Notice 2013-17Exit EPA’s website. This provision is
pending full guidance.


TAX CREDIT MONETIZATION

Here’s how Inflation Reduction Act's new direct pay and transfer options allow
more organizations to utilize clean energy tax credits for equipment placed in
service on or after January 1, 2023 and through December 31, 2032:

 * The direct pay option allows certain non-taxable entities to directly
   monetize certain tax credits for entities such as  state, local, and tribal
   governments, rural electric cooperatives, the Tennessee Valley Authority, and
   others to directly monetize specific tax creditsExit EPA’s website including
   many renewable energy credits such as the ITC ) and the PTC. Applicable
   entities may elect to treat these tax credits as refundable payments of tax.
   Such entities are eligible to receive a direct payment from the IRS for any
   amount paid in excess of their tax liability for credits.
 * The Inflation Reduction Act also allows eligible taxpayers that are not
   tax-exempt entities to transfer all or a portion of certain tax credits,
   including the ITC and PTC, to an unrelated party.

See the Treasury Department’s notice to collect input from stakeholders,
experts, and the public on Inflation Reduction Act's credit monetization
provisionsExit EPA’s website.

EPA anticipates that there will be more opportunities (through tax credits) to
directly participate in projects. For more information on individual
opportunities, see The Database of State Incentives for Renewables & Efficiency
(DSIRE)'s database of all U.S. renewable energy incentives and programsExit
EPA’s website, and DSIRE's database of federal incentivesExit EPA’s website.


CLEAN ENERGY PRODUCTION TAX CREDIT AND CLEAN ENERGY INVESTMENT TAX CREDIT

Starting January 1, 2025, the Inflation Reduction Act replaces the traditional
PTC with the Clean Energy Production Tax Credit (§1 3701) and the traditional
ITC with the Clean Electricity Investment Tax Credit (§ 13702).  

These tax credits are functionally similar to the ITC/PTC but is not
technology-specific. It applies to all generation facilities (and energy storage
systems under ITC) that have an anticipated greenhouse gas emissions rate of
zero. The credit amount is generally calculated in the same manner as described
above but will be phased out as the U.S. meets greenhouse gas emission reduction
targets.


ADDITIONAL RESOURCES

 * EPA's Inflation Reduction Act Web Area
 * EPA’s Funding Announcements from the Bipartisan Infrastructure Law and
   Inflation Reduction Act
 * ENERGY STAR - Federal Tax Credits and Incentives for Energy Efficiency
    
 * The White House Inflation Reduction Act GuidebookExit EPA’s website
 * The IRS's Inflation Reduction Act Web AreaExit EPA’s website
 * Department of Treasury –  Inflation Reduction Act GuidanceExit EPA’s website
    
 * Database of State Incentives for Renewable & Efficiency (DSIRE)'s database of
   all US renewable energy incentives and programsExit EPA’s website

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Contact Us to ask a question, provide feedback, or report a problem.
Last updated on June 1, 2023


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