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The Inflation Reduction Act: what it means for clean energy
It is estimated the Inflation Reduction Act (IRA) could more than triple US clean energy production, with about 40% of the USA’s energy coming from renewables by 2030, with some 550 GW of renewable capacity added in less than ten years. It also provides a more stable 10-year window for incentives and marks a move away from the “boom and bust” nature of the previous support regime
Shannon Weigel head of policy, Edison Energy, Irvine, CA, USA
The US Inflation Reduction Act of 2022 (IRA), a bill that envisages some $369 billion in energy and climate spending, was passed in the Senate on 7 August by a vote of 51-50 without any major alterations to the climate provisions. It was signed into law by President Biden on 16 August.
The Inflation Reduction Act contains elements of the Build Back Better Act, a larger bill addressing climate change and social policies, which was stalled and never enacted, and builds on measures included in the Bipartisan Infrastructure Law.
The IRA represents the single largest clean energy and climate investment in US history. According to Oded J. Rhone, Edison Energy’s CEO, “this legislation provides critical tools for the private sector to address climate change. This includes tax credits to support the deployment of renewable energy projects, energy storage, and electric vehicles, among other provisions. History shows that mobilising the private sector is an effective way to implement policy and achieve results.” In the short-term, the IRA provides much needed clarity to the clean energy industry through a 10-year extension of tax credits, along with the creation of new tax credits
for emerging technologies, which will lower the cost and increase projects available for corporate offtakers in the mid-term. New incentives for commercial electric vehicle purchases and the accompanying charging equipment will help continue the transition to a cleaner transportation sector and support fleet electrification for companies.
Long-term, the IRA will strengthen US energy security and drive down costs through the combination of the tax credits and billions of dollars invested to bolster the domestic supply chain and advanced manufacturing of clean energy technologies.
Combined with other climate provisions like investments in offshore wind, a methane reduction programme, funding for critical transmission projects, and $27 billion in federal investments through the Greenhouse Gas Reduction Fund, the bill has the potential to reduce US greenhouse gas emissions by over 40% by 2030 (relative to 2005).
The IRA extends both the production tax credit (PTC) and investment tax credit (ITC) for clean energy projects placed in service from 2021 to 2024. Clean energy projects can achieve tax credit rates higher than the current market allows by meeting requirements for
bonus adders. The bonus adders are meant to incentivise developers to pay prevailing wages, create jobs through apprenticeships, and develop projects in communities that have been disproportionately impacted by emissions and climate change. The range of ITC value a project can qualify for under the IRA is 6-50% for utility scale projects, reaching up to 70% for projects under 5 MW, compared to 26% under current law. The range of PTC value a project can qualify for is approximately $5-30/MWh compared to the $26/MWh PTC today.
Energy storage systems (ESS) are also eligible to receive the ITC and bonuses under the IRA, including energy storage paired with renewable generation and standalone ESS. The tax credits for standalone ESS will strengthen the financial attractiveness of battery storage deployment at commercial and industrial facilities. Starting in 2025, the tax credits will transition from their current form to a new technology- neutral tax credit that is based on emissions. Renewable projects with zero emissions would qualify for the same PTC or ITC tax credit value as the 2021-2024 projects.
Two new tax credits are included in the IRA – a Clean Hydrogen ITC/PTC and a Carbon Capture and Storage or Direct Air Capture
US greenhouse gas emissions, historical and modelled, billion metric tons CO2
-equivalent (net, including land carbon sinks) Source: Princeton University Zero Lab REPEAT (Rapid Energy Policy Evaluation and Analysis Toolkit) Project (
repeatproject.org) 16 | November/December 2022|
www.modernpowersystems.com
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