“When we delivered the Inflation Reduction Act last year, we promised the largest investment in climate and clean energy ever made in our history, all while reducing energy bills and bringing good jobs to all communities across America. Now, less than a year later, the American people are seeing us follow through on that promise to improve the lives of families across the country”
— U.S. Senate Majority Leader Chuck Schumer
This week, the U.S. Treasury Department, the U.S. Department of Energy, and the Internal Revenue Service (IRS) released guidance on key provisions of the Inflation Reduction Act, with a focus on investments in underserved or coal communities.
The Qualifying Advanced Energy Project Credit renews and expands the investment tax credit initially included in the American Recovery and Reinvestment Act of 2009. Incentives are available for clean energy property manufacturing and recycling, decarbonization, critical materials processing, etc.
Projects may apply for an investment tax credit of up to 30%, including manufacturing of fuel cells and components for geothermal electricity and hydropower, equipment for carbon capture, etc.
The IRA provided $10B in new funding for the Qualified Advanced Energy Project Credit Program. Congress requires that at least $4B be reserved for projects in communities with closed coal mines or retired coal-fired power plants. Of that, $1.6B is reserved for projects in coal communities. Effective 5/31/2023.
The Low-income Communities Bonus Credit Program is a boost of up to 20% to the investment tax credit for solar and wind energy projects in low-income communities.
The goal is to increase clean energy facilities in low-income communities, encourage new market participants, and benefit individuals and communities that have experienced adverse environmental impacts or lacked economic opportunities.
1.8GW of capacity is available in 2023 across 4 categories for solar and wind projects, with a maximum output of <5MW:
- 700MW for facilities located in low-income communities
- 200MW for facilities located on tribal land
- 200MW for facilities serving federally-subsidized residential buildings
- 700MW for facilities where at least 50% of the financial benefits of electricity go to households with incomes below 200% of the poverty line or below 80% of area’s median gross income
EPA announcements of initial program design of greenhouse gas reduction fund
The US Environmental Protection Agency announced initial guidance on the design of the Greenhouse Gas Reduction Fund program. It published 2 federal assistance listings outlining key parameters of grant competitions, that will ultimately award nearly $27B to leverage private capital for clean energy and clean air investments across the country.
“With $27 billion from President Biden’s investments in America, this program will mobilize billions more in private capital to reduce pollution and improve public health, all while lowering energy costs, increasing energy security, creating good-paying jobs, and boosting economic prosperity in communities across the country.”
— EPA Administrator Michael S. Regan
2 competitions to distribute grant funding:
- $20B general and low-income assistance competition
- $7B zero-emissions technology fund competition
Low-income communities will now be able to access more clean energy services: A win for climate equality and accessibility. It will, however, also pose some interesting challenges in project financing.
Community solar projects of smaller scale that historically have had to prove their customers’ creditworthiness to get financing may find themselves in a [tough] spot with offtakers of lower FICO scores. Project financers, especially those looking at community solar projects, may have to find workarounds or be open to alternative forms of underwriting (see Solstice’s EnergyScore as an example).
With all the grants available to low-income customers, not only will these beneficiaries get higher savings in their subscriptions to community solar projects, but they may also have much easier access to financing as they electrify their homes and lives.
The IRA and its provisions are, as many would say, a “generational investment” to propel clean energy and job creation in the US. It is also a significant tailwind creating fertile ground for private-sector innovation.
