IRA incentives for renewables: Deep dive.

The renewable energy sector is currently experiencing a significant boom, primarily fueled by governmental financial support. Let's see the specific incentives driving this growth and the pledged amount.

The Inflation Reduction Act (IRA) commits $370 billion to climate and clean energy projects, highlighting 4 major key components that particularly impact the renewables industry:

1) Investment Tax Credit (ITC): This federal tax credit applies to both residential and commercial solar energy systems, standalone energy storage, and wind farms, allowing for a deduction of up to 30% of the installation costs from federal taxes. In simpler terms, if you install a renewable energy project, you can claim up to 30% of the project cost as a tax credit. However, you must choose between the ITC and the Production Tax Credit (PTC).

UPD: April 2023: Stand-alone BESS systems also qualify for ITC.

IRS released qualifications for an additional 10% tax credit under the domestic Content Bonus(see below).

IRS released qualifications for an additional 10% tax credit under the energy communities (see below).

ITC max = 30% + 10% + 10%= 50%

UPD: 22 May 2024: Clarifications about energy communities.

Permits offshore wind facilities to attribute their nameplate capacity to additional property—namely, to SCADA equipment.

https://home.treasury.gov/news/press-releases/jy2203

2)    Production Tax Credit (PTC): This incentive offers a per-kilowatt-hour tax credit for electricity generated by renewable resources such as wind, geothermal, and closed-loop biomass systems. It's a significant driver for wind power development. Put simply, for every kilowatt-hour generated by your wind project, you receive a credit. Like the ITC, you can only choose either the PTC or ITC.

3)    Advance Manufacturing Production Tax Credits (45X MPTC): This credit supports the U.S.-based production of clean energy products, including solar components, wind components, and battery components. Manufacturers receive credits based on the power, capacity, or amount of equipment produced.

4)    Loans and Grants: These are aimed at expanding and creating new production capacities in clean energy and advanced manufacturing sectors, including DOE Loan Programs, the Rural Energy for America Program (REAP), the Greenhouse Gas Reduction Fund, and Advanced Technology Vehicles Manufacturing (ATVM) Loan Program.

Now, looking at the industry-specific incentives going on Federal level:

For Battery/Battery Components manufacturers:

 1) Advanced Manufacturing Production tax credits (45X MPTC) Accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing with an investment of $30 billion, offering credits up to 30% of manufacturing costs, with a phase-out starting in 2029

• The credit of $35 per kilowatt-hour of the capacity of cells (It's around 20-30% of battery module cost)
• The credit of $10 per kilowatt-hour of the capacity of the battery module (It's around 30% of the battery module assembly cost)
• 10% of the costs are due to producing electrode active materials, like the cathode and anode.
• Phase out starting in 2029(doesn't apply to critical components) :

o  75% in 2030

o   50% in 2031

o   25% in 2032

o   0% in 2033

2) The Advanced Energy Project Tax Credit allocates a $10 billion investment tax credit fund to build clean technology manufacturing facilities. 

3) $2 billion for National Labs to accelerate breakthrough energy research.

For EV industry:

1)    $2 billion in grants to retool existing auto manufacturing facilities to manufacture clean vehicles, ensuring that auto manufacturing jobs stay in the communities that depend on them.

2)    Up to $20 billion in loans to build new clean vehicle manufacturing facilities across the country

3)    Tax Credits for EV vehicles:

• Individual vehicle: 7500 $ federal EV tax incentive if the car satisfies several requirements:

o   First half: 3750$. Starting in 2023, at least 50% of the battery components must be manufactured or assembled in North America. This percentage increases by 10% each year, reaching 100% by 2028.

o   Second half: 3750$. Starting in 2023, at least 40% of the critical minerals in the EV batteries must be extracted or processed in the U.S. or a country with a free trade agreement with the U.S. This percentage will increase by 10% each year, reaching 80% by 2026.

o   Starting in 2025, vehicles will not qualify for the tax credit if the battery's critical minerals were extracted, processed, or recycled by a "foreign entity of concern," 

o   Manufacturers must also complete the final assembly of their vehicles in North America. 

o   $4,000 consumer tax credit for lower/middle-income individuals to buy used, clean vehicles

• Commercial vehicle: Tax credit equal to 30% of the vehicle cost or the difference between the cost of the clean vehicle and its gas-powered counterpart (till 31 Dec 2032)

o   A cap of $7,500 for vehicles weighing less than 14,000 lbs (Class 1-3).

o   A cap of $40,000 for vehicles weighing more than 14,000 lbs (Class 4-8).

o   A reduced credit of 15% is available for vehicles that use internal combustion engines.EV charging credits:

4)    EV Charging Credits:

• Individual Credit: Up to $1,000 or 30% of the installation cost, whichever is lower. This credit requires the project to be located in specific census tracts; however, prevailing wage standards do not need to be met.
• Commercial Credit: Increases the eligibility for incentives from $30,000 per property to $100,000 per item. The maximum incentive is 30% of the cost, up to $100,000 per charger, whichever is lower.
• Limit: A base credit of 6% is quintupled to 30% for projects that meet both prevailing wage and apprenticeship requirements. The full credit is contingent upon compliance with prevailing wage standards during installation.

5)    $2 billion for National Labs to accelerate breakthrough energy research.

For Solar/Wind/Inverters manufacturing industry:

1) Production Tax Credit (PTC) and Investment Tax Credit (ITC): Allows a federal income tax credit for each kilowatt-hour of electricity sold from wind facilities for 10 years, with options for a full investment tax credit of 30% for larger projects, provided certain conditions are met.

• Inflation-adjusted credit of 2.6 cents per kilowatt-hour for the first 10 years of electricity generation (PTC) for wind industry

OR

• full investment tax credit of 30% for larger projects, provided certain conditions are met (ITC) for solar/wind industries

 2) Advanced Manufacturing Tax Credits (45X MPTC): Provides credits per watt for solar PV cells and modules and per watt for different types of inverters, with additional credits for wind energy components.

• Solar:

o   PV Cell: Credit of $ 4¢ per watt-direct current (Wdc)

o   PV Module: $ 4¢ per watt-direct current (Wdc)

• Inverters:

o   Central inverter:  0.25¢ per watt-alternating current (Wac)

o   Utility inverter:  1.5¢ per watt-alternating current (Wac)

o   Commercial inverter:  2¢ per watt-alternating current (Wac)

o   Residential inverter:  6.5¢ per watt-alternating current (Wac)

o   Micro inverter:  11¢ per watt-alternating current (Wac)

• Wind:

o   Blades: 2¢ per rated capacity of the turbine (in watts)

o   Nacelle: 5¢ per rated capacity of the turbine (in watts)

o   Tower: 3¢ per rated capacity of the turbine (in watts)

o   Fixed-bottom offshore wind energy platform: 2¢ per rated capacity of the turbine (in watts)

o   Floating offshore wind energy platform: 4¢ per rated capacity of the turbine (in watts)

o   Distributed wind inverters: 11¢ per rated capacity of the turbine (in watts)

Clean energy project developers

1) Investment Tax Credit (ITC):

Residential consumers:

1) 10 years of consumer tax credits to make homes energy efficient and run on clean energy, making heat pumps, rooftop solar, electric HVAC, and water heaters more affordable.

• Solar, wind, battery, heat pumps including for heating – 30% of the cost
• EV charging – 30% of cost up to 1000$

These incentives collectively aim to bolster the production and adoption of renewable energy technologies, ensuring sustainable growth in the sector.