The Inflation Discount Act of 2022 (IRA) updates and expands the Funding Tax Credit score (ITC) for photo voltaic and battery storage resilient energy tasks. The ITC, which was beforehand set at a 26% credit score for 2023 and a ten% credit score for annually thereafter, has been up to date and elevated to cowl 30% of eligible undertaking set up prices. to 2032. This modification considerably will increase the anticipated financial savings for photo voltaic tasks and can assist create market stability over the following decade.
Congress additionally expanded the ITC in three vital methods: 1) Nonprofits with no tax legal responsibility can now apply for direct wage funds equal to the quantity of the tax credit score 2) Storage-only tasks are eligible for ITC. 3) The ITC now consists of some ‘bonus credit’, which might considerably enhance financial savings for tasks serving low-income and underserved communities. These vital modifications are outlined in additional element beneath.
What sort of fresh power expertise qualifies?
ITC beforehand might solely be used for power storage if it was put in with photo voltaic or wind energy. Now standalone storage tasks, along with photo voltaic solely and photo voltaic mixed with storage tasks, are eligible for ITC. The change to incorporate storage-only tasks will enhance entry to storage, together with organizations which have already put in photo voltaic and will now need to discover including strong battery storage to their facility.
Can nonprofits profit from the Funding Tax Credit score?
Importantly, the ITC will profit everybody, not simply those that are accountable for tax. Nonprofits and different tax-exempt entities – resembling municipalities and Tribal governments – are eligible to obtain the ITC within the type of a direct fee fee.
The Division of the Treasury and Inside Income Service (IRS) will subject steerage this 12 months about how tax-exempt organizations can apply for reimbursement and once they can anticipate fee. Presently, organizations ought to anticipate that they should pay for the price of the system up entrance (optionally with assist from a low or no-interest mortgage) and obtain direct funds inside one to 2 12 months.
How a lot is the ITC?
ITC can be elevated to 30% baseline credit score for tasks ‘positioned in service’ earlier than 2033 (or earlier if emissions targets have been met, see New Clear Electrical energy Tax Funding 48E). This is applicable to tasks below one megawatt capability and to bigger tasks that meet the above wage and apprenticeship necessities. Tasks shall be eligible for as much as six bonus credit that may enhance the quantity of the ITC by as much as 70% of the undertaking’s eligible set up prices.
Bonus Credit
The ITC consists of six totally different bonus credit that tasks can be utilized for. 4 of the credit are throughout the Low-Revenue Communities Bonus Credit score Program, which the IRS launched preliminary steerage on February 13, 2023 (obtainable to view right here). The IRS is predicted to launch extra steerage on that program later this 12 months. At present, tasks can solely apply in a of 4 bonus credit throughout the Low-Revenue Communities Bonus Credit score Program. Which means a undertaking can obtain a ten% or 20% bonus credit score, relying on their eligibility.
The 4 bonus credit throughout the Low-Revenue Communities Bonus Credit score Program are:
- 10% bonus for tasks situated in a low-income group
- 10% bonus for tasks situated on Tribal Land
- 20% bonus for tasks if the ability is a part of a professional low-income housing undertaking
- 20% bonus for tasks if the ability is a part of a professional low-income financial profit undertaking
The ITC additionally consists of two extra 10% credit, that are stackable. Eligible tasks might apply for each bonus credit, along with the 30% baseline credit score and one of many bonus credit throughout the Low Revenue Group Bonus Credit score Program. The IRS has not launched detailed steerage on how these credit shall be applied.
The 2 stackable bonus credit are:
- 10% bonus for tasks situated in an “power group”
- 10% bonus for tasks that meet home manufacturing necessities
(Learn extra about all six of those bonus credit in a sequence of truth sheets revealed by CEG HERE.)
The next two sections concentrate on steerage launched by the IRS relating to the Low-Revenue Communities Bonus Credit score Program: what we have realized and what questions we nonetheless have.
Solutions to Often Requested Questions concerning the Low-Revenue Group Bonus Credit score Program
What sort of fresh power expertise qualifies?
Adders throughout the Low-Revenue Communities Bonus Credit score Program can solely be used for photo voltaic or wind tasks or tasks that pair storage with photo voltaic or wind. Whereas standalone storage is eligible for the 30% ITC baseline, it’s not eligible for any adders (IR-2023-26, Part 2). The utmost web output of the system have to be lower than 5 megawatts and it have to be lower than the ‘nameplate capability of the ability’ (Part 4.08).
When ought to I apply for these adders?
The Division of Vitality (DOE) will settle for functions for the Low-Revenue Communities Bonus Credit score Program within the third quarter of 2023. Eligible tasks should apply for the adder earlier than the undertaking is put in and ‘positioned’ of service’ (Part 4.05; outlined in Part 2.06 of the IRS steerage). The applying for 2 20% adders is open for 60-days in Quarter 3 of 2023; the appliance for 2 10% adders can be utilized 60-days later within the 12 months (Part 4.07). The IRS will launch extra steerage earlier than the appliance home windows start. Your developer ought to make it easier to apply for these credit.
What are the probabilities that my undertaking shall be accepted and obtain an adder?
Eligible tasks that apply for an adder should not assured to obtain the adder. If demand exceeds provide and an eligible undertaking shouldn’t be accepted for an adder, then that undertaking group might determine to reapply the next 12 months (Part 4.06). The Low-Revenue Communities Bonus Credit score Program will approve as much as 1.8 gigawatts value of tasks by 2023. This system reserves 700 megawatts of capability for tasks situated in a low-income group (10% credit score) and a further 700 megawatts of capability for certified low-income financial profit tasks (20% credit score). Tasks situated on Tribal Land (10% credit score) and certified low-income housing building tasks (20% credit score) are every given 200 megawatts of capability by 2023.
The IRS Division might subject extra standards for adders to prioritize functions for tasks owned or developed by community-based organizations and mission-driven entities or that present substantial advantages to low-income communities, for instance (Part 4.02).
What if I’ve extra questions?
You possibly can reference the newest steerage launched by the IRS (IR-2023-26) or go to the IRS web site for the Inflation Discount Act. This publish shall be up to date when the Division of Treasury and Division of Vitality launch extra steerage relating to the 4 adders throughout the Low-Revenue Communities Bonus Credit score Program. You may as well contact Anna from the Clear Vitality Group ([email protected]).
Alternatives for the IRS to Present Clarification in Future Steering on the Low-Revenue Group Bonus Credit score Program
Some questions stay unanswered by the present steerage:
- When will candidates obtain notification if their undertaking is eligible for the adder they utilized for?
- If an eligible undertaking applies for a 20% adder, however their software shouldn’t be accepted because of capability constraints, can the undertaking apply for a ten% adder in the identical 12 months ?
- Tasks have to be obtainable to those adders earlier than their undertaking is ‘positioned in service’. How do these adders work together with the 30% baseline credit score, which traditionally was solely used after the undertaking was positioned in service?
- With the identical 20% adder for reasonably priced housing and the 20% adder for certified low-income financial profit tasks, the monetary advantages of the undertaking have to be equally divided among the many low-income households (Part 3.03 and Part 3.04). What qualifies below this provision? For instance, if the monetary advantages are restricted to improvement funding for shared group areas, does that qualify? If the monetary advantages are restricted to funding group packages resembling monetary literacy programs, does that qualify?
- How are group photo voltaic tasks evaluated for eligibility for these adders?
Extra Assets
In case you are a group providers supplier or an reasonably priced housing supplier occupied with pursuing photo voltaic+storage below the ITC, you might be eligible for CEG’s Technical Help Fund. For extra data, go to the Technical Help Fund web site.
