The Inflation Reduction Act (IRA) is the largest climate investment in U.S. History. Designed to mobilize both individuals and businesses towards clean and efficient energy goals, the IRA offers various incentives, finance programs, funding opportunities, and tax breaks in return for efficient-conscious improvements and clean energy projects.

There has quite literally never been a better time to invest in clean energy. Standout elements of the IRA include expanded tax credits and deductions as well as trickle-down grant and program funding. All of which are exceptionally attractive to organizations that have equipment nearing the end of its life, commitments to clean energy, or a curiosity for renewable energy alternatives.

Making sense of the IRA and its impact on your potential projects can be a daunting task at best. Our energy team combines technical expertise with nearly a decade of experience in energy to bridge the gap between your long-term goals and the viable financial opportunities that make them a reality.

Expansion of Federal Investment Tax Credit

Perhaps one of the most exciting pieces of the IRA is the expansion of the Federal Investment Tax Credit (ITC) which offers a dollar-for-dollar tax credit based off project costs.

ITC has been in effect since 2006. But the signing of IRA not only extended the timeline but also expanded the available credits and bonuses for energy projects. It also extended the technologies recognized to a more comprehensive list of energy efficiency technologies.

NEW! For the very first time, the benefits of the ITC have now been made available to non-taxable entities such as school districts, municipalities, and non-profits in the form of direct payments that function much the same as a tax credit does for taxable entities. Read more under “direct pay options”.

The base credit for projects at both <1MW and >1MW is 30% of project costs. (Note that greater than 1MW must meet prevailing wage and apprenticeship requirements.) In other words, at the base credit, the amount of 30% of total project cost will be reduced in federal taxes the individual or company otherwise would owe.

However, with a little bit of extra planning and intentional decision making, projects may be eligible for additional bonus credits totaling up to 70% of total project costs in tax credits. Some of these additional bonuses include use of domestic materials and community or project location.

Projects eligible for ITC

Multiple solar and wind technologies
Geothermal (heat pump & direct use)
Combined heat and power
Municipal solid waste
Energy storage technologies
Microgrid controllers
Fuel cells
Microturbines
Interconnection costs

Direct Pay Options for Low or Non-Taxable Entities

For the first time, the Inflation Reduction Act has extended the benefits of the Investment Tax Credits to also benefit non-taxable entities or entities with low tax liability. There are two new credit delivery options – elective pay (aka direct pay) and transferability.

Now, state, local, and tribal governments as well as non-profit organizations and other tax-exempt entities will be able to receive certain tax credits as direct payments from the IRS in lieu of tax credits.

Additionally, the Act allows tax-paying entities with a low tax liability to transfer (i.e. sell) all or a portion of certain tax credits to another party. This offers a flexible opportunity to still reap the benefits of the ITC in a fashion resembling direct payments.

Additional resources related to funding announcements:

Grants and Financing

Another result of the Inflation Reduction Act is an abundance of additional funding trickling down through several avenues including mandatory grants, competitive grants, loans, and bonds.

Funding is coming down through existing avenues such as the United States Environmental Protection Agency (EPA) as well as the PA Department of Environmental Protection (PA DEP) and through other state agencies. New grant programs are opening up regularly through IRA funding distribution.

Information related to specific funding amounts and deadlines associated with these programs remains dynamic – updating often with new opportunities. However, the team at SSM and Practical Energy Solutions continues to keep a pulse on funding and incentive opportunities that come out of this legislation, ensuring we can help guide our clients towards the best opportunities for their projects.

Improvements recognized 179D

Heat pumps; Chillers; Boilers
VRV & VRF
Windows; weather stripping
Envelope
Lighting and controls
Air sealing; Building insulation
High efficiency ventilation

Extension of 179D Commercial Tax Deduction

Another key provision of the Inflation Reduction Act is the extension of the already existing 179D Commercial Tax Deduction which offers a deduction for energy-efficient building improvements based on building square footage.

Improvements can be as simple as updating weather stripping and insulation to more advanced improvements such as roof replacements and ventilation expansion.

The deduction amount begins with a base of $0.50-$1 per square foot depending on the project’s resulting increase in efficiency. This base credit is increased 5 times – totaling up to $5 per square foot if the project meets prevailing wage and registered apprenticeship requirements

Making the most of incentives

The Inflation Reduction Act presents some of the most expansive opportunities for making clean energy affordable and viable for organizations and building owners of all sizes. Whether your efficiency goals are ambitious or modest, we’re confident there’s a financial recipe that makes reaching them both attainable and affordable.

We’re well versed in capitalizing on financial opportunities for our clients, and ensuring the return on your investment is within sight. By pairing our understanding of legislation such as the IRA with our expertise in financing programs outside of legislation, we’re able to prepare the best clean energy plan for organizations of any size and any goal.

For more information on Energy Services and Financial Opportunities:
Paul Spiegel, PE, LEED AP | Director, Energy and Sustainability Services
paul.spiegel@ssmgroup.com | 610-609-8313

Perspectives

Inflation Reduction Act: Financial Highlights for Energy Projects