What ERI 2022 Means for Clean Energy and Manufacturing
Today, President Biden signed into law HR 5376, known as the Inflation Reduction Act (IRA). The nearly $369 billion in new spending is aimed at transforming entire sectors of the U.S. economy and will have profound implications for the clean energy landscape, including for manufacturers, developers, owner-operators, utilities and investors. Bradley has been actively monitoring the bill and will provide more in-depth updates on the nuances of the bill’s provisions and the rollout in the coming weeks. We specifically track the following, which appear to be the most important for the energy and manufacturing sectors:
Extended Credit for Advanced Energy Projects
This extension provides up to $10 billion in credits to manufacturers of certain clean energy products, including energy conversion technologies, light, medium or heavy fuel cell or electric vehicles, technology components or materials for these vehicles, as well as the associated recharging or refueling infrastructure. Manufacturers may also qualify for the credit to retrofit, expand, or establish an industrial facility for processing, refining, or recycling critical materials and components due to changing material sourcing requirements for electric vehicle credits.
Advanced Manufacturing Tax Credit
This tax credit provides strong incentives for the manufacturing of clean energy products and technologies, and their supply chains. For example, up to $35 per kWh for each battery cell, $10 per kWh for each battery module, and various amounts for clean energy components for residential and commercial use such as wind blades, inverters, torque tubes and solar modules. This credit, combined with the Advanced Energy Projects Credit, could provide significant savings for a new business about to begin construction, an existing business looking to expand or transition to new products, or an existing manufacturer looking to expand. ensure that he meets the requirements of the program to benefit from tax credits.
Restoration of the ITC by 30% and extension of the CIP
The IRA restores the 30% Federal Investment Tax Credit (ITC) and extends the 1.5 cents/kWh Production Tax Credit (PTC) for renewables, expressly expanding the ITC to include energy storage and microgrid controllers (as well as some costs related to interconnecting facilities) and resuscitating the solar power generation tax credit. Achieving the full 30% ITC and 1.5 cent CIP is dependent on meeting new salary and apprenticeship requirements. Projects less than 1 MWac or whose construction begins before the date that falls 60 days after the IRS issues guidelines for applicable salary and apprenticeship requirements are eligible for the full ITC and PTC without complying with these requirements.
Creating “bonus” ITC eligibility for domestic content, energy communities, and low-income benefits
Projects will be eligible for an additional 10% ITC for meeting each bonus qualification: (a) certification that an adjusted percentage (generally 40%) of the total cost of steel, iron or manufactured components is produced at United States ; (b) location on a brownfield site, in coal, oil or natural gas areas, or in an area with above average unemployment; or (c) for projects less than 5MWac, serving low-income residences or on Native American lands. The 10% domestic content bonus has the potential to significantly expand the role of domestic manufacturing in the clean energy supply chain.
Provision of certain direct payment benefits and credit transfer options
Certain tax-exempt entities, state and local governments, VAT and tribal governments may elect direct payment of the tax credit, and taxpayers not eligible for direct payment may sell ITCs and PTCs. This greatly expands tax credit portability options and has the potential to significantly alter investment strategies for certain market segments.
Many programs and tax credits will have additional rules and application processes that will be released in the coming months.
© 2022 Bradley Arant Boult Cummings LLPNational Law Review, Volume XII, Number 228