From pv magazine USA
In a surprise victory for the solar and clean technology industries, US Senator Joe Manchin and Democrats reached an agreement on a reconciliation bill, dubbed the Inflation Reduction Act of 2022. The bill includes $370 billion in spending for renewable energy and climate measures.
One of the most impactful provisions in the bill, which can be read in full text here, is the long-term extension of the Investment Tax Credit, which has been instrumental in launching the solar industry we know today. The bill calls for a 10-year extension at 30% of the cost of the installed equipment, which will then step down to 26% in 2033 and 22% in 2034. The tax credit applies to individuals adopters of solar technology.
The 30% credit also applies to energy storage whether it is co-located or installed as standalone energy storage. This enables the retrofit of a battery to a solar array while taking advantage of the credit.
One measure that was hoped for, but is not in the bill, was the “refundability” clause. Refundability means that if the tax credit value exceeds taxes owed on the year, it would be paid as a cash refund. This provision was not included, which hampers the value of the credit for some individuals. However, the credit can be rolled over to a following year.
There are also several “adders” for the tax credit depending on the type of organization, domestic product use, and project location. ROTH Capital Partners said that the investment tax credit could reach as high as 50% for some projects with the right adders applied.
The credit also includes the “direct pay” provision. This would allow a developer with little or no tax liability to treat the amount of credit as an overpayment of tax which would result in a cash payment refund in the amount of such overpayment being made to the developer.
“With long-term incentives for clean energy deployment and manufacturing, the solar and storage industry is ready to create hundreds of thousands of new jobs and get to work building out the next era of American energy leadership. This is a crucial window of opportunity that we cannot miss, and now Congress must seal the deal and pass this legislation,” said Abigail Ross Hopper, president of the Solar Energy Industries Association.
The bill is expected to head to the Senate floor for a vote as early as next week.
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Thanks for the article and explanation, though can you please double check or clarify your definition of a refundable tax credit? Doesn’t that mean that homeowners would get the full 30% tax credit in year one regardless of their tax liability? So for example if they are on disability or don’t pay fed taxes, they still get the refundable tax credit in full. What you defined sounds like a non-refundable tax credit (which is what it is currently and has been) wherein homeowner can only get back what they prepaid or scratch what they still owe, and if there’s a remaining credit value, it rolls over to the next year.
Hello, the explanation of refundability has been revised for accuracy.
Would love to have a tax credit for having solar.
Hi Laura, perhaps you can — do you know if your home is eligible for solar power?
The ITC had next to nothing to do with launching the solar industry as we know it. As with the metric system, everyone but the US used feed-in tariffs. I suspect well over 75% of the solar installed worldwide has used some version of a FIT. The solar industry would do just fine without this tax credit. Jigar Shah and many other solar gurus have said this repeatedly. It seems strange that we keep renewing this program when tax equity tends to be higher-priced debt.
Note that FiTs are far less prone to gaming because they’re performance based. With this ITC being extended to stand-alone storage (a multi-billion dollar boondoggle) you now have a situation where storage projects that operate at 1 to 2 to 3% capacity factors could still be profitable. On top of this, there could possibly be issues with “fair market value” accounting – this is where you artificially inflate the value of a project above what you spent and claim the tax credit based on the inflated value. The front-loaded nature of the ITC also makes it so you can have issues around installing Yugo-type projects with dirt cheap equipment. Every utility solar project in the US reports its monthly generation data to the EIA. This allows one to independently audit the performance of a Solar project. How does one do this with a battery project?
It’s hard to understand why the cheapest form of generation the world has ever seen needs another 10 years of assistance. This seems like a shameless handout to tax equity investors. Meet the new boss… Same as the old boss. I would have rather seen a load guarantee program of some sort. This would help with lowering the cost of debt.
Fortunately, the ability of tax equity investors to crowd out other investors isn’t nearly as much of a problem as it was 10 years ago. A 30% ITC on a 65 cent/watt project doesn’t change the LCOE nearly as much as a 30% ITC on a $6.5/watt project. This means the tax equity players won’t have as much leverage as they have in the past. I suppose that’s a good thing.
One of the funky possibilities with this tax credit is that we could see a flood of battery projects that suck up all the tax equity in the room. This could create a situation where solar project developers wouldn’t have access to those investors. Ha… That would be funny.
I sure hope this doesn’t divert batteries from EVs.
You are right about the ITC/FIT effectiveness, but the USA is an outlier in that we have no NATIONAL ENERGY POLICY, but a collection of 50+ state regulated utility commissions, each with their own political charters and influence on tax and FIT policy. The ITC is only necessary in making a CONSISTENT incentive structure for developers and investors. If SCOTUS were to allow national regulation of the generation and distribution industries and we had the political will to create FITs, it would be the most effective way to go.
The reason we need this tax credit is to get more people to go with solar. It is not about propping up the industry, which you claim would do fine without the subsidy, but about encouraging more installation. That should help the industry to grow faster, of course, but that’s a good thing. The fossil fuel industry would do fine without the subsidies it currently enjoys, and in that case, there is no benefit to the country, which there is with solar.
If I read the full text properly, does that mean if we have solar installed this calendar year (2022) we would have a 30% tax credit when we file next year (before April 15, 2023)?
If so, that would be amazing for customers who have already locked in their contracts and have install dates for this year, assuming the quotes they got were from contractors assuming a 26% credit. Not saying that price quotes are intentionally inflated based on the credit % but one has to assume through the normal course of economics that as that credit % edged lower each year, to remain competitive bid prices would have to fall slightly.
I have the same question Joseph….too bad no one answered you. Is the 30% available for all of 2022, or just from the date the legislation was passed, or not until calendar year 2023? I will end up having a bunch of systems to commission on January 1. Why is this question so hard to answer?
All that means is the installer will jack his prices up 30%
If your installer ‘jacked up’ the price, YOU would still receive 30% credit on the total cost of the system. However this bill will create more competition between more installers therefore likely lowering system costs overall. Shop wisely.
Nope. Never happens. Solar is a hyper-competitive market, and installers make more money by increasing volume, reducing administration costs and increasing MARKET SHARE than they do manipulating tax law or risking audits and IRS penalties. The more of anything you make, sell or install, the lower your overall unit costs. Would YOU buy solar without getting 3 or more bids for comparable systems?
Just as Michael said, all it means is the price of solar climbs again. Solar panels are not practical yet. Also, if you plan to use the solar company to finance, expect a huge fee. It’s a buy-down fee. It can be upwards of a $9,000+ fee added to the cost. Buying the panels in one payment is the best route, but most Americans cannot afford it. Here in California, SCE charges you nearly a double rate from 4PM to 9PM. This way they can collect some money they lost during daytime hours. Also, solar panels last about 20-25 years. When they expire you have to purchase a new set. As of now, solar is just a money scam.
Most solar is 0 down and financed at 1.99%. Solar degrade at .5% annually, they last for over 25+ years, and are easily recycled. If you’re being charged double, wouldn’t you want to build up some credit with your panels during the day so you aren’t being charged as much? Solar makes sense and with the more solar sold, the more incentive solar has to get better than it already is.
In 2020, California curtailed 1,587,496 megawatt-hours (MWh) of solar and wind energy costing federal taxpayers $39.05 million in Investment Tax Credits provided but not rewarded with the contracted energy production. Why should the average American care? With solar and wind generation promoted as the cheapest energy we can produce, why are we subsiding it with federal investment and production tax credits, respectively, when the California grid cannot handle all of its production?
Unknown to the public, is that in 2019 California curtailed 891,065 MWh of solar/wind which cost federal taxpayers (ITC) $21.92 million, and curtailed 1,504,803 MWh in 2021 costing taxpayers $37.02 million.
Current solar and wind investment tax credit (ITC) benefit:
Solar:
The investment tax credit (ITC), also known as the federal solar tax credit, allows a solar developer to deduct 1/3rd of the cost of installing a solar energy system from federal taxes. The ITC applies to both residential and commercial systems, and there is no cap on its value.
The ITC was originally established by the Energy Policy Act of 2005 and was set to expire at the end of 2007, but we all knew it would just keep getting worse like every other federal pork barrel project. 2055 might see the end of this pathetic 50 year long failed liberal insanity after billions of tons of spent solar panels are dumped into landfills. Shameful…
Does anyone have the answer to the question above about whether the 30% credit will apply to solar systems installed in 2022? The electric car credit in the bill only applies to cars purchased after Jan. 1, 2023. Is there a similar clause which would mean the tax credit in 2022 would still be 26%?
Nims, I have been searching for the answer to this question since the legislation was passed. It seems to not be spelled out in the law, so my take is that only systems commissioned in 2023 and forward will get 30%. Those installed in 2022 will presumably only qualify for 26%. So now my current customers are telling me not to turn their system on until January 1. This presents a cash flow problem for me as my preference is to invoice as much as possible this calendar year, and they want an invoice that says 2023. Unintended consequences of a rushed bill. “You have to pass it to find out what’s in it.”
I’m considering solar but leasing instead of purchasing. I read that only the owners of the solar equipment will get the tax credit. Does anything change with this new bill? Will the solar company factor the rebate into the lease rates?