What Is the IRA?
The United States Government passed the Inflation Reduction Act (IRA) in August of 2022 in an effort to boost the economy. Supporting energy-saving investments is one of the major tenets of the IRA, and this has many implications for commercial solar in California.
Most notably, the IRA will increase tax incentives for solar and lock them in place for 10 years. This provides a much-needed boost to the reality that investing in renewable energy is a sound financial decision.
How Does the IRA Compare to Previous Tax Incentives?
Before the passing of the IRA the government incentivized solar programs through an approach called Investment Tax Credit (ITC). Essentially, an ITC takes a percentage of what an investor puts towards a solar program and makes that available as a tax credit. Both the size and duration of the tax credits for solar investments saw a great amount of fluctuation through recent years – starting at 30% before being reduced to 26% with projections to reduce even more by 2024. Proponents of tax incentives for solar investment have urged the government to hold at 26% and even increase it back to 30%. With the IRA, these hopes are coming to fruition.
The Inflation Reduction Act is set to provide an ITC of 30% locked in for the next 10 years for projects that meet two qualifications:
- Projects that pay prevailing wages during the construction phase and for the first five years of operation*
- Projects that meet registered apprenticeship requirements.*
This means that the financial incentives associated with investing in solar programs are not only greater, they are also locked in place for a longer amount of time.
In addition to the 30% tax credit, IRA will provide accelerants that provide even more tax relief in certain situations. For example, the legislation offers an additional 10% tax credit for solar programs in disadvantaged communities and solar programs in communities that formerly housed coal-burning power plants. There is also a 10% credit for using all American-made parts.
Why is IRA Important for Commercial Solar in California?
The passing of IRA bodes very well for those investing in commercial solar programs in California. Extending the 30% tax credit for the next 10 years allows firms to make a solid commitment to address complex financing solutions. Through monetizing the tax incentives, firms like King Energy are able to expand their program opportunities through better investment opportunities.
The passing of this legislation is the single most important step toward promoting growth and stability in the solar and renewables sector. It is propelling the industry forward and ensuring stable investment for all involved.
Want to learn more about investing in a solar program? Contact us today!