by Christian Roselund
In a surprise turn of events, on July 27 Senator Joe Manchin announced that he has reached a deal with Senate Majority Leader Chuck Schumer on clean energy tax legislation. Given Manchin’s newfound cooperation, this legislation is likely to become law in September. The Inflation Reduction Act (IRA) features provisions related to solar, wind and energy storage tax credits, as well as U.S. solar and wind manufacturing.
This includes the following:
• Solar Investment Tax Credit (ITC) for businesses returns to 30% for projects that begin construction through the end of 2024: The full 30% is contingent on labor provisions o Energy storage 5kWh and larger becomes eligible for the ITC; An additional 10 – 20% ITC (to reach 40%-50% of project costs) is available for certain projects in low-income communities
• ITC for residential solar is extended for 10 years through the end of 2032
• Wind Production Tax Credit returns at $0.015/kWh through the end of 2024 (contingent on labor provisions)
• After January 1, 2025, the ITC for businesses and the PTC for wind both go away and are replaced with a technology-neutral PTC for zero-emitting technologies:
0.015/kWh for installations smaller than 1 MW o $0.003/kWh for installations larger than 1 MW
• Incentives for U.S. clean energy manufacturing: Eligible solar components: modules, cells, wafers, polysilicon, backsheets, inverters; Eligible battery components: modules, cells, electrode active materials, critical minerals; Eligible wind turbine materials: blades, nacelles, towers, offshore wind foundations, inverters ; The above credits begin phasing out in 2030 and expire in 2033
The IRA now goes before the Senate Parliamentarian, who will ensure that it qualifies for the “reconciliation” approach, meaning that it can pass the senate with only a simple majority. It will also need to be approved by the House of Representatives; however, the House goes on recess on July 29. This means that the House will need to either reconvene for a special session or that the IRA will come to a vote in September.
CEA gives this legislation a 75% chance of passage; one of the few concerns is that progressive Democrats may balk at some of the other provisions in the bill for the oil and gas industry. As this bill will likely face united Republican opposition, it cannot afford to lose even one Democratic vote in the 50/50 Senate. If it does pass the House and Senate, President Biden has indicated that he will sign it. If passed, this bill is likely to provide a significant mid-term (through 2025/2026) boost to solar, wind and energy storage markets, as projects come online under the ITC and PTC. It is also likely to spur some domestic manufacturing, at least of solar and energy storage components. CEA has not done an analysis of the impact that the IRA incentives would have on wind manufacturing.
Source: Inflation Reduction Act of 2022 (U.S. Senate)
