In addition to the Investment Tax Credit (ITC) for qualifying projects, the Inflation Reduction Act provides several “adders” which can significantly increase the credit amount. Here are the projects that qualify for tax credits: Fuel cell, solar, geothermal, small wind, energy storage, biogas, microgrid controllers, and combined heat and power (CHP). (For solar, includes (1) equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, and (2) equipment that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight or electrochromic glass that uses electricity to change its light transmittance properties in order to heat or cool a structure.) (Source: The White House)
The basic ITC value as of 2024 is 6%. Here’s a summary of the different stackable elements of the ITC beyond that value:
- Prevailing Wage and Apprenticeship Requirements: Increases the ITC from 6% to 30% of eligible project costs if the requirements are met. Projects smaller than 1 megawatt automatically receive the 30% credit as a base amount.
- Domestic Content: Offers a bonus credit of between 2% and 10%, depending on whether certain criteria are met, such as using 100% U.S.-produced steel or iron and 40% U.S.-produced manufactured products for the facility.
- Energy Community: Provides a bonus credit of between 2% and 10% for projects sited in brownfields or in certain communities with high unemployment or where coal facilities have closed recently. (See map of qualifying communities)
- Low-Income Communities: Increases the ITC by 10% or 20% for qualified solar and wind projects in low-income communities, on Indian land, as part of affordable housing developments, or benefiting low-income households. This credit requires an allocation from the IRS or the Department of Energy’s Office of Economic Impact and Diversity. ( See map of qualifying communities)
CleanFi 12/2023