Wednesday, December 13, 2023

Inflation Reduction Act provisions related to renewable energy




U.S. wind and solar power generators are projected to produce more electricity than coal next year for the first time, according to a new outlook released by the U.S. Energy Information Administration on Tuesday. Solar additions are expected to reach 23 gigawatts this year and 37 gigawatts in 2024, leading to a 15 percent increase in generation in 2023 and a projected 39 percent increase next year, according to EIA. The solar industry has projected it could see a jump of 32 gigawatts, or more than 50 percent in year-over-year growth, in new installations thanks to incentives from the Inflation Reduction Act. That output from the two renewable sources will surpass the production of coal-fired power in 2024 by nearly 90 billion kilowatt hours as a wave of new solar and wind projects come online.


The Inflation Reduction Act of 2022 is the most significant climate legislation in U.S. history, offering funding, programs, and incentives to accelerate the transition to a clean energy economy and will likely drive significant deployment of new clean electricity resources. Most provisions of the Inflation Reduction Act of 2022 became effective 1/1/2023.


The Inflation Reduction Act incentives reduce renewable energy costs for organizations like Green Power Partners – businesses, nonprofits, educational institutions, and state, local, and tribal organizations. Taking advantage of Inflation Reduction Act incentives, such as tax credits, is key to lowering GHG emission footprints and accelerating the clean energy transition.’


Here’s how the Inflation Reduction Act's new direct pay and transfer options allow more organizations to utilize clean energy tax credits for equipment placed in service on or after January 1, 2023, and through December 31, 2032:


The direct pay option allows certain non-taxable entities to directly monetize certain tax credits for entities such as state, local, and tribal governments, rural electric cooperatives, the Tennessee Valley Authority, and others to directly monetize specific tax credits including many renewable energy credits such as the ITC ) and the PTC. Applicable entities may elect to treat these tax credits as refundable payments of tax. Such entities are eligible to receive a direct payment from the IRS for any amount paid more than their tax liability for credits.

The Inflation Reduction Act also allows eligible taxpayers who are not tax-exempt entities to transfer all or a portion of certain tax credits, including the ITC and PTC, to an unrelated party.

The US Inflation Reduction Act (IRA), which marked its first anniversary in August, is driving investment in clean energy with a broad range of tax incentives.

 

A total of 280 clean energy projects have been announced across 44 US states in the IRA’s first year, representing $282 billion of investment.

 

Companies discussing the IRA along with hydrogen fuel and infrastructure on earnings calls indicated a strong potential to invest, with 70% of mentions including a target or project numbers.


When the Biden administration marked the first anniversary of the Inflation Reduction Act (IRA) in mid-August this year, it rolled out some big numbers to demonstrate the impact of the legislation. In response to the act’s clean-energy and climate provisions, companies had announced more than $110 billion in new clean-energy manufacturing investments since the IRA became law, according to the White House. That includes over $70 billion in the electric vehicle (EV) supply chain and about $10 billion in solar manufacturing.   


The IRA has been surrounded by big claims—and intense criticism—from the start. When he signed the bill into law in 2022, President Biden hailed it as “the biggest step forward on climate ever.” To spur investment, the IRA relies on a package of tax incentives intended to accelerate the deployment of clean energy as well as clean vehicles, buildings, and manufacturing. These include tax credits for investment in renewable energy projects and facilities that generate clean electricity. The law provides tax breaks for the manufacturing of components for solar and wind energy, inverters, battery components, and critical minerals. It also sets out production tax credits for renewable and clean electricity as well as power from qualified nuclear facilities.   


Republicans have leveled a wide range of criticisms at the law, which passed both houses of Congress in party-line votes. Senate Republican Leader Mitch McConnell, for example, has called the IRA a “reckless taxing and spending spree” that will have “no meaningful impact on the world's climate.” Other critics charge that the IRA benefits foreign companies in countries such as China. In particular, the law's incentives for the purchase of EVs have faced pushback, and not just from Republicans. Sen. Joe Manchin, a Democrat who co-sponsored the IRA but has criticized the administration's implementation of the law, said he would oppose a rush to mass adoption of EVs while China controls the supply of critical minerals required for their production.   




One year after the launch of the IRA, we drilled down into the data to understand the investment response underlying the official optimism. What we found was that—so far at least—the reality is living up to or even exceeding expectations. Analysis based on public announcements tracked by the American Clean Power Association (ACP), Climate Power, and E2 show that 280 clean energy projects were announced across 44 US states in the IRA’s first year. These projects represent $282 billion in investment and are expected to create nearly 175,000 jobs. 


To find out which companies are talking about the IRA and what future projects they may be considering, we also examined earnings calls using Natural Language Processing. Solar energy was the clean-energy topic most often mentioned in combination with the IRA on these calls, followed by carbon capture and storage, and batteries and energy storage.   The evidence of the IRA’s impact is mounting, but if the law is to achieve the goals set out by its supporters, challenges will have to be overcome. These include delays in connecting renewable energy projects to the grid and the potential for rising project costs, which could in turn push up the IRA's final price tag. 


Estimating the total bill for the IRA is difficult because most of the spending under the law comes in the form of uncapped tax breaks, meaning the cost will increase as more companies and households take advantage of the incentives. Initial cost estimates tended to range between $370 billion, a figure cited regularly by the White House,11 to $391 billion, calculated by the Congressional Budget Office.  


The IRA’s potential to boost US development and production of clean-energy technology critical to the sustainable energy transition has been widely touted since its inception. The law provides the most supportive regulatory environment in clean-tech history, potentially driving results including the first large-scale deployment of green hydrogen and carbon capture, according to Goldman Sachs Global Investment Research (GIR). The IRA’s incentives could potentially help the US gain a larger share of the global clean-tech market, where China now dominates the manufacturing and trade of most technologies. 

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