Note: Much of this info is summarized from Energy.gov, IRS.gov, and WhiteHouse.gov. More details, sources, and information about additional tax credits can be found here.
For many years, solar has had great tax incentives to support commercial solar projects. Now with the Inflation Reduction Act (IRA), passed in Aug. 2022, provides credits and depreciation deductions that combine to give Year 1 2023 tax incentives that cover 47% (or more) of system cost!
Tax Credits and Deductions
The IRA Section 48 provides both tax credits and depreciation deductions for eligible projects. For projects under 1mW*, a dollar-for-dollar tax credit is provided for 30% of the system cost. Accelerated and bonus depreciation let eligible projects get additional deductions in Year 1. Sample calculations provided below.
*Projects over 1mW in size are required to meet prevailing wage and apprenticeship requirements (read below for more on that)
Example 1: With a 30% tax credit, plus deduction for accelerated depreciation, tax credits approximate 47% of system cost
The IRA offers additional Bonus Credits that can further increase the tax credits provided for commercial solar installation if the project qualifies.
The Domestic Content Bonus Credit (DCBC) provides an additional 10% (from 30% to 40%) if steel and iron are US-made and manufactured components meet percentage thresholds. In 2023 and 2024, this is 40%, and it gradually goes up to 55% by 2026. That said, IRS guidance issued on May 12, 2023 that outlined a complex process for meeting and certifying domestic content manufacturing. In addition to final assembly taking place in the United States, all major components must be assembled in the United States. As of July 2023, no solar panel or inverter company has yet formally announced that they meet the Domestic Content Bonus requirements. That will likely change soon, which will create an advantage for the first movers.
Additionally, the Low-Income Community Bonuses offer credits of 10% if the project is placed in certain low income census tracts, and 20% if that project also meets requirements to benefit that community. Community solar programs are significantly more viable for low-income communities now!
For the first time with the IRA, battery storage for solar systems is incentivized through credits and deductions. For projects that are considering investment in systems to generate and store power on-site, this makes storage much more affordable.
Non-Profits, States and Municipalities – Direct Payments!
Under the IRA, Tax Exempt organizations (i.e. non-profits, universities, churches), States, tribes, and municipalities can receive direct payment from the federal government of eligible projects. This means that a non-profit that puts solar on their headquarters can receive a 30% (or 40%-60%) check, while financing the system off of previously budgeted electricity bills. This changes the financial equation for solar for those that qualify!
Carbon Footprint Impact
In addition to the direct financial value through electricity savings and tax credits that solar can bring a business, the transition to renewable energy is a reality that every business will face in the near future. Solar is the lowest hanging fruit in sustainability, providing a huge carbon footprint reduction while providing enormous financial return on investment. Your business can document and market your carbon savings, while it is still marketable instead of mandated.
Reinvest the Savings
Instead of pocketing all of the savings that the come from solar, put some back into creating life! For example, set aside the difference between your solar payment and your old electricity bill to go towards projects that support your local environment and community. Plant trees and mangroves! Start a compost program! Put life at the center of your business!
About the Author
Caleb Quaid is the founder of Regenerative Shift, a Tampa-based environmental consulting firm, working with businesses and communities on regenerative environmental initiatives and sustainability programs. Regenerative Shift focuses on life-creating and cost-saving holistic programs, including regenerative land and water projects and Inflation Reduction Act (IRA) consulting. As a public speaker, Caleb provides motivating insight into practical life-creating environmental practices and shows the business case for going green with tax incentives under the IRA.
The IRA can be a lot to navigate, and new guidance is issued every week. If you’d like to discuss how your business can benefit, Regenerative Shift is here to help! Contact us today to set up a free consultation!