Inflation Reduction Act: Impact on Renewable Energy
The Inflation Reduction Act (the "Act"), signed into law by President Biden on August 16, 2022, will significantly impact clean energy. This White Paper contains a summary of the provisions most relevant to the renewable energy industry.
The Act offers robust energy tax incentives designed to enhance energy security through the Internal Revenue Code. The Act directs approximately $369 billion toward energy and climate spending, including wind, solar, clean energy storage, and other clean energy manufacturing projects. The Act extends and expands existing tax credits for wind and solar energy that have either lapsed or were set to expire, and offers tax credits and accelerated depreciation to technologies previously ineligible for incentives, such as energy storage and clean hydrogen. To be eligible for the headline credits, however, projects must generally comply with prevailing wage and apprenticeship requirements. Bonus credits may be available for projects that utilize U.S. domestic suppliers or are located in certain low-income or other specified communities. Additionally, it may now be significantly easier to monetize renewable energy credits, because the Act permits a "direct pay" election for tax-exempt entities, and also allows taxpayers to sell the credits to unrelated parties for cash.
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