How the IRA Reduces Solar Costs

The Inflation Reduction Act (IRA) has been called the “most significant” climate bill in US History. The IRA provides significant incentives for facilities to deploy solar, energy storage, and other clean energy technologies. The biggest incentives that the IRA provides are around investment tax credits (ITC), which enable facilities to receive as much as a 60% tax credit on projects. This case study describes how the Inflation Reduction Act (IRA) incentives can be used to reduce the cost of solar in both turnkey purchase and power purchase agreement (PPA) scenarios.

The IRA enables solar and battery storage projects to receive as much as up to a 60% tax credit incentive (with a net reduction in delivered project cost):

• Investment Tax Credit of 30% with size and labor considerations
• Additional 10% ITC available with domestic content minimums
• Additional 10% ITC available in qualified energy communities (generally brownfields or former coal areas)
• Additional 10-20% ITC available in low income areas

Additionally, the tax credits have a “direct pay” provision that allows tax exempt entities to receive direct payment of the tax credits.

How does this benefit projects?

Projects that are delivered under turnkey purchase (direct ownership by facility) are able to immediately recognize the ITC once the system is placed in service. By utilizing these tax credits, facilities are able to have lower net project costs with a significantly higher rate of return. Additionally, solar and energy storage projects are eligible for accelerated depreciation including bonus depreciation of up to 80% for projects placed in service in 2023.

Projects that are delivered under third party ownership scenarios such as power purchase agreements (PPAs) have lower PPA rates as the third party owner utilizes these tax credits to lower the delivered cost of energy while maintaining project returns.

The table below illustrates an example 1 MWdc rooftop solar system in California. Under both the turnkey purchase and PPA scenarios, higher ITC enables facilities to dramatically reduce the delivered system cost and obtain faster paybacks with lower solar costs.

Enerlogics is ready to help your facility understand how to utilize solar to combat rising electricity costs and to leverage the IRA to optimize the solar system costs and returns.