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What Is the Inflation Reduction Act: A Commercial Business’s Overview of Energy Storage and Solar Tax Credits

what is the inflation reduction act ira solar tax credits image of solar panels in field
The Inflation Reduction Act (IRA) is a once-in-a-generation legislation that funnels nearly $400 billion of federal funding into clean energy initiatives.

It’s a game-changer for commercial businesses and provides more opportunities than ever to receive federal incentives for renewable energy projects while simultaneously benefiting from lower operating costs and contributing to a more sustainable, healthier environment.

But the IRA is also a lengthy, highly technical legislation that often leaves businesses wondering, “Exactly how does the IRA affect my business, and what are the opportunities that I should know or leverage?”

In this blog, we’ll answer some of your most frequently asked questions by discussing the legislation’s solar tax credits and how it expands your access to renewable energy options like battery storage and community solar. Walking you through the most relevant parts of the IRA, we’ll help you better understand how these financial incentives can help your company better reach its sustainability goals.

 

What is the Inflation Reduction Act?

The IRA is a landmark legislation and the federal government’s largest clean energy investment to date. With a goal of substantially lowering the nation’s carbon emissions by 2030, the IRA promotes clean energy, manufacturing and construction through a mix of federally funded incentives, grants and loan guarantees.

It’s particularly important for commercial businesses, as it establishes new or expanded tax credits for companies that are interested in investing in renewables and net-zero carbon emission technologies as well as those organizations that are looking to support the clean energy transition in local communities.

 

What solar tax credits does the IRA offer?

You may remember the Solar Investment Tax Credit (ITC), the 2006 federal policy that was previously on track to phase down a 30% tax credit for commercial solar energy systems.

Now, with the passing of the IRA, the 30% ITC tax credit for commercial businesses has been extended through 2023 and 2024. And in an unprecedented move, the IRA also allows the tax credit to be applied not only to the construction of solar projects but also new renewable energy technologies such as stand-alone battery storage, fuel cells, microgrid controllers and more.

Those projects will continue to qualify for up to a 30% tax credit until emissions from U.S. production are 75% lower than 2022 emissions levels – a threshold that is estimated to take 10 years or longer to reach.

In addition to the 30% tax credit, commercial businesses can now save even more on eligible projects through several adders and bonuses, including tax credits for projects that are in disadvantaged communities or that use products that are produced in the U.S.

 

Does the IRA include battery energy storage tax credits or incentives?

The inclusion of a tax credit for stand-alone battery energy storage systems is a welcome addition for businesses that have long been interested in the resiliency, cost-cutting and energy management benefits the technology provides.

Previously, battery energy storage only qualified for federal tax credits under very specific circumstances that limited a business’s ability to reap its most important benefits: saving money on utility bills by managing energy usage.

Now, with the new provisions in the IRA, businesses can reduce the overall cost of a new battery energy storage system with the help of federally funded incentives – all while maximizing the use of the battery to reduce energy bills.

This is particularly important for businesses that currently own a solar array and haven’t added battery storage, as this tax credit makes it more financially feasible than ever before.

 

How does the IRA impact community solar?

Community solar checks the boxes for companies that want to make an economic, environmental and social impact. It provides commercial businesses with the opportunity to spur economic growth in their communities, expand access to renewable energy and show their commitment to sustainability.

That also makes community solar well positioned to capture IRA incentives that are offered for projects that use renewable energy, support disadvantaged communities, and have positive environmental impacts.

With the IRA providing additional state and local grants that will allow for the deployment of more zero-emissions technologies, this investment is expected to spur the development of local policies that will further enable more community solar development. In fact, the Department of Energy has already announced a National Community Solar Partnership target that will enable community solar systems to power the equivalent of 5 million households by 2025 and create $1 billion in energy bill savings.

These new developments are particularly exciting for commercial businesses as they create meaningful ways to engage with communities while meeting sustainability goals – all while potentially saving money on operating costs.

 

Ready to get started? We’re here to help.

The IRA is a constantly evolving legislation with additional guidance being released regularly. But you don’t have to be a legal or financial expert to better understand its tax credits and incentives.

Our team at Duke Energy Sustainable Solutions is here to help you distill the most relevant parts of the IRA, walking you through ways your company can best leverage the financial benefits to meet your sustainability goals.

And with our highly experienced energy professionals taking on the design, build, ownership and operation of the renewables projects, you can have peace of mind knowing that your solar and battery energy storage systems are operating at peak performance to deliver the best value to your organization and community.

If you have net-zero goals and sustainability milestones to meet, the IRA may make the shift to renewables easier – and more financially feasible – than you think.

Contact us today, and we’ll explore financial incentives, solutions and options designed to help you reach your goals.

Have a question for us? Let’s talk.

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