{{ content.title }}

By Maddie Lee

Maddie Lee is a Policy Analyst at Enel North America. She is responsible for facilitating the implementation of federal policies at Enel, such as the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, across a wide range of technologies including renewable energy, green hydrogen, and EV charging infrastructure.

Energy resilience is increasingly driving investment decisions for organizations looking to protect themselves against grid disturbances like sudden and extended power outages. There is a growing need for and interest in energy resilience solutions like microgrids, which enable organizations to deliver a continuous supply of energy to power critical operations during grid interruptions and outages. However, these energy resilience solutions can be expensive, as they require additional engineering and design considerations. 

In this blog, we answer your questions about how you can leverage the Inflation Reduction Act of 2022 to deploy microgrids as part of your energy resilience strategy. We discuss what the legislation explicitly includes and what role it plays in addressing the overall need for corporate energy resilience.

What financial incentives does the Inflation Reduction Act offer for microgrids?

Typically, when people talk about ensuring energy resilience, they mean ensuring a reliable supply of power when the grid goes down. One way that you can achieve energy resilience is through the development of a microgrid, which allows you to island or disconnect from the central grid right before an outage and switch over to your own power supply from on-site generation resources.

At the center of a microgrid is the microgrid controller. The controller decides when to switch off from the central grid, which critical loads to maintain – that is, the systems that absolutely needed to continue operations during an outage – and how to direct the new flows of energy from on-site resources to meet facility load.

While we are still waiting for final IRS guidance, we do know from the legislative language that microgrid controllers are eligible for the investment tax credit (ITC) for projects that start construction by December 31, 2024. Microgrid controller tax credits start with a base credit of 6% and increase to 30% when apprenticeship and prevailing wage requirements are met, with room for additional bonus credits when siting conditions or domestic content targets are also met. Learn more about the nuances of achieving these bonus adders.

Beyond the controller, a microgrid also consists of on-site generating resources. These generating resources can be backup generators (running on diesel, natural gas, or propane), distributed solar or wind paired with energy storage, or some combination of the above.

The Inflation Reduction Act provides financial incentives for non-fossil fuel-based generating and storage resources: first through a technology-specific production tax credit (PTC) or ITC through 2024, then a technology-neutral clean electricity PTC or ITC from 2025 to 2032 (or when there has been a 25% or more reduction in annual GHG emissions from the production of electricity in the United States compared to 2022 levels, whichever is later).

• Renewable electricity: Eligible for the extension of the renewable electricity PTC and ITC through 2024, then eligible for the technology-neutral incentives through 2032. Applicable to facilities generating electricity from wind, solar, geothermal, hydropower, biomass, and more.
• Energy storage: Eligible for the new ITC for standalone energy storage through 2024, then eligible for the technology-neutral incentives through 2032. Applicable to energy storage property.

Why microgrids and why now?

The Inflation Reduction Act will direct $415 billion into the clean energy economy over the next decade, transforming the energy landscape as we know it. Thanks to the many tax credits and financial incentives included in the Inflation Reduction Act, we expect to see the development of clean energy and the electrification of vehicles picking up momentum for the foreseeable future. Download our summary document to view a list of select incentives and their eligibility requirements.

Depending on where distributed energy resources like solar, wind, and EV charging systems are located, there will likely be large increases in supply or demand in areas with concentrated distributed assets. This puts stress on the local grid operator to manage more volatile supply and demand changes and in turn creates the need for tools to enhance grid stability.

In the past, efforts to enhance grid stability were provided through capital-intensive and slow-moving infrastructure upgrades. Now, distributed generating assets paired with storage or even microgrid systems can serve as a non-wires alternative (NWA) to bolster the grid. In 2019, Enel and Related Companies worked with the local utility, Con Edison, to install New York City’s then largest battery storage system to support the central grid in periods of high peak demand – as an example of an NWA application.

Beyond ensuring system-level grid stability, microgrids also provide other benefits at the energy consumer level. For example, EV charging can greatly increase your peak demand and total energy usage, leading to significant increases in your utility bill. And greater reliance on electricity to power transportation also means a greater need to ensure operational resilience through solutions like microgrids to be able to charge vehicles during times of power outages. Microgrids/backup solutions and the electrification of vehicles thus form a positive feedback loop, each accelerating the development of the other. Looking forward, we expect to see more fleet managers and communities install microgrids to ensure the reliability of transportation.

What industries can benefit from energy resilience?

More and more, organizations across all types of industries, from manufacturing to local governments to higher education and beyond, can benefit from embedding microgrids into their energy resilience strategy. It doesn’t matter what industry you are in – energy disruptions impact continuity and your bottom line. And when each disruption causes lost productivity, wasted product, and even potential safety issues, it’s becoming clear that energy continuity is a critical component of any energy strategy. Microgrids can help secure operations in the following ways:

• A cold storage facility can maintain power to refrigeration equipment, ensuring they are meeting quality standards and avoiding wasted product, lost revenue, and even a tarnished brand reputation.
• A manufacturing facility can keep operations running, ensuring they are delivering products to plan and not losing revenue due to losing precious processing time.
• Higher education institutions can keep servers running to protect years of research and ensure student safety and satisfaction with continuity of housing and meal service.
• Wastewater plants can continue to process wastewater to remove pollutants and meet regulatory compliance.
• Water plants can keep pumps running to ensure wells are filled to provide water to the community they serve.
• Local governments like cities, towns, and special districts can ensure the safety of their communities by keeping the power flowing to emergency services like fire stations or shelters.

After the devastation of Hurricane Maria in Puerto Rico, Eaton – a power management company – partnered with Enel to develop two microgrids on the island. Beyond ensuring business continuity and sustainability, both microgrids are designed to hurricane code in Puerto Rico and able to withstand Category 5-strength hurricane-force winds. The Arecibo microgrid won a Top Project of the Year Award in the Environment + Energy Leader Awards program.

Get started today with your energy resilience strategy

To qualify for the microgrid controller tax credit, the project must be under construction by December 31, 2024. This means that any project seeking to take advantage of the full credits has a short window to act. While we are awaiting final IRS guidance, we’d love to start a conversation to scope out your organization’s needs, design an optimal system, and ensure that your project starts construction by the stated deadline.

At Enel North America, our team of experts is ready to help you capture the most value from the Inflation Reduction Act for your energy resilience strategy. Reach out to us today to discuss how to future-proof your operations – and how our integrated suite of on-site and off-site energy solutions can meet your specific energy requirements and sustainability goals.