The Inflation Reduction Act of 2022

The Inflation Reduction Act of 2022 is a federal law enacted on August 16, 2022. It promotes clean energy and domestic energy production through a variety of incentives, tax credits, and more. It also includes provisions on healthcare and tax impacts. 

The Inflation Reduction Act sets a stable and reliable 10-year framework for investments in clean energy. It is expected to drive $4.1 trillion in cumulative capital investment in new American energy supply infrastructure over the next decade. It will reshape the United States energy landscape for all types of energy users and producers – private organizations, residential end users, utilities, and beyond.

The Inflation Reduction Act unlocks energy project opportunities that can reduce energy spend, lower emissions, and/or increase sustainability for organizations in nearly every industry. These projects incorporate the clean energy technology featured in the bill – like solar, wind, geothermal, energy storage, electric vehicles, and more. Different types of organizations – whether private businesses, governmental organizations, or otherwise – will have different pathways to best take advantage of the Inflation Reduction Act.

The Inflation Reduction Act could also have secondary effects on a variety of aspects of energy pricing, such as renewable energy certificates (RECs) and power purchase agreements (PPAs). An energy partner like Enel North America can help you understand how these effects play into your energy strategy for the years ahead.

Most industries can see lower clean energy project prices through the Inflation Reduction Act’s tax credit incentives, with large energy users being best suited to take advantage of these opportunities, especially the Investment Tax Credit (ITC) and Production Tax Credit (PTC). Different types of organizations – whether private businesses, governmental organizations, or otherwise – will have different pathways to best taking advantage of the Inflation Reduction Act.

There are a variety of different qualification requirements involved for a project to access the full value of the tax credits, and some organizations are in position to reap extra savings. Enel North America can work with you to maximize the tax credits available to you.

The Inflation Reduction Act provides significant financial incentives for:

• Renewables (solar, wind, geothermal,  etc.)
• Energy storage
• Electric vehicles
• Electric vehicle chargers
• Clean hydrogen
• And much more

Organizations should consider pursuing clean energy projects that include these technologies to improve corporate sustainability, reduce energy costs, boost resilience, and more.

Every technology and project differ in the specifics of its provisions, but the tax credits are generally quite large and can significantly decrease the cost of a project. 

As just one example, an energy storage project can now leverage an investment tax credit of 30% in the year the system is placed in service, as long as the project meets prevailing wage and apprenticeship requirements – we address these requirements in a later question in this FAQ. There are also several possible “adders” that can each stack on an additional 10% savings each, up to 40% on top of the original 30%, which we also address in a later question in this FAQ.

The majority of the $370 billion in energy and climate funding is realized through two types of tax credits, both working to reduce the project costs:  

The ITC reduces upfront investment costs for a wind, geothermal, solar photovoltaic (PV) or battery energy storage system that is installed during the tax year. Eligible costs include: the system itself (plus the balance-of-system equipment), installation costs, and certain interconnection costs (for projects 5 MW or less).  

In contrast, the PTC generates tax credits per kilowatt-hour (kWh) of energy produced by a wind, solar or geothermal project for the first 10 years of a facility’s operation. Whereas the ITC is a lump sum accrued in the year the project commences operations, the PTC is an annual sum that varies according to the facility’s performance producing energy. 

For a more detailed breakdown of the ITC and PTC in the Inflation Reduction Act, read our blog.

The Inflation Reduction Act’s prevailing wage and apprenticeship requirements are labor requirements that must be met to access the full initial value of the credits before any adders. A prevailing wage is the average wage paid to similarly employed workers in a specific occupation in the area of intended employment, while apprenticeship provisions require projects include qualified apprentices from a U.S. Department of Labor registered apprenticeship program.

These requirements will fall to your energy partner to meet, not you. Enel North America plans to ensure prevailing wage and apprenticeship requirements are met on every project to maximize the use of incentives and support the growth of domestic energy talent. At this time, final IRS guidance on meeting these requirements is still forthcoming.

“Adder” or “bonus” credits move a project beyond the initial tax credit levels, with each adder typically offering another increase to the tax credits. There are two adders available to both the PTC and ITC:  one adder for using domestic content and one for locating facilities in energy communities. In addition, for projects electing the ITC that are less than 5 MW, there is another adder available on a competitive basis for projects in low-income communities or on Tribal land.

These adders can be stacked – for instance, an organization electing the ITC on a project 5MW or less could hypothetically receive a 70% (30% initial “full credit” plus another 40% through all possible “adders”) credit for its project investment costs if it meets all of the above adder qualifications, though this would be a rare scenario. Enel North America can help you to determine if your organization either qualifies for or would be a good candidate to apply for any of these adders.

To learn more about maximizing Inflation Reduction Act bonus tax credits, read our blog. 

Thanks to the opportunities unlocked by the Inflation Reduction Act, projects like solar, energy storage, wind, geothermal, hydrogen and more are economically viable in many regions where they were previously prohibitively expensive. For most of the United States, there are energy projects that will work to reduce your energy costs, improve sustainability, and boost resilience. Enel North America can work with you to implement technologies aligned to your specific energy roadmap and goals.

If you’re interested in capitalizing on the Inflation Reduction Act, it’s best to act quickly. Project demand is currently skyrocketing, while supply chains were already disrupted, and the cycle for planning and executing energy projects takes time. If you delay implementing your project, you may face long wait times before you project is completed and you realize the benefits. In addition, some provisions of the bill, such as low-income adders, have limited availability.

Contact our team of experts at Enel North America to understand more about the opportunities that the Inflation Reduction Act unlocks for organizations looking to build and operate clean energy projects. As one of the largest renewable energy leaders and innovators in the world, Enel has the expertise, experience, and full spectrum of integrated sustainable energy solutions to help you get the most from the Inflation Reduction Act and maximize the value of your project.