The Inflation Reduction Act’s provisions regarding renewable energy incentives are worth hundreds of billions of dollars. Perhaps the most critical among them is the extension of investment and production tax credits for solar energy, which have been key to the exponential growth of solar power in the US since their introduction in 2006.
These steps toward a renewable energy future compound actions taken by the Biden administration earlier this year to protect solar projects already in the pipeline while bolstering the domestic production of solar panels and other critical components. Further, a new consortium of US power producers has formed to provide billions of dollars of annual revenue for domestic solar enterprises.
Related ETF: Invesco Solar ETF (TAN)
As part of what’s been titled the Inflation Reduction Act of 2022, recently proposed in the US Congress and sponsored by Democratic Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV), nearly $370 billion will be earmarked for energy and climate change initiatives. Incentives for domestic solar power development will be included on the supply and demand side of the equation.
One of the most impactful provisions in the bill is a long-term extension of the Investment Tax Credit (ITC) for residential and commercial utilization, which has been instrumental in developing the solar infrastructure available today. Per PV Magazine, the bill calls for a 10-year extension at 30% of the cost of the installed equipment, which will then step down to 26% in 2033 and 22% in 2034.
The impact of this tax credit program cannot be understated. Per the Solar Energy Industries Association (SEIA), residential and commercial solar ITC has helped the US solar industry grow by more than 10,000% percent since it was implemented in 2006. Residential ITC allows the homeowner to apply the credit to his/her personal income taxes when solar panel systems are installed. In the case of the Section 48 credit, a business that installs, develops and/or finances the project claims the credit.
The production tax credit (PTC) system, which provides credits for the production of sustainable power capacity, will also be extended. In particular, JD Supra notes the Act carries $10 billion in investment tax credits for industrial or manufacturing facilities to produce green-energy merchandise, including solar cells and related components, wind turbine components, electric and hybrid vehicles and renewable fuel production equipment. There is also a 10% adder to the PTC or the ITC for projects which…
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