Inflation Reduction
Act (IRA)
The IRA dramatically expands tax credits for a range of renewable energy projects.
As government agencies release new guidance on available credits, we’re leveraging the strength of our market leading tax equity, project finance and infrastructure practices and an
in-depth understanding of renewable energy to provide forward looking advice on how clients can take advantage of the tax incentives. We’re also helping clients evaluate other funding options, such as U.S. Department of Energy loan and grant programs meant to advance transformative decarbonization projects.
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and Brownfields Tax Guidance: What Companies Need To Know
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FAQs
What are the major changes in the Inflation Reduction Act for renewable energy tax credits?
What does
“transferability” mean?
What does
“direct pay” mean?
What are tax credit
“adders?”
What are the “prevailing wage and apprenticeship requirements?”
How does the Inflation
Reduction Act impact energy storage projects?
How does the Inflation
Reduction Act impact hydrogen and carbon capture projects?
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Energy & Infrastructure
Tax
Energy
Hydrogen
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Offshore Wind
Energy Storage
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Investment and Jobs Act
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What are the major changes in the Inflation Reduction Act for renewable energy tax credits?
Among other significant changes, the IRA extends the life of existing tax credits like the investment tax credit and production tax credit for at least another 10 years. It also creates new tax credits for emerging asset classes like hydrogen production facilities, introduces new labor requirements and bonus tax credit amounts for projects located in areas where Congress wanted to incentivize energy transition, and provides new flexibility to sell tax credits or receive a cash refund in lieu of the credits in certain cases.
What does “transferability” mean?
“Transferability” refers to an IRA provision that lets a project developer sell most renewable energy tax credits to a third party purchaser for cash. The cash proceeds are not subject to federal income taxation.
What does “direct pay” mean?
“Direct pay” refers to an IRA provision that lets certain taxpayers receive a cash payment from the United States Treasury instead of claiming the tax credits. The payment is treated as a tax refund. Historically, taxpayers could only benefit from the credits if they had a tax liability to offset against the credit. Direct pay allows project owners to obtain the benefit of the credit directly in cash even if they do not have a tax liability. But direct pay is generally limited to certain tax-exempt entities (including municipalities and other state and local governmental entities). For profit entities can benefit from direct pay to a limited extent with respect to the clean hydrogen credit, the carbon sequestration credit, and the advanced manufacturing credit.
What are tax credit “adders?”
Renewable energy projects are potentially eligible for increased tax credit amounts of up to 10% if they meet US domestic content requirements, are located in an “energy community” (i.e., a brownfield site, an area where a coal mine closed after 1999 or a coal-fired generating unit was retired after 2009, or an area with threshold tax revenues or employment tied to fossil fuels and above-average unemployment), or that are located in certain low-income communities or on tribal land. Projects eligible for multiple categories of adders can stack them. For example, a standalone storage project located in an energy community and that meets domestic content requirements is eligible for an investment tax credit of up to 50% of the project’s cost.
How does the Inflation Reduction Act impact energy storage projects?
Under the IRA, standalone storage projects can now qualify for the investment tax credit. Prior to the IRA, storage projects could qualify for the investment tax credit if paired with a solar project or other qualifying renewable project. The addition of a credit for standalone storage is a significant development because projects can benefit from the credit even where the energy input will be from nonrenewable sources.
What are the “prevailing wage and apprenticeship requirements?”
The “prevailing wage and apprenticeship requirements” (sometimes referred to as the “labor requirements” or “PWA”) are rules that allow a project to qualify for the increased credit rate under the two-tier tax credit rate structure. Projects that do not meet the prevailing wage and apprenticeship requirements qualify for a base rate, which is one-fifth of the increased credit rate. To meet the prevailing wage and apprenticeship requirements, generally, any laborers and mechanics employed in the construction, alteration, and repair of the project must be paid the applicable prevailing wage as determined by the Department of Labor and a minimum percentage of labor hours must be performed by qualified apprentices.
How does the Inflation Reduction Act impact hydrogen and carbon capture projects?
Hydrogen projects benefit in the form of a new tax credit that can be taken in the form of either a production tax credit or an investment tax credit. The value of the tax credits is subject to a haircut based on the lifecycle greenhouse gas emissions rate of the production process.
The value of carbon capture tax credits – which existed before the IRA – benefits from a significant increase in tax credit value and an easing of minimum carbon emissions requirements, broadening the number of facilities that should be able to install carbon capture equipment and claim 45Q tax credits.
The IRA also creates tax equity alternatives for monetizing tax credits, and hydrogen and carbon capture projects are eligible for five years of direct pay. Project owners can opt to sell tax credits under new "transferability" provisions.
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Winburne
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Thompson
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Louise
Gibbons
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Wolfram
Pohl
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The Inflation Reduction Act:
A Year of Tax Credit Transfers
IRS Guidance on Domestic Content – What Renewable Energy Companies Need to Know
John
Eliason
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IRS Guidance on Domestic Content – What Renewable Energy Companies Need to Know
Prevailing Wage and Apprenticeship Requirements: Treasury Department and IRS Propose Regulations for Clean Energy Projects Under the Inflation Reduction Act
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Prevailing Wage and Apprenticeship Requirements: Treasury Department and IRS Propose Regulations for Clean Energy Projects Under the Inflation Reduction Act
IRS Guidance on Domestic Content – What Renewable Energy Companies Need to Know
Webinar
The Domestic Content Bonus Credit for Renewable Energy Projects:
IRS Updates ‘DC Adder’ and Adds Elective Safe Harbor Guidance
IRS Issues Direct Payment and Transferability Proposed Regulations