On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. The IRA invests in domestic energy production and manufacturing to lower energy costs and emissions, strengthens energy security, and accelerates the energy transition. Over the next 10 years, it will also allocate around $369 billion toward energy security and combating climate change.
The IRA contains incentives and opportunities for commercial and industrial (C&I) businesses to accelerate their decarbonization and improve energy efficiency. Since the landmark law was adopted, additional details regarding the Act have been released. We want to help you stay ahead with a few key IRA benefits that your business may be able to utilize.
1. Tax credits and deductions for energy efficiency
The IRA incentivizes consumers to reduce and control their energy demand through energy efficiency provisions. It decreases the minimum qualifying efficiency standard from a 50% reduction to a 25% reduction in energy and power costs. For commercial buildings, the maximum tax deduction credit has increased from $1.88 per square foot to $5.00 per square foot to promote energy efficient building construction. Tax deductions are offered every three years instead of once per building lifetime. Eligibility criteria has also expanded to now include tax-exempt entities that were previously excluded from the credit.
The expansion of tax credits also incentivizes the adoption of control systems, improving the ability to integrate customers with flexibility into a Strategic Load Management program. In this program, businesses lower overall energy demand by using less energy during peak periods in exchange for price reductions.
At NRG, we offer American Society of Heating, Refrigerating and Air-Conditioning Energineers (ASHRAE) Level 2 audits to provide guidance in identifying qualified Energy Conservation Measures and a long-term advisory relationship to navigate and optimize recurring incentives. Our consultative approach offers our customers informed strategies to both improve the efficiency of their facilities and optimize those savings in the market, including evaluating projects with direct IRA benefits.
2. Incentives for onsite solar and storage
The Act will expand the renewable energy economy by creating more long-term opportunities for C&I businesses to install and benefit from onsite solar and/or storage. Previously, an Investment Tax Credit (ITC) was only available to storage projects charged directly from solar panels. Now a tax credit is available for standalone energy storage projects. Since the implementation of the IRA, the tax incentive rate for solar and storage has increased to 30% (contingent upon meeting prevailing wage and apprenticeship requirements, since the implementation of the IRA).
3. Lower costs for renewable energy projects
The expansion and extension of the investment and production tax credits will increase the number of renewable projects and decrease costs in the coming years. For example, Community Solar is a program where your business can support renewable energy without having to host solar panels at your facilities. Projects in this program that are under 1 MW qualify for a 30% ITC through 2033. With this deduction, opportunities to participate in a shared renewable energy program are more accessible to businesses.
4. Production Tax Credits for alternative fuels
The IRA increases Production Tax Credits (PTCs) for emerging energy technologies related to hydrogen, carbon capture, and renewable natural gas. For projects that generate electricity and produce zero emissions, there’s a potential 30% tax credit. These incentives will make existing and proposed projects more economical for businesses that want to utilize these low carbon energy sources.
We’re here to help you take advantage of these key benefits and evaluate what opportunities make sense for your business and sustainability goals. For more information about how the Act can benefit your business, contact one of our energy experts today.
