IRS issues new proposals for IRA renewables tax credits

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The proposed regulations would apply to projects placed in service after 2024. Image: Lightsource BP.

The US government has proposed new regulations regarding tax credits for the owners of renewable energy and energy storage facilities eligible for support under the Inflation Reduction Act (IRA).

The proposed regulations, issued by the Department of the Treasury and the Internal Revenue Service (IRS), would apply to projects placed in service after 2024 and encompass both the Production Tax Credit (PTC) and Investment Tax Credit (ITC) facilities under the IRA.

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In the draft proposal, the IRS defines a “qualified facility” as “a facility owned by the taxpayer that is used for the generation of electricity, that is placed in service after December 31, 2024, and for which the greenhouse gas emissions rate…is not greater than zero.” A “qualified facility” will be qualified as such for 10 years from the date that it enters operations.

The full draft goes further by defining the properties and integral parts of “qualified facilities” and energy storage facilities. It also defines proposals for calculating the amount of tax credits, metering devices, related and unrelated persons and greenhouse gas emissions and emissions rates.

It proposes that tax credits will be available at a “base rate and a higher alternative rate” – the former will be 6% and the latter 30%, depending on eligibility.

A project would qualify for the higher rate if it has a “maximum net output of less than 1 megawatt (AC)” and begins construction according to the stipulations of prevailing wage and apprenticeship requirements.

The IRS and Treasury are currently inviting comments from the public on the proposed regulations. more details can be found on the IRS website, here.

The ITC and PTC have driven a significant increase in renewable energy uptake in the US, particularly solar PV. A report from the Solar Energy Industries Association (SEIA) and Wood Mackenzie found that over 50% of the solar PV installations in the US, across the rooftop, utility-scale and corporate and industrial (C&I) sectors, have been installed since 2020 when the IRA was passed.

However, simultaneously the sector is being hampered by the US grid. Reports have said that around 1TW of solar capacity is waiting in interconnection queues across the country; PV Tech Premium looked into this backlog last month.

The need for large and long-term investment into transmission infrastructure, combined with the high valuations of solar projects due in part to the IRA incentives, have seen some US utilities sell off their commercial solar assets to focus on grid projects. We explored this dynamic and its impacts on the US solar sector earlier this year (Premium access).  

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