On August 16, after a year-long effort, Congress passed the largest investment to combat climate change in our nation’s history as part of the Inflation Reduction Act (IRA). .
This innovative package will pump $369 billion into energy efficiency, electrification, EV charging, and renewables. And most importantly, much of this money will go directly to the buildings sector. Buildings account for almost 40% of all greenhouse gas emissions (GHGs), according to Architecture 2030, and so the IRA makes numerous incentives available to building owners including tax credits, direct rebates and grants, tax deductions and loans towards retrofits, ground up new construction, and more. Overall, the IRA is a significant step towards greenhouse gas emissions reduction and decarbonization of our building stock.
There’s a lot to digest, so we’re breaking it down:
Energy Investment Tax Credit (ITC)
The Energy Investment Tax Credit (ITC) got a massive boost. The credit for solar electric systems (photovoltaics or PV for short) increased from 26% to 30%. And the 30% ITC was backdated to January 2022, so building owners can file for the higher credit for any projects placed in service this year.
The ITC also has multiple new bonuses. We’re especially excited about the extra 20% for certain low-income projects. New Direct Pay and Transferability rules will allow nonprofits to leverage the ITC without a syndicator by providing direct cash payments to qualifying tax-exempt entities. And for properties interested in energy storage, the ITC now also includes credits for standalone battery installations.
EV Charging Tax Credits
Properties located in a qualifying census tract can access tax credits for EV charging stations. A 30% credit is available to projects that meet prevailing wage and apprenticeship requirements, and 6% credit available to projects that do not.
Revamped Credits and Deductions for Energy Efficiency
The IRA made significant improvements to two subsidies: the 45L tax credit and the 179D tax deduction. 45L will offer a $500 per dwelling unit tax credit for multifamily new construction properties that meet EPA ENERGY STAR requirements. Additionally, affordable housing applying for Low-income Housing Tax Credits (LIHTC) will not see their eligible basis reduced if they participate in 45L.
179D offers a tax deduction to commercial and multifamily buildings that reduce their energy use by at least 25%. The IRA significantly increased the deduction, jumping up to $5 per square foot from just $1.80.
HUD will receive nearly $1 billion to award loans and grants to certain affordable housing properties. The money can be used for energy and water efficiency, indoor air quality (IAQ) improvements, implementing low-emission and electrification technologies, solar, energy storage, and resilience. The result? Thousands of low-income owners and tenants across the country will see significant improvements to their rental units.
New Rebate Programs
There are two new rebate programs that will be open to multifamily properties: Home Owner Managing Energy Savings Rebates (HOMES) and High Efficiency Electric Home Rebates (HEEHRA). The HOMES rebate program will offer $4,000 – $8,000 per dwelling unit for retrofits of multifamily properties that achieve at least 20% savings.
The HEEHRA rebate program will offer small, fixed dollar amounts for electrified heat pump space heating and water heating. We’re particularly excited about rebates for electric kitchen and laundry appliances, in addition to funds for electrical service upgrades. Few incentive programs currently offer subsidies for appliances and service upgrades, so this program will address a significant gap in the market.
We are looking forward to leveraging these rebates for our partners. Each state will have to craft and submit an implementation plan to the DOE before they’ll be awarded their share of the funding. Once the funding is awarded, states typically facilitate a bidding process to decide which third parties will run the programs. We anticipate that these rebates will take some time to get going, and waiting will not be the right choice for every project.
Various federal agencies are undergoing processes to finalize the requirements for Inflation Reduction Act subsidies. Our Policy & Programs team will continue to stay on top of it all and update you as new information becomes available.
How We Can Help You
Bright Power’s mission has always been to help maximize the performance and value of buildings for people and the planet. Not only does the funding being made available through the Inflation Reduction Act help our mission—it will help even more of our clients reach their goals. Our team of Account Managers is standing by ready to help! Give them a call for more information, or fill out the form below and someone from our team will be in touch shortly.