The Deal Corner: Prince Lobel’s Business Advisory Blog

The Inflation Reduction Act Incentivizes Businesses to Invest in Renewable Energy

June 4, 2024

By Adam Braillard and Max Riffin


On August 16, 2022, the Biden administration signed the Inflation Reduction Act (IRA) into law. The IRA aims to reduce the country’s carbon emissions by creating incentives for businesses to promote renewable energy development.  The federal government has set a goal of achieving a fifty (50%) percent reduction in greenhouse gas emissions from 2005 levels by the year 2050. As set forth below, the climate investment mechanisms in the IRA are expected to help reduce the nation’s carbon emissions by approximately forty (40%) percent by the year 2030.

IRA Creates Tax Incentives for Renewable Energy Development

One of the major objectives of the IRA is to create an economy that runs on clean energy sources. To accomplish this goal, the IRA relies on tax incentives for the development of clean and renewable energy.

Investment Tax Credit

The Investment Tax Credit (ITC) authorizes businesses that invest in renewable energy resources to deduct a percentage of their federal tax liability.  The IRA extends the existing ITC rate of thirty (30%) percent of the value of a renewable energy project (e.g., total build costs) through 2025, provided that the project meets apprenticeship and wage requirements. This up-front investment-based tax credit can be applied in a variety of ways, as discussed below. Under the IRA, the credits are now available to certain tax-exempt entities such as nonprofits and state, local, and tribal organizations, in addition to taxable business entities.

Production Tax Credit

The Production Tax Credit (PTC) allows for a production-based incentive for the first 10 years of project operation.  The IRA provides for a PTC rate of $0.00275/kWh through 2025 so long as the project meets apprenticeship and wage requirements. To satisfy the aforementioned apprenticeship requirements, a taxpayer must 1) ensure that a specified proportion of the project’s total labor hours are performed by qualified apprentices, such proportion calculated as of such project’s commencement date; 2) if engaging at least four individuals to work on a project, a taxpayer should be aware that it is required to engage at least one qualified apprentice; and, finally, 3). qualifying taxpayers must comply with general recordkeeping requirements as prescribed by the Secretary of the Treasury is necessary.

Bonus Credits

The IRA includes additional targeted tax credits for projects that meet certain requirements (“Bonus Credits”).  These Bonus Credits are in addition to the ITC and the PTC, and therefore can be stackable. A list of available Bonus Credits under IRA is provided below.

Projects Eligible for the ITC or PTC

  • ITC Only
    • Energy Storage Technologies
    • Microgrid Controllers
    • Geothermal (Heat Pump & Direct Use)
    • Combined Heat and Power Projects
    • Microturbine Projects
    • Interconnection Costs
  • PTC Only
    • Biomass Projects
    • Landfill Gas Projects
    • Hydroelectric Projects
    • Marine Projects
    • Hydrokinetic Projects
  • Either ITC or PTC (not both), and Additional Credits
    • Solar and Wind Technologies Projects
    • Municipal Solid Waste Projects
    • Geothermal (Electric) Projects
    • Tidal Projects
  • Availability of Bonus Credits:
    • Less than 1MWAC:
      • Base Credit Tax: 30% ITC or 2.75¢/kWh PTC
      • Domestic Content Minimums: +10% ITC and + 0.3¢/kWh PTC
      • Projects located in Energy Community Areas: +10% ITC and +0.3¢/kWh
      • Projects located in Low-Income Communities or Indian Land (<5 MWAC): +10% ITC
      • Qualified Low-Income Residential Building Project/Economic Benefit Project: +20% ITC
    • Greater than 1MWAC:
      • Projects Meeting the Required Wage & Apprenticeship Hours: +24% ITC +2.25 ¢/kWh PTC
      • Base Credit Tax: +6% ITC +0.5¢/kWh PTC
      • Domestic Content Minimums: +10% ITC and + 0.3¢/kWh PTC
      • Projects located in Energy Community Areas: +10% ITC and +0.3¢/kWh
      • Projects located in Low-Income Communities or Indian Land (<5 MWAC): +10% ITC
      • Qualified Low-Income Residential Building Project/Economic Benefit Project: +20% ITC

Monetizing the Tax Credits

The IRA expands and creates new ways for eligible businesses to use their tax credits. Projects placed in service on or after January 1, 2023, through December 31, 2032, will be eligible to transfer their credits. Provided certain requirements are met, the IRA now allows businesses to transfer their ITCs to unrelated parties. This provides an opportunity for developers to monetize the credits for immediate capital return, whereas buyers of the credits benefit from tax savings and by contributing to sustainability goals.

Upcoming Developments

Starting in 2025, the Clean Energy Production Tax Credit (CEPTC) will replace the PTC, and the Clean Energy Investment Tax Credit (CEITC) will replace the ITC. The IRA expands CEPTC and CEITC to other areas that are not technology-specific. For example, the CEITC credits will apply to generation facilities and energy storage systems that have an anticipated greenhouse gas emissions rate of zero. According to the IRA, the credits should function similarly and be calculated in the way that the ITC and PTC are calculated. Stay tuned for further developments on these tax credits.

For questions on the Inflation Reduction Act and the corresponding tax credits, please reach out to Adam Braillard, Max Riffin, or any other member of Prince Lobel’s Business Transactions or Renewable Energy Groups.

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