The Prevailing Wage and Apprenticeship (PWA) Requirements
The PWA requirements, introduced under the Inflation Reduction Act (IRA), significantly impact the viability of energy storage projects. Here’s how:
Impact on Energy Storage Projects
- Compliance Costs and Documentation: The PWA requirements mandate that energy storage projects comply with prevailing wage standards and use a certain percentage of qualified apprentices. This necessitates extensive documentation and monitoring, which can increase project costs. Compliance involves collecting and maintaining substantial records, often necessitating third-party consultants to ensure that all procedural requirements are met.
- Tax Credit Implications: Projects failing to meet PWA requirements may only qualify for a reduced tax credit rate—typically one-fifth of the full amount. This reduction significantly affects the financial viability of projects, especially those relying on full tax credits to be economically feasible.
- Exemptions and Thresholds: Projects with less than one megawatt of capacity, or those that began construction before January 29, 2023, are exempt from PWA requirements. These exemptions provide some relief, particularly for smaller-scale projects like rooftop solar or energy storage facilities that do not exceed the one-megawatt threshold.
- Market Evolution and Risk Allocation: The industry is adapting by incorporating PWA compliance best practices into contracts between service providers and project sponsors. The allocation of compliance risks is becoming more standardized, but there remains uncertainty about how service providers will bear these risks.
Conclusion
While PWA requirements introduce additional compliance costs and risks, they also provide clarity for energy storage projects under the IRA. The exemption for smaller projects helps keep such ventures viable, but larger projects must carefully manage compliance to ensure full tax benefit eligibility.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-pwa-requirements-affect-the-viability-of-energy-storage-projects/
