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The Inflation Reduction Act (IRA) of 2022
The Inflation Reduction Act (IRA) of 2022 significantly enhances the incentive structure for energy storage compared to previous policies in several key ways:
Changes and Improvements
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Standalone Energy Storage Eligibility:
- Previous Policy: Prior to the IRA, energy storage systems were only eligible for federal tax credits if they were directly linked to a solar project.
- IRA: The IRA allows standalone energy storage projects to qualify for the Investment Tax Credit (ITC), regardless of their connection to renewable energy sources.
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Investment Tax Credit (ITC) Rate:
- Previous Policy: Previously, the ITC was capped at a lower rate for energy storage when not linked to solar.
- IRA: The IRA offers a base ITC rate of 6% for energy storage, with a bonus rate up to 30% if projects meet prevailing wage and apprenticeship requirements or are under 1 MW.
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Additional Incentives:
- Previous Policy: There were limited incentives beyond the basic ITC.
- IRA: Projects can now benefit from additional tax credits (up to 70% total) by meeting criteria such as domestic content, being located in energy communities, and targeting low-income housing.
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Monetization Options:
- Previous Policy: Tax credits were less accessible to non-taxable entities.
- IRA: The IRA introduces “direct pay” and “transfer” options, allowing more entities to directly claim or transfer credits, making it simpler for developers to access these benefits.
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Long-term Certainty:
- Previous Policy: Tax credits were often renewed for short periods, creating uncertainty.
- IRA: The IRA provides a 10-year timeline for incentives, offering developers and investors long-term stability.
Overall, the IRA’s incentive structure offers greater flexibility, broader eligibility, and enhanced financial benefits for energy storage projects compared to previous policies.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-the-iras-incentive-structure-compare-to-previous-policies-for-energy-storage/
