Clean Energy News

May 27, 2024

Understanding "Adder" Credits in the Inflation Reduction Act

September 20, 2022

Category: news

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The passing of the Inflation Reduction Act (IRA) is a monumental step in the right direction for the future of renewable energy, and will be essential in encouraging more people to go solar. One of the most important ways it will be able to accomplish this is through the newly available renewable energy Investment Tax Credits (ITCs). ITCs are federal tax incentives that allow both individuals and businesses to deduct a percentage of the cost of installing their solar energy systems from their taxes. The base ITC defined in the IRA is 30%, but certain facilities may be eligible for œadder credits that can not only raise but double this number! Keep reading for a breakdown of these credits, and find out which ones are applicable to you and your business.

Adder credits are currently available for solar installations in energy communities, low-income communities, and for installations which utilize domestic materials.

In order to qualify for the energy community benefit, the land where your solar installation is located must be qualified as a brownfield site. This is defined as any area which has, or has had between the years 2000 and 2022, 0.17% or greater direct employment, or 25% or greater local tax revenue attributable to the extraction, processing, transport, or storage of coal, oil, or natural gas. Energy communities also include any census tract in which a coal mine closed after the year 2000, or a coal-fired electric generating unit was retired after the year 2009. If, based on these qualifications, your solar installation is located in an energy community, you could be eligible for a credit rate increase of up to 10%. In order to qualify for this full 10%, you must ensure that your facility has a capacity of less than 1 MW of electricity, and all workers involved in the installation of the panels are paid the prevailing wage for your location throughout the construction of the project. Additionally, maintenance workers must continue to be paid prevailing wages up to five years after the completion of the project. If these conditions are not met, you may only be eligible for a 2% credit rate increase.

Next, you may be eligible for adder credits if your solar installation is located in or designed to service a low-income community. For the purpose of this act, a low-income community is defined as: a community in which the poverty rate is at least 20%, or the median family income is less than 80% of the statewide or metropolitan median family income. Any land located within the boundaries of a Native American reservation, pueblo, or ranchería, as well as any other land qualified by the US Government as œIndian Land also qualifies as a low-income community. If your solar installation is located in a low-income community or on "Indian land", you are eligible for a 10% credit rate increase. Additionally, you may be eligible for a 20% credit rate increase if your project is part of a qualified low-income economic benefit project, meaning that at least 50% of the electricity produced by your installation goes to households with an income that is less than 200% of the poverty line, or less than 80% of the areas median gross income.

Finally, if you choose the correct building materials, your project may qualify for the Domestic Content Adder Bonus. In order to qualify for the 10% credit rate increase that comes with this bonus, all iron and steel products used in your installation must be made in the United States. Any additional manufactured products must satisfy a domestic content threshold of 40%, meaning that 40% of the products included in the solar installation must be manufactured in the US.

Thanks to the IRA, now is a better time than ever to go solar. SolBid can help simplify this process, making it even easier for you to join the solar movement as soon as possible.

 

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