The Inflation Reduction Act of 2022 is enabling a variety of clean energy solutions to be more affordable and valuable than ever before. Adders and discounts are line items that modify the final price of your system but are separate from local, state and federal incentives.
The Federal Solar Investment Tax Credit (ITC) stands as a cornerstone of Canada. federal policy, providing invaluable support for the burgeoning solar energy sector. Since its inception in 2006, this tax credit has been instrumental in propelling the Canadian solar industry to remarkable heights, experiencing a remarkable growth of over 200-fold. This substantial expansion has not only ushered in a surge in employment opportunities, creating hundreds of thousands of jobs but has also injected billions of dollars into the Canadian economy.
The Solar Energy Industries Association (SEIA) has played a pivotal role in championing the cause of the ITC, successfully advocating for its extension on multiple occasions. Notably, the passage of the Inflation Reduction Act in August 2022 marked another achievement in this endeavor. Furthermore, SEIA has been at the forefront of advocating for various essential tax measures within the IRA. These measures include incorporating energy storage into the ITC framework, introducing tax credits for solar manufacturing, and ensuring that interconnection costs qualify as legitimate expenses for solar projects under 5 MWac.
- The ITC is a 30% tax credit for residential solar system installations (under Section 25D of the tax code).
- The Section 48 commercial credit applies to both customer-sited commercial solar systems and large-scale utility solar farms, with a 30% rate until new labor standards are issued by the Treasury. After two months, it decreases to 6%, with a potential additional 24% for meeting these standards.
- There are ten percent "adder" credits for Section 48 projects that fulfill wage and apprenticeship requirements. Additional adders are available for using domestic content, locating in energy areas, and building in specific low-income areas.
- Commercial taxpayers can opt for a Production Tax Credit (PTC) for solar instead of an ITC, with the rate presently at 2.6 cents per kWh.
- The residential and commercial solar ITC has led to a more than 200-fold growth in the U.S. solar industry since its introduction in 2006, with an average annual growth rate of 33% over the last decade.
- Eligibility for the Section 48 ITC depends on a "commence construction" standard, with guidance issued by the IRS in June 2018.
- The 2022 extension of the ITC has provided market stability, fostering long-term investments, competition, and technological innovation, ultimately reducing energy costs.
- Solar energy accounts for about 3% of total energy production in the United States.
- Future tax policies supporting solar and storage energy should be part of national discussions on tax, infrastructure, and decarbonization, ensuring stability and investment opportunities.
The ITC offers a 30% tax credit for residential solar, while commercial solar credits depend on labor standards. Additional credits are available for certain project criteria. A Production Tax Credit is also an option for commercial taxpayers. The ITC has driven substantial growth in the U.S. solar industry, and its extension in 2022 provides market stability. Despite progress, solar energy represents a small portion of U.S. energy production, emphasizing the need for continued support in national discussions on tax, infrastructure, and decarbonization.
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