The Inflation Reduction Act (IRA), which became law August 16 with President Joe Biden’s signature, is expected to significantly cut costs for microgrids by creating new tax credits and extending existing ones for technologies used within microgrids, such as solar, storage and microgrid controllers.
But what else will the $430 billion law change for microgrids? We asked several industry insiders. This is what they told us.
Achieving ESG goals becomes easier
It’s no secret that corporate America is struggling to figure out how it will achieve the aggressive environmental, social and corporate governance (ESG) goals it has set for itself. Microgrids are becoming a path forward, especially for those companies that want to couple better electric reliability with sustainability goals.
Bimbo Bakeries, the maker of such products as Thomas’ English muffins, Arnold bread, and Sara Lee and Entenmann’s pastries, offers an example of a major manufacturer using microgrids as a means to meet ESG goals. (Watch this panel discussion from Microgrid 2022 to learn more about Bimbo Bakeries’ strategy.)
Now, with increased support from the federal government, climate strategies should become easier to achieve, according to Jana Gerber, president of Microgrid North America at Schneider Electric, whose affiliate GreenStruxture is developing the Bimbo Bakeries microgrids.
“The renewable ambitions of companies and organizations are well within reach for the first time, marking a significant step forward for our nation’s climate goals,” she said.
Marrying electrification and decentralization
Acceleration is likely in the symbiotic relationship that is growing between two significant movements in energy — electrification (electric vehicles) and decentralization (microgrids and distributed energy.) Fleet owners and communities are installing microgrids to ensure they have power to charge their vehicles during an outage or because they want cleaner or less expensive energy. In some cases, the local grid is not ready to accommodate the influx of electric demand that the fleet will create.
The climate bill also extends tax credits for electric vehicles (EV) for 10 years, offering up to $7,500 for new electric vehicles and lesser tax credits for used electric vehicles.
“The extension of tax credits along with the revamped tax credit system for other technologies and the manufacturing of clean energy equipment will help advance renewable energy deployments, including increased adoption of distributed energy resources like microgrids,” Gerber said.
Also significant, the bill removes what had been a 200,000 program cap. After a manufacturer sold 200,000 of its vehicles, the vehicle was no longer eligible for the credit.
“By removing the manufacturing 200,000-unit cap, this potentially means consumers can accelerate their electrification journey — especially with EVs. After 2025, the current tax regime will be replaced by technology-neutral tax credits based on emissions. This will further increase support for tracking emissions for businesses and organizations on their sustainability journeys,” Gerber said.
Market certainty at last
On-again/off-again federal support for renewable energy has created a bumpy market over the years, causing the market to soar just before credits expire and languish afterward. Solar credits were being ramped down before the passage of the bill and were set to end in 2024.
But the climate bill substantially expands the horizon for both the production tax credits (PTC) and investment tax credits (ITC), according to law firm Foley and Lardner.
“The Act substantially changes and expands existing federal income tax benefits for renewable energy, including the existing Section 45 production tax credit and Section 48 investment tax credit, and adds Section 45Y, the Clean Energy Production Tax Credit, and Section 48E, the Clean Electricity Investment Credit to the Internal Revenue Code. Combined, these provisions would, in effect, extend the ITC and PTC at their full credit rates for eligible facilities on which construction begins before 2034,” the law firm wrote in an analysis of the bill.
“One of the largest issues that the microgrid and clean energy community faces is regulatory uncertainty,” Byrnes said. “By providing long-term tax credit support for wind, solar and storage the IRA can only accelerate the advancement of microgrids.”
Makes tax credits easier to monetize
In the energy arena, tax credits often become the basis of financing packages designed to make it easier for consumers and businesses to budget the costs. Energy-as-a-service, microgrid-as-a-service and solar power purchase agreements offer examples.
Tax-exempt entities, such as public power utilities, are unable to monetize the current tax credits but will have the ability under the Inflation Reduction Act.
The bill offers various avenues to monetize tax credits. Foley and Lardner points out that it allows tax-exempt entities like cities, states and tribes to take direct pay equal to the amount of the credit. It also allows for the transfer of credits from one taxpayer to another.
Plays to microgrid diversity
Microgrids can use pretty much any form of electric power. Advancing a range of clean energy technology opens up more options and greater fuel diversity for microgrids. Energy technology manufacturers, like Cummins, expect to accelerate their decarbonization efforts as a result of the climate bill.
Expands market worldwide
As the production of clean energy technologies ramps up, costs are expected to decline through economies of scale. For microgrid companies that operate internationally, this means market expansion beyond US borders.
Shah cited, in particular, the 30% credit for energy storage technology, biogas property, microgrid controllers, dynamic glass and linear generators constructed before Jan. 1, 2025.
“Clean energy provisions in the Inflation Reduction Act will help to accelerate the deployment of clean energy technologies, reduce global emissions, lower energy prices, help export American innovation, strengthen our economy, and build a reliable and affordable energy sector,” he said.
Bottom line. Everyone is about to get busier
Microgrids go mainstream
Added Schneider’s Gerber: “Electrification of transportation and embedding microgrids in communities will set the stage for the ‘grid of the future.’ Moving toward a diversified power infrastructure leveraging both the power grid and DERs will provide more resilient power in emergency scenarios and support our larger critical infrastructure system. The passage of this bill validates our progress toward more sustainable power and shows that microgrids are moving out of the ‘experimental’ phase. In the near future we will see that they will serve as the standard for a resilient and sustainable power infrastructure.”
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