SACE's annual "Solar in the Southeast" report ranks our region's largest utilities. In the second blog post of the series, we examine policies driving solar growth.

This is the second post in a blog series following the release of SACE’s “Solar in the Southeast” sixth annual report. Our first blog post of the series summarized the report and indicated that we have reason to be optimistic about solar continued solar growth. That reason can be expressed in three letters: IRA.

Download the Report  Watch the Report Webinar Read the Report Blog Series

The Inflation Reduction Act, passed by Congress and signed into law by President Biden on August 16, 2022, is the most significant climate legislation in history. It’s a game-changer and increases the projected amount of solar in the region significantly.

There are a lot of dimensions to the IRA. Tax credits, the Investment Tax Credit (ITC), and the Production Tax Credit (PTC) are perhaps the most important for solar. Those have been around for years. Congress first authorized the solar ITC with the Energy Policy Act of 2005. The PTC (for wind) was part of the prior Energy Policy Act in 1992. Bottom line: the solar industry is very familiar with them. The IRA just made them better.

And, though it’s new and just starting to roll out, I contend that the “New ERA” (Empowering Rural America) program will also be transformational for the solar industry. The New ERA program is $9.7 billion in funding specifically for rural utilities to deploy portfolios of clean energy at scale to replace expensive fossil generation.

Tax Credits: ITC and PTC

The investment tax credit (ITC) offers an incentive based on the up-front cost of clean energy investments; the production tax credit (PTC), on the other hand, offers an incentive based on annual generation over the first 10 years of the project. As indicated above, these tax credits aren’t new. But the ITC had been reduced, declining over time. For example, the solar ITC had dropped to 26% in 2022 and would have gone to 22% this year, but the IRA returned the solar ITC to its original valuation of 30% and extended that out to 2032, after which it will decline. And solar also now has the option to choose a PTC at 2.75 cents per kWh, as well.

Conditions

There are some new conditions that apply to these tax credits:

1. To earn the full valuation of the tax credits, solar project workers must be paid at least the prevailing wage consistent with the Davis-Bacon Act.
2. Large solar projects must also include apprenticeship labor. For projects that began/begin construction in 2023, that requirement is 12.5% of the total labor hours performed. For projects that start after 2023, that requirement increases to 15%. Small projects (less than 1 MW) are exempt from the apprenticeship requirement. 

Policy Priorities

Both of these conditions represent very intentional action by Congress to ensure we are expanding the clean energy workforce for the future. Congress also created additional bonus credits to reflect additional policy priorities. For example, projects can earn an additional 10% ITC (in 2023) for using domestic content materials; a separate 10% if the project is located in an “energy community” (for example a census tract or adjacent census tract where a coal mine or a coal-fired power plant has retired since 2009). There are also bonus credits available for projects in low-income communities (10%) and especially addressing low-income residential housing (20%). Details for some of these programs are in various stages of development. The Department of Energy’s Office of Energy Efficiency and Renewable Energy’s (EERE) website provides additional detail.

Refundability

One of the other important elements of the IRA is that it made these tax credits refundable. The ITC and PTC for commercial projects are now “direct pay” so, unlike before, nonprofit entities or entities with a low tax liability can still apply the credits directly and receive the full valuation of the credit as a payment from the Federal government. Our report shows that many of the rural electric co-ops and municipal utilities have not deployed as much solar as the investor-owned utilities. This direct pay option should provide a comparable advantage for the non-profit utilities.  The Treasury Department published guidance on this aspect of the IRA to very day that we released the Solar in the Southeast report.

Manufacturing

I should also point out that the tax credits in the IRA aren’t just limited to the project side. There are also tax credits for manufacturing on the supply side, as well. These can be in the form of either an ITC or PTC, as well and they apply to everything from polysilicon raw material to wafers, cells, and modules; to inverters, to tracking systems, etc.

This entire package of incentives has brought certainty into the market for the next decade. And it’s working. For example, Georgia was already home to the largest solar module plant in the western hemisphere. And since the passage of the IRA, Hanwha Qcells has announced more than $2.5 billion of supply chain investment bringing 2,500 additional jobs to the state.

New ERA

This year’s report emphasizes the New ERA (Empowering Rural America) program. It’s going to be a really big deal. The U.S. Department of Agriculture (USDA) officially launched this program on May 16, 2023. As indicated above, New ERA will fund $9.7 billion available through loans and/or grants for rural electric co-ops to transition to clean energy portfolios.

In addition to the direct pay and refundability of tax credits described above, this targeted allocation to the rural electric co-ops should enable them to start adopting solar at a pace comparable to the investor-owned utilities. The first step is for interested co-ops to submit a Letter of Interest during a one-month window of opportunity that opens on July 31 and closes on August 31.

After that, the Rural Utility Service will begin evaluating the applications and invite top-ranking opportunities to develop and submit a full application. That scoring will be done on a 60-point basis with two-thirds of the points awarded for tons of greenhouse gases reduced or avoided. Several of the co-op utilities in the Southeast are actively preparing their Letters of Interest right now so they’re ready to go on July 31.

This is such an exciting time in the solar and clean energy space. As I said above, we have reason for optimism.

Download the Report  Watch the Report Webinar Read the Report Blog Series

#SSR2023