Inflation Reduction Act supports distributed generation and the Grid of the Future
September 21, 2022
The Inflation Reduction Act (IRA) represents the single largest investment in climate and energy in American history – but it still does not go far enough.
While the IRA is a step forward in clean energy policy, eleXsys Energy is calling for a giant leap to show that the US is serious about achieving its clean energy targets.
Additional policy advancements such as FERC Order 2222 are essential, as this would allow distributed energy resource (DER) assets to capture a complete value stack through effective and equitable market mechanisms.
Despite this, the IRA does place the US on a pathway which could see it achieve its climate goals by simultaneously tackling the climate crisis and advancing environmental justice. This would secure America’s position as the world leader in domestic clean energy manufacturing.
According to the Biden Administration, the Act will result in the investment of $369 billion in energy security and climate change programs while targeting a 40 per cent reduction in carbon emissions by 2030.
Financing clean energy
The IRA will have a dramatic impact on the development and financing of clean energy projects over the coming decade.
The extension of the Investment Tax Credit (ITC) to 30 per cent until 2032, before stepping down to 26% in 2033 and 22% in 2034, offers a stable, long-term policy to unlock clean energy for utilities and developers, further accelerating renewable energy and battery storage deployments.
Another major advancement is the expansion of tax credits to include stand-alone energy storage, which to date has only allowed energy storage assets to quality when paired with solar and other projects claiming the ITC.
The renewables industry has been seeking the inclusion of stand-alone energy storage for more than five years, with many advocating for the importance of energy storage and its role in the next phase of the clean energy transition to help balance the supply of intermittent renewable resources.
Monetizing tax credits
The IRA includes a vital revamp of the tax credit structure, making credits transferable and allowing developers to sell credits directly to anyone with tax liability. This ability to transfer, or essentially sell, tax credits will create new opportunities for project owners to monetize tax credits with more freedom.
The financial impacts of the ITC credits can now be realized faster and more effectively, unlocking and increasing the viability of project financing.
Given the current geopolitical environment, energy independence is more important than ever.
The IRA further supports workers and domestic manufacturing by offering additional credit value to encourage the development of domestic manufacturing capabilities through Manufacturing Tax Credits.
This will further progress the goal of reducing carbon emissions, with the expanded tax credits also stimulating and scaling up domestic manufacturing to support the US clean energy economy.
eleXsys Energy leads the way
The IRA serves to further accelerate a key goal at the heart of eleXsys Energy’s mission: the widespread adoption of DERs including electric vehicles, rooftop solar, and energy storage.
In doing so, the network challenges created by these assets will become more widespread and acute, making innovative solutions such as those offered by the eleXsys dSTATCOM even more important and necessary.
While the Inflation Reduction Act is a major step forward in US climate and energy policy, it alone will not be enough to achieve US clean energy targets.
eleXsys Energy is calling for further action, including the implementation of FERC Order 2222 coupled with significant participation from all industry stakeholders including local and state governments, electric utilities, regulators, and private capital.
Unified stakeholder support and valid policy development is still necessary to expedite the decarbonization of the US power sector.
eleXsys Energy continues to be at the forefront of the clean energy transition, offering technological solutions and practical applications to solve the issues that are looming over the US energy market as we transition our generation mix and electrify our transportation.
eleXsys is beyond excited to lead the charge in the US clean energy journey and to continue pushing the industry ahead as we strive to achieve global decarbonization.