Inflation Reduction Act + MinnPACE = Fast Track to a Positive ROI for Solar in 2023
In 2022, Congress passed the $369 billion Inflation Reduction Act (IRA). As a result, commercial buildings owners have access to stable, long-term financial resources that make clean energy projects, including solar, more affordable. To start, the 30% solar tax credit is coming back. Prior to the IRA, these solar tax credits were decreasing and set to expire in 2024.
The IRA also brings new incentives to the table. Commercial solar projects in disadvantaged neighborhoods qualify for an additional 10% credit. Use domestic-made panels, and qualify for another 10%.
To better understand the opportunity, we reached out to energy finance experts to discuss the IRA’s potential impact. Bali Kumar, COO at PACE Loan Group, believes it will “help people build better buildings and incorporate renewable energy.” He expects to see more installations with new construction, instead of projects just being “solar-ready.”
Tricia Baker, senior vice president of strategy and impact at PACE Equity predicts the big winners will come from the solar industry. She also sees opportunities for multifamily housing and industrial businesses that traditionally use a lot of energy.
New Tax Benefits
Jeremy Kalin, Minneapolis attorney and clean energy financing specialist, adds that new provisions have been added for nonprofits. For the first time ever, nonprofits can use solar tax credits without investor partnerships. They will receive a direct payment for 30% of the project’s cost after taxes have been filed. This removes an enormous amount of legal and financial work previously needed to make deals work.
Working Out the Details
Other parts of the law are a touch more obscure and need additional clarification. The 179D Energy Efficient Commercial Building Deduction (179D) allows commercial building owners to take a $1.88 per square foot deduction for constructing energy efficient structures.
The IRA increases that to $5 per square foot and allows building owners to transfer the deduction to engineers, architects, and design contractors when energy is reduced through heating and cooling technology, lighting, hot water systems, and building envelopes.
In conclusion, the devil is in the details and there is more to be worked out. But overall, the bill represents a path forward to reducing carbon emissions and creating healthier and more efficient buildings. “It’s helping the clean energy economy, the economy of the future,” said Kumar. “Anything we can do to stimulate that market, as the nation prepares for that transition to clean energy, is a net positive.”
Saint Paul Port Authority
The Saint Paul Port Authority (SPPA) is the primary source for Commercial Property Assessed Clean Energy (C-PACE) financing in the State of Minnesota through its MinnPACE program. As such, we have joint powers agreements with cities and counties across the state, giving us the authority to place the voluntary assessments that are unique to C-PACE. Funds come from multiple sources including our own TrillionBTU loan program, local credit unions, and national PACE funders. Solar continues to be a growing part of our portfolio.