The Inflation Reduction Act created new ”adders” that incentivize projects that specifically advance elements of an equitable clean energy transition, including where projects are located, who benefits from them, and where materials are sourced. Your city may have multiple reasons for buying renewable energy as a part of your local energy transition. Accordingly, you should evaluate the following four adders that build on the ITC and PTC. You should determine if one or more align with your city’s goals and design projects that can leverage these additional project incentives.
Leveraging Energy Transition “Adders”
1. Projects in Low-Income/Tribal Communities
10% tax credit bonus for solar and wind facilities (up to 5 MW in capacity) located in qualifying low-income communities or on tribal land. The IRS has clarified total annual capacity limitations of 900 MW for this adder, with up to 700 MW available for low-income projects and 200 MW available for Tribal communities.
2. Projects Financially Benefiting Low-Income or Tribal Communities
20% tax credit bonus for solar and wind facilities projects (up to 5 MW in capacity) that financially benefit low-income or tribal communities, typically through a community solar structure or utility program like a green tariff or other partnership. Projects are defined as “benefiting” these groups if at least 50% of the financial benefits of the project go to households with incomes less than 200% of the poverty line or incomes less than 80% of an area’s gross median income. The IRS has clarified total annual capacity limitations of 900 MW for this adder.
Note: Projects cannot claim both this adder and the 10% location-based mentioned above together, and there is an annual capacity limit of 1.8 GW for these two adders in aggregate. You should plan for the adder that best fits your project.
3. Energy Communities
10% tax credit bonus for solar and wind projects sited:
1. On brownfields, if the site meets the definitions under CERCLA 42 U.S.C. § 9601(39)(A) here, is not excluded under CERCLA 42 U.S.C. § 9601(39)(B) here, and and has been previously assessed through federal, state, territory, or federally recognized Indian tribal brownfield resources.
2. In a “metropolitan statistical area” or “non-metropolitan statistical area” that has (or had at any time after 2009) at least 0.17% direct employment or at least 25% local tax revenues related to the extraction, processing, transport, or storage of fossil fuel and has an unemployment rate at or above the national average unemployment rate for the previous year.
3. In census tracts (or directly adjoining census tracts) where a coal mine has closed after 1999, or where a coal-fired electric generating unit has been retired after 2009.
Potential site lists for (1) may be found under the category of Brownfields Properties on the EPA’s Cleanups in My Community webpage or on similar webpages maintained by states, territories, or for federally recognized Indian tribes (though these are non-exhaustive); sites eligible under (2) and (3) can be reviewed here.
4. Domestic Content
10% tax credit bonus if 100% of the project’s steel or iron was produced in the United States and, for most solar and wind projects, if 40% of the project’s manufactured components were produced in the United States. Note that photovoltaic modules count as manufactured components and are subject to the 40% threshold. More information on applicable product components can be found here.
How These Incentives Stack Up
Designing projects that meet some of or all these additional factors may increase the price of your project. That’s why there are added incentives. These adders can be stacked to reward particularly innovative, equitable, and ambitious renewable energy projects. Regardless, you will want to carefully balance the tradeoffs of these costs with the available adders and plan projects that best meet the needs of your community.