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Energy Community Tax Credit Bonus Program: US Tax Credits Prompts Solar Projects

Tax Credits
Tax Credits; Source- Forbes

The Inflation Reduction Act of the Biden Administration includes two bonus credit programs that will shift the deployment of renewable energy toward low-income areas and populations affected by the cessation of coal mines or power plants powered by coal. According to a recent poll by the nonprofit organization the American Council on Renewable Energy (ACORE), over ninety percent of renewable energy investors and developers prioritize projects in these regions.

Tax Credits

Tax Credits; Source- Forbes

All About Energy Community Tax Credit Bonus Program

Additionally to the thirty percent ITCs or $26/MWh PTCs made available to all renewable energy projects under the Inflation Act, the Energy Community Tax Credit Bonus program offers an additional 10% in tax credits for solar and storage projects. For regions that qualify, a different Low-Income Communities Bonus Credit Program gives a variety of credits. Energy community initiatives must be situated in locations with a high employment of people working in the fossil fuel industry and where the rate of joblessness is greater compared to the national median, or in coal towns that have been disproportionately impacted by closures, which means not exclusively in terms of jobs.

Development Of Abandoned Coal Mine Sites

In addition to providing solar developers with a sizable geographical area to maximize economies of scale, coal plant locations can also provide transportation and utility infrastructure. The development of abandoned coal mine sites is also accelerating. These locations present a wealth of options, but due to the complicated geography and land ownership, developers confront additional difficulties. The 710 MW Sherco solar plan in Minnesota, which will substitute 2.2 GW of coal-fired power, will give utility Xcel Energy additional incentives for 10 MW of battery capacity. These projects’ locations will become more affordable and likely to be built thanks to the bonus credit program.

Low Income Communities Bonus Credit Program

On the Low-Income Communities Bonus Credit Program, the IRS published guidelines. This program intends to promote new participation, boost the use of energy from renewable sources in low-income areas, and help communities affected by environmental trends on both a social and economic level. Only smaller projects with a capacity of a maximum of five MW, and that have historically proven challenging for funding under existing programs, are eligible for the bonus. Tax equity systems can be intricate and expensive to transact with.

As a result, it might not be worthwhile for a tax capital investor to participate in a smaller project that will yield fewer tax advantages. The level of incentive varies with the type of land and often favors solar or storing batteries projects of this magnitude. Those with a community benefit and those in locations with low-income affordable housing programs are eligible for a 20% bonus credit, whereas those in low-income or American Indian communities are merely eligible for a 10% bonus credit.

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