H1 2024: IRA’s influence boosts due to clear guidance, incentives.
TL/DR –
The Inflation Reduction Act has led to the announcement of 41 major clean energy projects and $12.6 billion in private investment so far in 2024. The IRS has issued guidance on various aspects of the Act, but final guidance is still awaited for the 45V hydrogen tax credit. Despite a split in the solar industry regarding trade policy and high interest rates, tax credits and incentives are driving clean energy tax credit transactions and fostering clean energy manufacturing and generation.
The Inflation Reduction Act’s Influence on Clean Energy
As E2’s business group reports, the Inflation Reduction Act (IRA) celebrates its second anniversary in August, having sparked 41 major clean energy projects and $12.6bn private investment this year alone. The IRS has issued final guidance for the IRA’s prevailing wage and apprenticeship requirements, plus its tax credit transferability mechanism.
IRS Guidance on Key IRA Provisions
This year saw the IRS propose guidance on the IRA’s 48E and 45Y credits and clarify what qualifies as an energy community. It also issued guidance on the domestic content bonus credit for hydropower and solar. However, the industry awaits final guidance on the 45V hydrogen tax credit.
IRA’s Market Impact
Finalized tax credit transferability guidance has catalyzed the clean energy tax credit transactions market. A Crux Climate report estimates $7-$9bn in transactions last year, with possible significant exceeding this year.
IRA Industry Implications and Forecasts
The industry anticipates IRA to stimulate the clean energy sector long-term, especially when the 48E and 45Y technology-neutral credits replace existing ones at year-end. These new credits will phase out either in 2032, or when U.S. carbon emissions reach 50% of 2022 levels.
As IRA boosts clean energy manufacturing and generation, industry sectors are debating U.S. trade policy approaches. The solar industry is divided over a petition by seven U.S. solar manufacturers asking the U.S. to impose duties on crystalline silicon solar cells imported from several countries.
Economic Considerations and Predictions
Despite high interest rates and capital costs, companies are refocusing on fundamentals to improve margins and maximize returns on investments. Clean energy developers are adapting to transmission headwinds, increasingly connecting new generation directly to industrial facilities for faster, more attractive project economics.
IRA Funding and Grants
The first IRA year saw quick private sector movements to capitalize on new or reauthorized, expanded tax credits. In 2024, the major IRA story focuses on federal funds flowing to states, not-for-profits and municipalities. The $27bn EPA Greenhouse Gas Reduction Fund is a notable example, as is the $5bn disbursement of Climate Pollution Reduction Grants to states. Whichever presidential candidate wins in November, states will play a central role in IRA’s implementation and ultimate success or failure.
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