Inflation Reduction Act Boosts Clean Energy in Energy Communities

New Federal Tax Incentives Aim to Revitalize Energy Communities

In a major shift for renewable energy projects, the Inflation Reduction Act of 2022 introduces federal tax incentives targeting “Energy Communities”—regions historically linked to fossil fuels or facing economic challenges. These incentives include a potential 10-point increase in the Investment Tax Credit for storage projects and a similar boost for wind and solar projects, potentially altering where new projects are sited.

Energy Communities are defined as areas with ties to fossil fuel industries, high unemployment rates, closed coal mines or power stations, or contaminated lands. The goal is to drive economic revitalization in these areas.

Researchers Joachim Seel, Mel Moyce, and Sydney Forrester from Lawrence Berkeley National Laboratory have delved into these changes in their latest report, titled Clean Energy Deployment Baseline for the Energy Community and Low-Income Tax Credit Bonuses.

The report examines the impact of these new federal incentives on renewable energy project locations and provides historical data to measure future changes. It includes case studies of initiatives targeting areas affected by recent coal plant closures. However, it doesn’t assess how much of these benefits reach local communities.

• It’s too early to see significant shifts towards Energy Community locations in newly built projects or those entering interconnection queues in 2023.
• In 2023 and the first half of 2024, approximately 35% of onshore wind, 50% of solar, and 60% of storage capacity are located in Energy Communities, qualifying them for bonus incentives.
• Clean energy capacity in interconnection queues has surged, with about 45-50% of recent and total queued capacity in Energy Communities. However, solar and storage shares have remained stable, while wind has slightly decreased among 2023 projects.
• Building clean energy projects in Energy Communities can reduce costs. The levelized cost of energy was $9/MWh lower for solar and $2/MWh lower for wind projects in 2023 compared to non-Energy Community locations.
• Commercially-owned distributed solar qualifies for Energy Community bonuses. Residential solar in qualifying areas accounts for 10% of the total market in 2023, with larger commercial installations making up 17%.

Summary of Findings from Berkeley Lab Presentation:

• Historical baselines of clean energy build-out in Energy Communities have been established: 35% wind, 50% solar, 60% storage in 2023 and H1 2024.
• Post-IRA, clean energy capacity in interconnection queues has surged, with 45-50% in Energy Communities.
• Wind and solar projects can be developed at lower costs in Energy Communities.
• Commercially-owned distributed solar is eligible for Energy Community bonuses.
• The report includes case studies showing the impact of Energy Community bonuses on construction and employment.

Continued monitoring of these trends is essential for energy planners, investors, and local communities. The full report with detailed analysis is available here.