What Does the Inflation Reduction Act Mean for Large Scale Renewables in New York?

By Nate Belluche, Alliance for Clean Energy New York

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which the World Economic Forum describes as “the most meaningful climate bill ever passed in the US.” ACE NY, along with the New York League of Conservation Voters, AES, and other partners, held a cocktail party during Climate Week NYC 2022 to celebrate and discuss the IRA with other industry leaders. The bill is beneficial for all aspects of the fight against climate change – electric vehicle subsidies, carbon capture & storage funding, and more - but possibly the most important is the impact it will have on the development of large-scale renewable projects around the country.  

The United States has ambitious climate goals – reach a ~50% reduction in economy-wide greenhouse gas emissions (down from 2005 levels) by 2030, and net-zero greenhouse gas emissions by 2050. One of the largest contributors to US emissions is the production of electricity by fossil fuels, which ultimately needs to be replaced with renewable sources of electricity. The IRA provides substantial incentives for developing wind, solar, batteries, and other forms of renewables.

These incentives for large-scale renewables come in the form of three different credits: the Production Tax Credit (PTC), the Investment Tax Credit (ITC), and the Manufacturing Production Credit. 

·      The PTC provides a guaranteed tax credit through 2032 for new wind and solar projects for each unit of renewable electricity produced, with higher credit levels for projects if 100% of any steel or iron that is a component of the facility was produced in the United States and 40% of manufactured products that are components of the facility were produced in the United States. The credit amount is also raised if the facility is located at a brownfield site or in a community that has had significant employment by the coal/natural gas industry.

·      The ITC provides a tax credit based on the whole investment, with a base credit of 6%, but that skyrockets to a healthy 30% if prevailing wage and apprenticeship requirements are met for the construction of the project. The IRA also expands the credit to add standalone energy storage projects, which were previously ineligible for this credit. 

·      The Manufacturing Production Credit focuses on the production of clean energy components, rather than the clean electricity itself, providing credits for each component of a facility that was manufactured in the United States, as a way to spur domestic manufacturing and encourage developers to buy American materials. It encompasses land-based wind, offshore wind, solar, and battery component manufacturing.  The credits are based on the size, weight, or capacity of the unit.   

The combination of these credits is incredibly enticing to renewable project developers, and on a scale never seen before in our country. ACE NY expects to see an influx of proposals all over the country, as it will now be considerably more economically viable to build renewable electricity generation facilities.

While these incentives affect the whole country, they mean something a little different for New York.  Being a national leader in clean energy, New York has committed to zero-emission electricity generation by 2040. As a result, the state will see a similar amount of renewables as before the passage of the IRA, but a reduction in the cost of building the projects. New federal tax credits allow projects to be built less expensively, which will allow them to bid into NYSERDA solicitations for projects at a lower strike price. These more competitive bids should translate to cheaper REC payments by NYSERDA and thus, savings for New York for ratepayers as we strive together to achieve 70% renewables by 2030, and 100% emissions-free electricity by 2040.

We were thrilled to celebrate this win for energy and the environment during Climate Week 2022 in NYC, where our members attended presentations and discussions on clean energy with leaders from around the world.