Commercial Savings: How the ‘Inflation Reduction Act’ Applies to Selling Your Next Commercial Project

Solar canopies are becoming widely adopted across many different sectors as they provide clean solar energy and a host of additional benefits for commercial and industrial entities. These benefits include offering a consistent source of renewable power, sheltered spaces for carports and community spaces, and infrastructure for establishing EV charging solar carport stations.

Another key perk of selling solar canopies for commercial use is their potential tax benefits for clients. Laws like the Inflation Reduction Act (IRA) incentivize customers to adopt green technologies like solar pergolas by offering tax credits for renewable projects.

In this article, we will explore how the IRA can provide your customers with significant savings, and how installers can use these potential savings to market quality solar canopies to your next commercial project.

What is the Inflation Reduction Act (IRA)?

The Inflation Reduction Act (IRA) of 2022 is a United States law that has created a 10% tax credit adder to encourage commercial entities to use ‘domestic content’ or locally sourced materials in their renewable projects. The credit adder applies specifically to projects that qualify for the investment tax credit (ITC) and the production tax credit (PTC).

Projects built using certain amounts of steel, iron, and other manufactured products produced in the US are eligible for a 10% increase to these credits. On May 12, 2023, the IRS announced Notice 2023-38, outlining the initial stipulations of this bonus program and the standards by which renewable projects will be evaluated.

Further guidance on tax credits for solar canopies will be released in the form of the IRS’s proposed regulations for the act.

Understanding the Domestic Content Bonus Opportunity

The IRA’s domestic content bonus applies across three key categories and four separate tax credit statutes. These are:

  • PTC-eligible qualified facilities.
  • ITC-eligible generation or energy storage properties.
  • Technology-neutral ITCs for qualified investments in ‘zero greenhouse gas generation’ facilities or energy storage facilities.

Updates to existing projects falling into these categories also qualify for the domestic content bonus, as long as they meet the ‘80/20 rule’. This rule requires that no more than 20% of the value of a given renewable project must consist of existing equipment. The new equipment and products used in these retrofitting projects must meet certain domestic content requirements for project owners to qualify for the tax credit bonus.

Taxpayers aiming to meet the domestic content bonus criteria must build projects using 100% US steel, iron, and aluminum. To quality, they must also use the correct adjusted percentage of domestically manufactured materials and products.

The adjusted percentages are:

  • 40% for renewable projects beginning construction before January 1, 2025.
  • 45% for projects beginning construction after December 31, 2024, but before January 1, 2026.
  • 50% for projects beginning construction after December 31, 2025, but before January 1, 2027.
  • 55% for projects starting construction after December 31, 2026.

Renewable projects that meet the aforementioned domestic content requirements will benefit from increased credit values. This includes a 10% larger PTC value and a 10% greater ITC value, the latter of which entails a 40% total credit. Additionally, these credit values are based on projects meeting specified wage and apprenticeship (PWA) prerequisites.

How Does the IRA Relate to US Aluminum?

The IRA stipulates that the use of manufactured products is a qualifying criterion for receiving the 10% tax credit adder. Manufactured products are defined as products produced in the United States.

In order to qualify as ‘manufactured products’ under the act, all the products’ manufacturing processes must take place in the US, and all of their components must be of US origin. Components are considered to be of US origin if they are manufactured in the United States, regardless of where their sub-components originated from.

Section 45X of the IRA has clarified the minerals and metals that may qualify as manufactured products and materials and that grant organizations access to the 10% credit adder. The proposed regulations apply to alumina, unwrought primary aluminum, and high purity aluminum. Based on these regulations, it is expected that Section 45X will apply to a large proportion of primary aluminum products in the United States.

According to these regulations, Brooklyn Solar Canopy products will meet the criteria for the IRA tax credit adder when used in commercial renewable projects. Our canopies are crafted from aluminum which is manufactured and procured locally in New Jersey and New England, and fabricated in Providence, RI.

How Commercial Projects Can Take Advantage of the 10% Adder

In addition to energy bill savings with solar canopy solutions, solar project developers can benefit from the IRA 10% tax credit adder in several ways.

Firstly, developers in the past had to cover many of the front-end costs associated with developing solar energy projects. The ITC tax credit adder addresses this by allowing these costs to be included, helping to lower the up-front expenses associated with completing solar installation projects at a commercial level.

The IRA also specifies that projects built from 2022 to 2033 are eligible for a 30% total credit, which enables more efficient long-term planning and project certainty. Many commercial metal solar carport projects require plans that can take long periods of time to complete. The act enables accurate medium- and long-term planning thanks to its clear stipulations about credits and qualifying criteria.

The IRA’s direct pay provision may provide unique advantages of its own, too. Previously, the only entities able to benefit from renewable project tax benefits were for-profit businesses and institutions. However, the act now enables non-profit organizations, local and state municipalities, electric co-ops, and even Indian Tribal governments to take advantage of the benefits.

These entities, which do not typically pay taxes, can have these tax credits paid directly to them after a renewable project is completed. All organizations – tax-paying and otherwise – are eligible for the percentage back in the categories in which they meet the specified requirements.

Savings for Every Commercial Solar Project

When you use Brooklyn Solar Canopy Co.’s aluminum solar carport and solar canopy products in your commercial projects, you can be assured that our canopies comply with the stipulations of the IRA to qualify your client for the 10% tax credit adder on offer. This can benefit your clients in numerous ways, from reducing their up-front project expenses to allowing non-profit organizations to benefit financially from adopting renewable power technologies.

Solar canopies are rapidly emerging as a key product in the new clean energy sector. They help commercial projects of all types meet their energy needs and qualify for tax incentives while supporting local production and manufacturing efforts.

Contact a BSCC representative today to learn more about our solar canopies for residential and commercial use and how our products can help you successfully sell your next commercial project.