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You have likely been following the news about the 11th hour compromise deal between West Virginia Senator Joe Manchin and Senate President Chuck Schumer, which includes a variety of incentives for the geothermal heat pump industry. Now dubbed the Inflation Reduction Act, the legislation was passed Sunday along partisan lines as expected. The bill now moves to the House of Representatives, where passage is expected, again along partisan lines, and the media is reporting that the President might receive it and sign this into law as early as next week.
It is remarkable how quickly this moved through the legislative process. It’s important to remember that this didn’t just happen overnight. The Geothermal Exchange Organization and other representatives of energy-related organizations have been working on these measures for many years now.
In addition to the well-publicized extensions of tax credits, the legislation also includes significant funding for the REAP program – Rural Energy for America program. There’s $2 Billion in funding over the next 10 years for this program. Geothermal technology, as well as other renewable energy technology, is eligible for this funding, which is just for qualifying rural areas (most of downstate Illinois.)
This is all great news for the geothermal heat pump industry. In case you missed GAOI’s electronic letter from a week ago, or the IGSHPA and GEO emails, here is a summary as it affects our industry from IGSHPA:
- Section 25D residential tax credit –
- Under current law, the credit is at 26% in 2022, 22% in 2023, and expires at the end of 2023.
- The bill extends the credit for all Section 25D technologies at the following rates:
- 26% (2021)
- 30% (2022-2032)
- 26% (2033)
- 22% (2034)
- 0% (2035)
- The House-passed version of the bill made the credit fully refundable, subject to extensive verification requirements on installers to guard against fraud. These refundability and verification requirements have been removed.
- Section 48 commercial tax credit –
- Section 48 is extended under a two-tier structure:
- A “base rate” of 6% (or 1/5 of the bonus rate)
- A “bonus rate” of 30%
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In order to receive the bonus rate, projects will have to either: (1) meet prevailing wage and apprenticeship requirements; or (2) be “a project with a maximum net output of less than 1 megawatt (as measured in alternating current) of electrical or thermal energy.”
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Section 48 technologies will transition to a technology-neutral clean electricity production investment tax credit (i.e., the Wyden Tech Neutral bill), starting in 2025. However, geothermal heat pumps will continue to be eligible for the Section 48 credit through 3034 at the following rates:
- 26% (2021) (base/bonus rate structure not applicable)
- 30% bonus/6% base (2022-2032)
- 26% bonus/5.2% (2033)
- 22% bonus rate/4.4% (2034)
- Direct pay/refundability is only available under Section 48 for the following entities:
- tax-exempt organizations;
- state or local government (or political subdivision thereof);
- Tennessee Valley Authority;
- Indian tribal government; and
- Alaskan Native Corporations.
- The bill includes a domestic content bonus credit for facilities that use domestic steel, iron, and manufactured products. The bonus credit is two-tiered:
- 10% (projects that either meet prevailing wage/apprenticeship requirements or are under 1MW of electrical or thermal energy)
- 2% (projects over 1MW that don’t meet prevailing wage/apprenticeship requirements)
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