What public sector entities need to know about the Inflation Reduction Act

The Inflation Reduction Act of 2022 (IRA) was signed into law in August 2022. This legislation provides unique funding opportunities for public sector organizations. For the first time, state and local governments, schools, public utilities and other tax-exempt entities can obtain tax credits through direct payments or tax credit transfers for qualifying clean energy projects, which could significantly reduce the local funding requirements. These IRA tax credits for Qualifying Energy Property projects can total as much as 50% or more of the qualifying project costs.

Qualifying Energy Property projects has a broad definition and can include, but is not limited to, the following project types:

• Wind, solar, hydro
• Qualifying biogas
• Carbon capture
• Waste energy recovery
• Certain energy saving components within larger projects

The amount of tax credits available under the IRA can be substantially increased if the project complies with certain bonus criteria, including prevailing wages and apprenticeship requirements. Additionally, for a short period of time, a project may qualify for the bonus credits without meeting the bonus criteria, but timing is important. To meet this safe harbor provision, a project must meet the technical definition of “Begun Construction” shortly after the federal government provides final guidance on the implementation of the IRA. Engage your team now to effectively position your project to receive the credits for which you may be eligible.  

The IRA also includes funding for various other items including electric transmission facilities, zero emission vehicles and new Department of Energy and Rural Development funding, to name a few. There is quite a bit to digest with this bill and guidance is still coming out; out team will continue sharing information as soon as it's available.

Baker Tilly has been advising on how to obtain these credits for our private sector clients including investor-owned utilities for many years. Now that these opportunities are available to the public sector, Baker Tilly can help you effectively receive these potential tax credits and direct payments for your projects. The tax law for these credits is very complex; we work closely with our tax specialists to address all aspects of the process, including an initial feasibility study, tax credit calculations and receiving eligible tax credits, to financing your project.