The Inflation Reduction Act (IRA) has been heralded as the largest energy investment in several decades. Several provisions in the IRA apply to those in the power sector and other markets, including provisions for electric generation, storage, and the development of emerging technologies—including carbon capture and sequestration, hydrogen production, and domestic manufacturing.
Renewable energy market tax incentives
Barr’s work in the renewable energy sector dates back to the early 1990s, when Barr began work on structural foundation engineering design and geotechnical analysis for wind energy. In 1992, the first Production Tax Credits (PTCs) were introduced—a per-kilowatt hour (kWh) credit for electricity generated by eligible renewable sources. Since then, the extension or amendment of these PTCs has caused some uncertainty in the market. In 2005, the Energy Policy Act provided tax incentives for solar energy and other renewable energy technologies through the Investment Tax Credit (ITC).
The IRA guarantees these PTCs and ITCs through 2032, while bolstering the potential tax credits available to developers. The IRA also provides more flexibility with these credits, meaning some projects may benefit from both. Additional “bonus” tax credits up to 20% are available for eligible projects, if domestic content requirements are met or if the project is located in a qualifying “energy community” or low-income community. Domestic content includes steel, iron, or other manufactured products that are produced in the United States. For more information on what may qualify as an energy community, read our blog article on siting a solar farm on brownfields.
One of the most notable provisions in the IRA is the direct pay option for PTCs and ITCs. This provision allows tax-exempt entities—including state and local governments, certain rural cooperatives, tribal governments, and the Tennessee Valley Authority—the ability to receive payments for their renewable energy projects. Previously, only taxable projects could receive PTC and ITC benefits. This opens the door for local governments to assess renewable energy projects, such as Barr’s solar-ready water treatment project in Blaine, Minnesota.
Emerging clean energy incentives
The IRA offers a new 10-year PTC based on the kilograms of qualifying hydrogen produced at a facility that begins construction prior to January 1, 2033. The rates vary based on the level of greenhouse gas that remains after the hydrogen production process. To receive the full tax credit, emissions must meet certain requirements under a life cycle analysis, and wage and apprenticeship requirements must also be met.
Significant incentives for capital investment in carbon capture and storage are now available through the IRA’s enhancements to Section 45Q of the Internal Revenue Code. To qualify for a tax credit, a business must store captured carbon dioxide underground in a secure geologic formation, use it for carbon-dioxide-enhanced oil recovery, or use it in other projects that permanently sequester carbon dioxide. These tax credits are contingent on meeting certain wage and apprenticeship requirements. The IRA also extends the eligibility of carbon capture and sequestration credits under Section 45Q to projects beginning construction by January 1, 2033. Section 45Q also provides significant incentives for direct air capture—an emerging technology designed to capture carbon dioxide already in the atmosphere. Additional entities can take advantage of the direct pay incentive benefits under Section 45Q.
More to come
The Internal Revenue Service (IRS) is in the process of further clarifying the fine details, including defining the terms apprenticeship, prevailing wage, and Made in America. The IRS also needs to further define what constitutes a “brownfield” and an “energy community.” We expect these definitions to be published in December 2022.
Interested in capitalizing on these new IRA incentives? Barr provides full engineering and environmental consulting services for wind, solar, storage, and other renewable energy projects, including our work with the Department of Energy on emerging technologies—including carbon capture and hydrogen—and other clients on greenhouse gas emissions and life cycle analysis. Contact us for support navigating this complex and rapidly changing regulatory environment.
About the author
As power market lead, Nick Palatiello works closely with clients to understand market and regulatory drivers and help them solve complex issues related to energy developments and emerging contaminants. He has worked with clients in a variety of capacities, from constructing solar facilities on brownfield sites to developing strategies for addressing PFAS. Nick works closely with clients to understand market and regulatory drivers and help them solve complex issues related to energy developments and emerging contaminants.
In 2020, a confidential power client called upon Barr’s coal mining experience and geotechnical services to better understand the feasibility of a proposed 100 MW solar power project in the Appalachian Mountains. The proposed 1400-acre site was previously used as surface mining for mountaintop coal reserves and has since been graded and reclaimed. Barr’s mining and geotechnical team completed a desktop-based analysis of potential for future settlement, future underground mining, differential movement, and related risks to provide a better understanding of the past mining activities’ implications for siting and design.
Barr provided engineering services for two 100 to 105 MW windpower projects now in service in central North Dakota. We conducted geotechnical investigations for and designed turbine foundations, roads, and crane paths, and also designed the electrical collection system. Our engineering and permitting teams worked closely together to identify risks and deliver final site layouts and designs that satisfied regulatory requirements—such as avoiding construction in wetlands—while meeting the client’s construction schedule and energy production goals.
The Seneca fly-ash landfill—owned and maintained by Metropolitan Council Environmental Services and permitted by the Minnesota Pollution Control Agency (MPCA)—is currently in the third decade of its 30-year post-closure period. Its cap, designed by Barr, has been in place since 1996. The Met Council and solar developer Cypress Creek Renewables proposed installing more than 3,000 solar panels atop the capped landfill. Barr performed an engineering analysis of the project’s feasibility and assisted with stormwater permitting through the MPCA. Additionally, we reviewed the panel layout and ballast specifications to evaluate how the installation might affect the site’s surface hydrology. We then prepared a memorandum that documented the negligible effect the panels would have on site hydrology, demonstrated the feasibility of installing the solar array, and explained why the solar farm would not compromise the landfill cover’s integrity or the owner’s ability to comply with the state landfill permit.
In early 2020, Flint Hills Resources (FHR) decided to improve its energy efficiency by building a $75 million solar farm at their Pine Bend Refinery in Rosemount, Minnesota. They turned to Barr for early strategic consulting on how best to navigate key environmental and social considerations such as land use and zoning; threatened and endangered species; wetlands impacts; construction stormwater management; and restoration planning. We also completed wetland delineations, led protected species surveys, and developed the Environmental Assessment Worksheet (EAW). Barr also completed a geotechnical investigation, site evaluation, and pile load testing for the project. We provided design recommendations for the solar panel foundations based on our results, and in addition to our geotechnical investigation, we performed infiltration testing to assist with stormwater basin design.