By Maddie Lee
Maddie Lee is a Policy Analyst at Enel North America. She is responsible for facilitating the implementation of federal policies at Enel, such as the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, across a wide range of technologies including renewable energy, green hydrogen, and EV charging infrastructure.
The Inflation Reduction Act (IRA) of 2022 is an unprecedented, transformative piece of legislation that provides consistent support to accelerate the deployment of clean power over the next decade. For clean energy projects, the legislation’s available tax credits are structured in tiers, with a partial credit value, a full credit value when prevailing wage and apprenticeship requirements are met, and an opportunity to unlock bonus adders when specific conditions are met. There are various conditions organizations must meet to unlock the full value of a 30% Investment Tax Credit (ITC) or a 2.6 ¢/kWh Production Tax Credit (PTC) – read our overview of the Inflation Reduction Act to learn more. In this blog, we’re focusing on what we know to date around the bonus adders: what they are, how they work, and how projects can qualify for them.
As a global leader in the energy sector, Enel North America is driving the energy transition from fossil fuels to renewables. We also believe in ensuring a just energy transition that is accessible to all. While there is still much work to do, we applaud the inclusion of the bonus adders in the Inflation Reduction Act to support good-paying manufacturing jobs in the clean energy supply chain and drive growth in areas most impacted by the energy transition, including low-income communities and those in communities historically dependent on fossil fuel mining or extraction.
What We Know So Far About the Inflation Reduction Act’s Bonus Adders
The Inflation Reduction Act of 2022 includes preliminary criteria for what these bonus adders entail – so let’s start with what we do know. The Inflation Reduction Act includes three bonus adders: the domestic content bonus, the energy community bonus, and the low-income community bonus.
The Domestic Content Bonus is a 10% bonus adder awarded to facilities for which: (1) 100% of their steel or iron components is produced in the United States, and (2) 40% of their manufactured product components are produced in the United States.
The Energy Community Bonus is a 10% bonus adder for electricity produced in communities most impacted by the energy transition. An energy community is defined as one of the below:
- Brownfield site: A site where expansion, redevelopment, or reuse can be complicated by the presence (or potential presence) of a hazardous substance, pollutant, or contaminant
- Fossil fuel employment: A metropolitan or non-metropolitan statistical area (MSA or non-MSA) that has (or had, at any time after 2009) 0.17% or greater direct employment or 25% or greater local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas (as determined by the Treasury Secretary), and has an unemployment rate at or above the national average for the previous year (as determined by the Treasury Secretary)
- Coal community: A census tract containing a coal mine that has closed after December 31, 1999, or a coal plant that has retired after December 31, 2009, plus adjoining census tracts
The Low-Income Community Bonus is a ITC-only 10% bonus adder for wind, solar photovoltaics (PV), and energy storage combined with wind or solar PV projects less than 5 MW (AC). If the project is in a low-income community or on tribal land, the bonus is 10%. If the project is part of a qualified low-income residential building or an economic benefit project, the bonus doubles to 20%. Because there will be a finite pool of tax credits available each year, applicants must apply and compete for an award.
It's important to note that each of these bonus adders affects the PTC/ITC differently. Qualifying projects built within these communities receive a 10% or more boost in tax credits. For the ITC, the boost is expressed in percentage points – a 10% increase means going from the full credit value of 30% to a total of 40%. For the PTC, the boost is expressed in percentage terms and is only applicable to energy communities – a 10% increase means going from the full credit value of 2.6¢/kWh to a total of 2.9¢/kWh (numbers shown in 2022 dollars and are current as of December 2022 – they will be adjusted annually for inflation). Figure 1 shows how these adders are stacked to achieve the potential maximum. Since an additional 10% or more boost in tax credits can make the difference between a project that makes economic sense and one that does not, it’s important to understand the eligibility requirements for capturing these bonus adders.