Navigating the Inflation Reduction Act

Resources

NYS Guide to Inflation Reduction Act Savings

Bright Power: Energy Efficiency Federal Tax Credit for Condos and Co-ops

Bright Power: The Inflation Reduction Act – A Guide for Multifamily Building Owners (Webinar)

Bright Power: Certifications to Savings – Unlocking Tax Credits with Energy Star and Zero Energy Ready Homes (Webinar)

Rewiring America’s Incentive Calculator

BNEF: Report Shows That Inflation Reduction Act Alone Won’t Set United States on Track for Net Zero

Abbreviations used in the episode:

IRA – Inflation Reduction Act

ITC – Investment Tax Credit 

LIHTC – Low-Income Housing Tax Credit

45L – New Energy Efficient Home Tax Credit 

25C – Energy Efficient Home Improvement Tax Credit

EPA GGRF – EPA Greenhouse Gas Reduction Fund 

Q&A

Ellen Honigstock: 

What was your path to the positions you’re in today? Amanda, let’s start with you. How did you get to this role? 

Amanda Clevenger: 

Yeah, I did my undergrad at NYU. I majored in Media Culture and Communication with a minor in policy, but I got into energy randomly. I worked for a summer at a nuclear waste company near my parents’ house. It turns out that I hate nuclear, but I did enjoy getting to learn about the energy industry more broadly. And so when I graduated, Bright Power seemed like a really cool place to be. And now I’ve been here for almost seven years. I started doing operational work for our sales team and realized that we did a lot of policy work, but we didn’t have a formal team for that. 

And in 2020, I started Bright Power’s first effort to really build that capacity specifically. And that’s how the policy and programs team was born. And a few years after that, our clients were really liking the support that we were able to offer. And so I got to bring on to help do more of that and expand the work that we’re doing even further. 

Ion Simonides:

I got into energy in sort of an interesting way as well. I started my undergrad doing geology and I worked as a geologist for a couple of years at the Pennsylvania Geological Survey, working mostly on abandoned oil and gas wells. And then I pivoted into a Master’s in Energy and Environmental Policy at Pitt. And that got me really interested in the way that we use energy in our our modern society. 

November of 2020, I was fortunate to find a job as a junior project manager on the strategic initiatives team at Bright Power and I was immediately confronted with a huge learning curve about building systems and building science, something that I was tangentially aware about and interested in, that I had some friends fixing up old houses, but multifamily buildings are a whole other beast in a whole other industry. And so there was a, in that first position, I learned an incredible amount about buildings, how they work, how they operate, how they use energy.

And how there is a lot of work that needs to be done to improve buildings, especially in places like New York City where we have such an old building stock that’s still going to be around for quite some time. 

And then around nine months in, this opportunity on Amanda’s team opened up and I was immediately really excited because of my policy background. So that’s how I ended up in this policy and programs role. Really excited about it. There’s a lot of work to do. And it’s been a big adventure just even before leading up to the Inflation Reduction Act with the whole nebula of incentive programs. And now the IRA has brought a new facet into it that has been really exciting to learn about and launch.

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Ellen Honigstock: 

Ian, what is the IRA and why does it matter? 

Ion Simonides:

So the IRA or the Inflation Reduction Act or IRA, was passed in August 2022 and it is the single largest federal investment to address climate change in the history of the United States. It consists of $369 billion in tax incentives, grants, loans, focused on several industries including renewable energy generation, transmission, manufacturing, electric vehicles, and related to this conversation, the building sector. In terms of the potential impact on climate, it’s huge. you said earlier, Ellen, the estimates that have come from folks like Bloomberg are really huge in terms of the impact that the IRA can have. It also is interesting that it signifies a pretty significant departure from previous approaches to motivating change in the private sector on climate change in that it’s motivating people by the use of carrots instead of sticks. 

As Amanda said, it’s about providing incentives instead of regulations. And that’s a significant departure from the way the federal government has really tried to get the private sector to move on addressing issues associated with climate change. By providing incentives, the IRA is really designed not only to spur movement in the private sector, but to really engage it and match the investment to double the amount. 

So there are some folks that estimate the dollar value of the programs, know, originally 369 billion to go up to 800 billion dollars if the anticipated amount of capital comes into the market. So again, it’s a huge, huge impact that it has. And then the last thing that I want to say in terms of this conversation is that the IRA is the federal government’s first major direct investment in multifamily building electrification. So there have been efforts around energy efficiency that have been around for some time, but it’s the first time that the federal government is really making a big investment in the multifamily building sector and electrifying it and decarbonizing it as we go forward.

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Ellen Honigstock:

And I remember when the IRA passed, it was close to a thousand pages of text. What are some of the key programs within that for multifamily specifically that you think that sector should be keeping an eye on? 

Ion Simonides:

They’re sort of in three categories. I will dive into a couple of tax credits, the rebate programs that are new and most relevant to multifamily buildings here in New York City. Starting off with the investment tax credit, which provides a 30% tax credit for solar PV, solar photovoltaic, geothermal, and standalone battery storage projects that are under one megawatt in capacity. The ITC is a one-time credit that is basically claimed by the owner of the project in the year that it’s placed in service. The things that you can use to claim the ITC, what the basis is counted on is equipment. So for a PV project, it’s the panels, the inverters, the racking that you’re mounting the panels on, all of that. The installation labor costs and any required utility grid upgrade or interconnection costs like transformers, things that are not eligible are ongoing maintenance.

So in addition to that base 30%, there are a couple of bonuses. There’s a domestic content bonus, which is about buying manufactured products from the United States, which is a huge part of the Inflation Reduction Act, trying to buy more things that are made in the United States. And then there’s another, that’s a 10% bonus to the domestic content. Then there’s another 10% bonus for energy communities. Not super relevant to New York, but if we have listeners outside of New York, it’s focused on communities that have been impacted by fossil fuel development. And then there’s a suite of low-income community bonuses, which are in line with the IRA’s goal of promoting clean energy investments in low-income disadvantaged communities or LIDACs. There are four categories of low-income community bonuses, but it’s important to note a project can only apply for one out of the four. 

So you’ve got the low-income community bonus, which is 10% and it’s based purely on geography. The DOE actually has a mapping tool on their website that folks can look at to see if they qualify there. Category two is a tribal land bonus for projects located on tribal land. That’s also 10%, not relevant here to the New York City market, but relevant certainly across the country. Category three is a low-income residential building project bonus and this is one that we’re paying attention to because it’s specifically for solar PV projects on the rooftops of affordable housing buildings. It’s a 20% bonus. And then lastly, there’s a low-income economic benefit project which is largely for community solar distributed generation. That’s also 20%. So when you think about it, you have the base 30%. If you can get the domestic content, that’s another 40%. If you can get a low-income bonus, either 10 or 20%, you can get up to a 60 % ITC investment tax credit, which is a big deal. 

Now, a couple other things I want to note quickly on the ITC is that the IRA changed it so that the ITC no longer reduces the basis for calculating low-income housing tax credits, which is a big deal for implementing these types of projects on affordable housing. And then the other thing that it created is a feature called direct pay, which allows nonprofits to get the tax credit as a direct payment from the IRS. So those are two big changes to the program, the ITC, are really interesting and critical and helpful to nonprofits in affordable housing. So moving on to a couple other tax credits, we have the 45L, a new energy efficient home tax credit, which is a dollar per dwelling unit.

Tax incentive that goes up to about $5,000 per dwelling unit for properties that are getting certain high-performance green building certifications, namely Energy Star’s multifamily new construction or a program that’s new to multifamily, which is the Department of Energy’s zero energy-ready homes. And there’s a lot of alignment in New York City for projects that are getting funding from either HPD or HCR, which are the New York City and state housing finance authorities, where the requirements that those programs have align really well with the certifications that are required in the 45-L tax credit. So it’s something to keep in mind for folks that are using those financing sources.

And then another tax credit that we have is 25C, which is the energy-efficient home improvement tax credit. And I bring this up, it’s mostly for residential buildings, but I bring it up because it’s condos and co-ops are eligible for this tax credit. It’s a little bit complicated because folks have to get the tax credit on an individual basis by unit. But if there are projects in a condo and co-op that are going across the whole building, know, centralized heating or cooling, or even in unit, replacements of AC units with key pumps or windows, things like that. It can work for folks to leverage all of the tax credits together and really help folks out with the individual costs for those upgrades.

So 25C is one certainly to keep in mind for the condo and co-op market, which as we know, you know, there’s a lot of buildings that are struggling to find the funds to address local law 97 compliance. That might be a piece that’s critical there. So that’s it on the tax incentives. On the rebates, we have two new rebate programs, home efficiency rebates, home electrification and appliance rebates. We’re anticipating that for multifamily, NYSERDA, who’s going to be administering these programs, is going to have them rolled out by Q1 2025. We’re excited because there’s the potential for the efficiency program to provide up to $8,000 per dwelling unit. For buildings that get over 25% reduction in energy use. And then on the electrification and appliance rebates is up to $14,000 per dwelling unit. So the two programs can’t be used on the same measure, but they can be used on the same project. And we’re anticipating that they will be stackable with other incentive programs as well as with the tax credits. So these new rebate programs could certainly help, especially on the affordable side, projects that are doing efficiency and electrification work.

And critically, I want to note the electrification and appliance rebate program actually provides incentives for electric infrastructure upgrades, which as we know are critical to electrification projects and are very expensive. So that’s it on the rebate programs. I just wanted to note lastly, the Environmental Protection Agency’s Greenhouse Gas Reduction Fund, which is one of the largest programs created by the IRA at $27 billion. It is being distributed in a couple of different ways to basically community lenders to create new green financing products to fund decarbonization and energy efficiency in a number of sectors, but including multifamily with a focus on those LIDAC communities. So, it’s something for folks to keep an eye out on.

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Ellen Honigstock: 

Ian, do you have any case studies that you can share of projects that have leveraged some of these IRA incentives? 

Ion Simonides:

Yeah, definitely. So I have two examples I want to talk to. Both are multifamily buildings. The first one is an existing building installing a rooftop solar PV project and the second is a new construction project getting a high performance building certification. So the first case study, have a 130 kilowatt rooftop solar PV project with a tilted plane design system and a total cost of about just over a million dollars. The project is receiving just over $200,000 from NYSERDA’s New York Sun program and is also receiving a significant 4 % low income housing tax credit of about $450,000. So the NYSERDA rebate has to be subtracted out before the total we can calculate for the investment tax credit. 

But the good thing is, as I said earlier, is that the investment tax credit no longer reduces the basis for LIHTC. So we can calculate the amount of the ITC on the entire post-rebate total. So we have about $1 million subtracting $200,000. Multiplied by 0.3 for the 30 % ITC and we get just under $250,000. Now in terms of selling these tax credits, which is what most folks, especially affordable housing nonprofit developers are going to be doing, we like to assume that they’re getting around 90 cents to the dollar when they sell these tax credits to tax credit investors. 

So, assuming that we get an ITC value of just about $230,000. All in all, when we add all of these incentives together, NYSERDA, New York Sun, the Low Income Housing Tax Credit, the Investment Tax Credit, we reduce the total cost of the project down to just over $150,000, which is pretty incredible. And that’s the only part of the project cost that the client has to fork up upfront. It’s safe to assume that they have what’s called a tax credit syndicator to help them monetize those tax credits. And what’s great is that because they already have that relationship set up, they can then take the investment tax credit and just pull it into that deal of selling those tax credits to get the upfront financing. There’s also a timing component. I did say that the total project cost comes down to $150,000.

The rebates from New York Sun come after the project is placed in service. And then, yeah, so there’s certainly a timing piece there. It is complicated, but it is certainly doable. And we encourage folks to reach out, to talk to design professionals like us and tax credit professionals to help them with this kind of project. I also want to note that we were assuming a base 30 % ITC. This project might be able to get some of the bonus adders to raise that amount to 40%, even 50%. 

The second case study is for a new construction project that is planning to pursue the Department of Energy Zero Energy Ready Home Certification. And because they’re doing that, they’re going to leverage the 45-L tax credit. So, it’s a new construction project that is certifying to enterprise green communities because it is getting funding from one of the housing finance authorities I mentioned earlier. So as part of EGC, they’re required to do Energy Star multifamily new construction. They could just stop there and get a $1,000 per dwelling unit, 45L tax credit. But they thought about it a little bit and in conversations with us, they realized that the additional cost to get to the DOE Zero Energy Ready Homes tax credit and ended up getting a $5,000 per dwelling unit rate was worth it to them. There’s an additional cost, but the tax credit amount essentially doubles. And so they are going to do the additional modeling that’s required for Zero Energy Ready Homes aand qualify for that $5,000 per dwelling unit tax credit and get around just under $400,000 in tax credit. 

So it’s one of those instances I wanted to highlight it where they could just go with what they’re already doing and get a tax credit, but with a bit of an additional cost that is completely covered by the amount of the tax credit, they can really double the impact and get a much larger tax credit back for the project and improve the performance.

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Amanda Clevenger: 

Thanks, Ian. I want to shift gears a little bit and ask you a question that has been burning on my mind. I’m sure other folks are thinking about this too. You know, we have an election coming up. There could be a change in administration at the federal level. Does that mean anything for what will happen to the IRA credits and rebates? 

Ion Simonides:

Yeah, that’s a great question, Amanda. Thank you for bringing that up. And it’s not super straightforward. And it kind of depends on the project we’re talking about in the IRA. I’ll start, though, with the tax credits, which as I said, in here, I’ve been talking about tax credits that are specific to the building sector. But like I highlighted earlier, there are a number of tax credits in the IRA that are about much bigger sectoral things like manufacturing, especially of EVs and things like that, and transmission, renewable energy generation. And a lot of those tax credits are being leveraged for projects predominantly in states of folks that have been outspoken against the IRA. 

But there’s been a little bit of a change of tune as they’ve seen the huge economic development impacts that these tax credits and programs are having in their local communities. So I think there’s been a bit of a change in the tone of folks talking about the Inflation Reduction Act now that it’s been around for two years and they’ve really started to see the impacts as these projects start to come online. So that’s part of it. The other part of it though is that all of the tax credits have been enshrined in our tax code. And to get them out would require another act of legislation, which is no easy task as we know. 

So in my opinion, I think for the most part, the tax credits are relatively safe from being repealed in any really big way. In terms of the rebate programs, it really depends on how quickly each state claims their money from the Department of Energy. So states have to apply to get those funds. New York is actually one of the first states to apply and one of the first states to launch a program on the single family side that’s active now. But if states don’t apply for that funds, I think there’s potential that a change in administration might result in some slow walking of the release of those funds. And that’s, think, the biggest concern and biggest sort of threat is sort of just a potential defunding or changing in the amount of employees in some of these departments that are handling the IRA programs and funding. And that might result in just a slower deployment of these programs. At the end of the day, though, I don’t think it’s going to go anywhere.

The great thing is that the tax credits, which I think are sort of the part of the IRA that gets the least amount of attention because taxes aren’t sexy and people don’t like talking about them. But the tax credits have a time horizon going out to 2032. So they’re going to be around for a while. In terms of the rebates, that’s again sort of dependent on each state and their ability to roll out these programs. 

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Ellen Honigstock: 

Thanks, Ian. This is such great information. for the folks listening today, what should be their first step and where should they find information?

Ion Simonides:

Yeah, so I think the first step, we always say this honestly to everybody who asks, what’s the first step that I should take with my building is getting an energy audit because it really just tells you where you stand and where things are at and what you need to look at. And ideally a really good energy audit also tells you where to look for incentives that are relevant to the projects that you’re trying to do. And I think more and more, companies like Bright Power are incorporating these IRA incentives and programs into that analysis of the money that’s available. So that is what I would say is the first step. In terms of resources, we will certainly share stuff out with folks with this podcast. We’ve written a number of blog posts. We’ve done some webinars trying to just get the word out and explain the IRA programs to folks. So we’re happy to share that.