The cost of installing solar panels on homes and businesses just got cheaper, thanks to the Inflation Reduction Act

Solar panels at Elizabeth Baptist Church in Cleveland.

Rooftop solar panels at Cleveland's Elizabeth Baptist Church help lower utility bills so there is more money to spend on mission work.

CLEVELAND, Ohio – The cost of putting solar panels on your home or business just dropped with the signing of the federal Inflation Reduction Act, which increases and extends federal investment tax credits that had been scheduled to be phased out or reduced.

The legislation that Congress passed earlier this year bumps up the investment tax credit on a residential solar installation to 30% from 26% and extends it through 2032, after which it drops back down to 26% in 2033 and 22% in 2034, before phasing out altogether in 2035.

As it stood prior to the new law, the tax credit for residential installations was scheduled to drop to 22% in 2023 and go away entirely in 2024.

The tax credit for small commercial installations, which was set to decrease from 26% to 22% in 2023 and then to 10% in 2024, where it would stay indefinitely, is now 30% and will remain there until at least 2033. Projects that are 1 megawatt or larger have conditions that must be met to receive full benefit of the tax change.

“Interest is through the roof. Everybody is talking about it,” said Tristan Rader, a Lakewood councilman and Ohio program director for Solar United Neighbors, a national nonprofit that organizes residential solar co-ops across the country.

Rader said a recent information session for a proposed solar co-op in the Cincinnati area had three times as many people show up as had registered prior to passage of the Infrastructure Reduction Act.

SUN’s average co-op cost for installing residential solar power is about $2.50 per watt, and a typical residential installation costs between $15,000 and $20,000, Rader said. With the tax credit boost to $30%, the savings on a $15,000 project is now $4,500 instead of $3,900.

But more significant than the tax credit boost is the extension, he said.

At Better Together Solar, a Cleveland installer of solar arrays, demand for its services is expected to increase, said Jack Slater, the company’s director of sales. For one thing, extension of the credit means potential customers won’t have to rush to meet a tight deadline.

The new law will also benefit governments and nonprofits looking to install solar panels, Slater said, because they now should be able to obtain a direct payment equal to the 30% tax cut even though they don’t pay federal taxes.

The way it has worked previously, governments and nonprofits had to partner with a third party through what’s know as a power purchase agreement, or PPA. A PPA would have the third party own the installation and receive the tax credit, then sell the electricity to the government agency or nonprofit.

“It’s just a simpler transaction all the way around,” said Rob Martens, president of Better Solar.

Final rules pertaining to the application of the tax credits have not been set, Martens said, so the precise impact of the tax credit legislation is still unknown.

Mike Wise, an energy attorney with McDonald Hopkins in Cleveland, said developers and investors have been “lighting up” his phone since the Inflation Reduction Act passed.

The extension of the 30% tax credit also comes with additional tax credits, or “adders,” for projects that use a certain percentage of domestic content, are constructed in disadvantaged communities, or on brownfields or in areas affected by job losses in the fossil fuel industry.

Wise said he recently talked to a developer who believes he can obtain tax credits totaling 60% of a project’s cost, which means a $20 million project could be paid for using a $12 million tax credit.

“It’s a great opportunity for Ohio because those adders are in our wheelhouse,” Wise said. “They’re built for Pennsylvania, Ohio and West Virginia.”

Wise has been involved in several solar projects in Northeast Ohio over the years, including a solar farm built on the former Brooklyn landfill that provides electricity to Cuyahoga County administration buildings.

“I mean it’s going to be great,” he said of tax credit changes.”I’m going to be very busy for the next few years. It’s a game changer.”

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