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Inflation Reduction Act: Transforming the US Solar Industry

October 11, 2022
Austin, TX
A Welcome Boost for Solar

The new law will lead to increased solar manufacturing and demand, propelling the US into a global renewable energy player, alongside labor provisions that will shape the next generation of the solar workforce.

With the passage of the Inflation Reduction Act (IRA), $369 billion is directed toward climate and energy incentives that will restart the US renewable energy industry.

From the perspective of solar developers and manufacturers, as well as workers, this Act provides needed regulatory certainty for future growth and expansion. In an already tight labor market, demand for renewable workers will soar as the US dramatically increases clean energy deployment.

How do incentives drive solar growth?

The IRA creates regulatory certainty for the renewable sector by significantly expanding US tax credits for solar projects over the next 10 years.

Responding to the passage of the IRA, the Solar Energy Industries Association (SEIA) said, “Now the work can begin to build out America’s clean energy economy with historic deployment.”

The extension of investment tax credits (ITC), federal incentives for business investment. The ITCs extended by the IRA provide a one time up to 30% tax breaks on qualified projects including renewable wind and solar development projects and battery storage.

Whereas previously these ITCs were set to phase out by 2024, the IRA extends these credits through 2034. If certain apprenticeship and prevailing wage requirements are met taxpayers receive the full credit amount. If these requirements are not met the base tax credit rate is 6%.

There is an additional 10% credits each for a domestic content bonus - buying American made supplies, and projects in an “energy community” - which meet certain locational and statistical requirements.

Additionally, production tax credits (PTC), federal incentives that provide tax credits for the generation of clean energy were expanded. For solar specifically it is a per kilowatt-hour (kWh) federal tax credit. Taxpayers who own the qualified facilities are eligible for the PTC on electricity produced and sold for a 10-year period following the construction of the facility.

The PTC rate is adjusted for inflation. Currently, the full credit amount would be 2.6 cents per kWh. If apprenticeship and prevailing wage requirements aren’t met the base credit for most technologies is set at 0.3 cents per kWh.

Taxpayers will have the option to claim the ITC or the PTC, but not both.

Workrise expects the renewal of these incentives in addition to recent tariff exemptions implemented by the current Administration to jumpstart a previously stalled solar industry. Over time we expect this to result in accelerated manufacturing and deployment of solar projects over the next decade across the US.

How will renewables factor into the energy mix?

Both renewable energy and Oil & Gas will continue to play prominent roles in the energy mix, with renewables projected to accelerate at a faster rate.

The IRA includes provisions that highlight the need for both Oil & Gas and renewable energy to ensure US energy security. The IRA recognizes that Oil & Gas remains a “strategic commodity” for the US while renewable energy reaches higher levels of deployment and adoption.

The U.S. installed 4.6 gigawatts (GW) of solar PV capacity in Q2 2022 to reach 130.9 GW of total installed capacity. The passage of the IRA has created significant upside to the long-term solar forecasts, with installations expected to increase by 40% above the previous baseline over the next five years [efn_note] SEIA [/efn_note].

According to Forbes, renewables now produce more electricity annually than coal, and wind and solar comprised 76% of new U.S. power generation capacity in 2021. To put in perspective, in order to achieve a national 80 percent clean electricity share by 2030, 950 GW of new wind and solar generation and over 225 GW of battery storage capacity must be built, averaging about 120 GW of new capacity per year [efn_note] University of Berkley [/efn_note].

How will the IRA drive demand for solar workers?

According to the National Solar Jobs Census, over the past decade US solar employment has more than doubled from 105,145 jobs in 2011 to 255,037 jobs in 2021. That number is set to exponentially grow in response to the IRA.

Demand for different types of renewable energy workers will also change over the coming years. In accordance with the IRA, there are newly applied labor provisions to receive the highest level of tax credits, including apprenticeship requirements. These are designed to incentivize the training required within the workforce to support this evolution over the coming years.

Apprenticeship programs are not new. In 1937, the National Apprenticeship Act (NAA) was signed into law establishing the Registered Apprenticeship Program as it is today.

Currently, there are over 27,000 registered apprenticeship programs across the US, with over 12,000 of those in the energy industry. Apprenticeship programs need to be validated by the DOL or State Apprenticeship Agency to become a Registered Apprenticeship Program (RAP).

Key aspects of an apprenticeship program include a paid job, on the job learning, classroom learning (virtual or in-person), mentorship and credentials. These programs are beneficial in retaining workers and helping workers demonstrate their qualifications and licensing requirements.

Currently, the amount of solar apprentice eligible occupations available are limited, such as Electrician and Construction Craft Laborer. Employers have several options in order to tap into an apprenticeship workforce including creating their own program or partnering with an educational institution.

In order to receive the full tax credits under the IRA there is pending rulemaking from the Treasury and the Department of Labor. If applicants don’t meet these requirements, the tax credit base rate will be 6%. Projects that begin prior to 60 days after the rulemaking is released will automatically qualify for the 30% tax credit.

Solar companies must expand their access to qualified labor.

With the arrival of new subsidies and an impending surge in solar deployments, there will be pressure for solar companies to expand their available workforce at a very rapid rate.

Perhaps the most immediate solution for solar companies is to work in partnership with a workforce management provider.

A high-quality workforce management partner will quickly connect you with the workers you need. Ask your partner to analyze your specific requirements and identify the best candidates. The right partner should also be able to quickly establish a pool of backup candidates to ensure your project is always fully staffed.

Get in touch

Workrise can help with these pressing workforce needs, as well as vendor management solutions to improve the efficiency of in-house operations and supply chain teams. Get in touch to learn more.

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