President Biden on Aug. 16 signed into law the Inflation Reduction Act (IRA), which will extend and expand various energy tax incentives and give public power utilities direct access to such credits through a refundable direct payment tax credit.
The U.S. House on Aug. 12 passed the IRA after the U.S. Senate passed the bill earlier this month.
The Joint Committee on Taxation estimates the value of energy-related tax incentives to be worth $25 billion in 2022 alone. However, because public power utilities are exempt from tax, they have not been able to take advantage of these incentives for projects they own. Rural electric cooperatives face a similar challenge. As a result, using the tax code to incentivize energy investments has excluded utilities serving nearly 30 percent of all retail utility customers in the United States.
Instead, to take advantage of these energy tax incentives, tax-exempt, community-owned utilities have had to enter power purchase agreements with third party developers -- who often themselves would enlist a tax equity partner to monetize energy tax credits.
The result has been profound, the American Public Power Association (APPA) recently noted. For example, recent surveys of public power utilities showed they own just two percent of the non-hydropower renewable energy used to serve their customers: the remaining 98 percent had to be secured through power purchase agreements.
The IRA corrects this by allowing tax-exempt entities to claim energy tax credits directly. APPA has long supported this approach, which will lead to lower costs, local jobs, and more equitable energy service for all customers.