New Hampshire residents could benefit more directly from federal incentives for renewable energy and electric vehicles with two details in the major budget bill President Joe Biden signed last month, known as the Inflation Reduction Act.
“There are these nerdy little pieces of the IRA that I actually think will wind up being the most impactful parts of the bill,” said Sam Evans-Brown, who runs the advocacy group Clean Energy New Hampshire.
Two parts of the budget bill, known as transferability and direct pay, could change the way federal incentives can be delivered by turning tax credits into more straightforward and immediate credits for consumers or organizations. This could make it easier for residents, nonprofits, schools and municipalities to purchase electric vehicles or develop renewable energy systems, like small-scale solar arrays.
Tax credits have long been a way for the federal government to support the development of clean energy, but they can only go to entities that pay federal taxes.
“The main problem with that is that historically that has meant that there are serious equity problems with a lot of the renewable energy subsidies that we have used to encourage the industry in its infancy,” Evans-Brown said.
Those who have federal income tax liability – generally wealthier people – have benefitted the most, he said.
Now, for some, there will be more flexibility.
Transferability and electric vehicles
Transferability could be a game-changer for car dealers and electric vehicle customers, said Dan Bennett, vice president of government relations at the New Hampshire Automobile Dealers Association.
Instead of waiting until the end of the year to recover a tax credit for an electric vehicle – $7,500 for a new one or $4,000 for a used one – dealers could take that amount of money off the price of the car, upfront.
Bennett says this kind of program could help EV sales.
“It essentially acts as a cash on the hood incentive to help move these vehicles in the marketplace,” he said. “We know from other incentive history that’s the strongest force to encourage a market. We saw it with Cash for Clunkers, we see it in the solar industry.”
The federal program could help drive sales and registration rates, helping New Hampshire catch up to neighboring states that have vehicle incentive programs, Bennett said. He noted that states with high EV registration rates generally have those programs.
Dealers are expected to start being able to use transferability at the beginning of 2024, after the IRS builds out a system to determine eligibility.
Direct payment
Direct payment allows schools, towns and nonprofits – which don’t have federal tax liability – to get rebates that are the equivalent of a tax credit.
Those entities had to jump through a lot of hoops to benefit from federal incentives for renewable energy developments, Clean Energy New Hampshire’s Evans-Brown said. They could sign agreements to purchase power from a third-party investor, which could pass down the value of tax credits. But often, he said, those investors claim a part of the tax credit for themselves.
“It reduced the economic efficiency of the policy,” he said. “Now thanks to direct pay, all of that will go to the consumers. They'll be able to save more money up front. It'll help get more projects built much more simply.”
For an organization like the New Hampshire Electric Cooperative, a nonprofit that provides electricity to about 11% of the state, that could make a big difference.
“It gives us the flexibility to finance and operate projects without going through a third party,” Seth Wheeler, a spokesperson for the co-op said. “This legislation gives co-ops parity with for-profit utilities, which have long enjoyed tax credits of their own to develop wind, solar or other renewable energy projects.”
For solar projects, the tax credit or direct pay benefit is 30% of the cost of an investment. More money is available for projects that meet additional criteria, like using domestically manufactured parts or being located in a lower-income area.
Dan Weeks, vice president of business development with ReVision Energy, says his company has provided solar to nonprofits, towns and schools, mostly financed through local investors who believe in the mission.
They’re still seeing interest in that model, but Weeks says things are changing. He projects that as many as half of the tax-exempt entities they’re working with would look to own their projects from the start, especially with the help of local donors.
And, he said, it could especially help small nonprofits that don’t have a lot of roof space or ground space for solar arrays, which can sometimes have difficulty with the model ReVision is using now.
“The combination of the Inflation Reduction Act and the spiking electric rates means that we're just seeing more demand than ever,” he said.
