Provisions Affecting Geothermal Heat Pumps in the Proposed “Inflation Reduction Act”

The Geothermal Exchange Organization (GEO) is the voice of the geothermal heat pump industry in the United States. Below is their summary of the provisions affecting geothermal heat pumps in the ‘Inflation Reduction Act’ and a brief outlook on where things will go from here. You can read the full text of the bill here.

• Section 25D residential tax credit –
  • Under current law, the credit is at 26% in 2022, 22% in 2023, and expires at the end of 2023.
  • The bill extends the credit for all Section 25D technologies at the following rates:
    • 26% (2021)
    • 30% (2022-2032)
    • 26% (2033)
    • 22% (2034)
    • 0% (2035)
  • The House-passed version of the bill made the credit fully refundable, subject to extensive verification requirements on installers to guard against fraud.  These refundability and verification requirements have been removed.
• Section 48 commercial tax credit –
  • Section 48 is extended under a two tier structure:
    • A “base rate” of 6% (or 1/5 of the bonus rate)
    • A “bonus rate” of 30%
• In order to receive the bonus rate, projects will have to either: (1) meet prevailing wage and apprenticeship requirements; or (2) be “a project with a maximum net output of less than 1 megawatt (as measured in alternating current) of electrical or thermal energy.” 
• Section 48 technologies will transition to a technology-neutral clean electricity production investment tax credit (i.e., the Wyden Tech Neutral bill), starting in 2025.  However, geothermal heat pumps will continue to be eligible for the Section 48 credit through 3034 at the following rates:
  • 26% (2021) (base/bonus rate structure not applicable)
  • 30% bonus/6% base (2022-2032)
  • 26% bonus/5.2% (2033)
  • 22% bonus rate/4.4% (2034)
• The House-passed version of the bill provided for direct pay/refundability of the credit.  In this version, direct pay/refundability is only available under Section 48 for the following entities:
  • tax-exempt organizations;
  • state or local government (or political subdivision thereof);
  • Tennessee Valley Authority;
  • Indian tribal government; and
  • Alaskan Native Corporations.

• The bill includes a domestic content bonus credit for facilities that use domestic steel, iron, and manufactured products.  The bonus credit is two-tiered:  
  • 10% (projects that either meet prevailing wage/apprenticeship requirements or are under 1MW of electrical or thermal energy)
  • 2% (projects over 1MW that don’t meet prevailing wage/apprenticeship requirements)
• Outlook – The language for the entire bill has gone to the Senate Parliamentarian for a review of compliance with Senate reconciliation rules (or “Byrd Bath”), which is expected to last through next week.  However, we could get earlier confirmation of the status of drug pricing provisions whose revenue is crucial to the framework agreed to by Manchin.  Senator Sinema’s support will also be necessary; she has historically had concerns with some of the tax revenue in the bill and is currently reviewing the measure.  Leader Schumer plans to bring the bill to the Senate floor as soon as next week, which is technically possible, but it’s unclear whether that timeline will slip.  Speaker Pelosi has offered public support for the bill in the House and we are monitoring the posture of various House Democratic factions as the House also has a very slim majority.

This update previously appeared in the IGSHPA Newsletter, which you should also be getting:) It’s free.

powered by Advanced iFrame. Get the Pro version on CodeCanyon.