Federal tax credits play a critical role in lowering the cost of investing in renewables and encouraging the growth of the clean energy workforce. In 2022, the federal Inflation Reduction Act (IRA) was signed into law, introducing and expanding numerous tax incentives for investment in the clean energy sector. Of these tax incentives, the Investment Tax Credit (ITC) and the Production Tax Credit (PTC) provide enhanced financing opportunities for clean energy developers, particularly if projects are eligible to receive additional incentives through bonus credits, such as the Domestic Content Bonus and the Energy Community Bonus. Eligibility to receive the highest base tax credit also requires meeting labor standards aimed at ensuring livable wages and a certain percentage of construction work performed by apprentices, thereby strengthening and investing in the clean energy workforce.
In Lazard’s 2024 Levelized Cost of Energy report, combined operating and capital cost ranges are compared for various standalone and hybrid renewable energy systems given the utilization of either the ITC or PTC. In every scenario presented by Lazard, taking advantage of these tax credits reduces the operating and capital cost range, for some resources more than others. The two tax credits can be combined for co-located systems, shown in Lazard’s Levelized Cost of Energy graph for onshore wind and storage, further reducing the costs of and encouraging clean energy development. Ultimately, strategic use of these federal tax credits can accelerate the transition to a cleaner and more equitable energy future.
