On Aug. 16, 2022, President Biden signed the Inflation Reduction Act (IRA) (H.R.5376). The IRA will put $386 billion into climate and energy programs over a 10-year timeframe. This legislation will have a significant impact on the environment, U.S. manufacturing and job creation. Although funded through the federal government, the IRA is not managed through FAA grant programs.
Corey Harper has worked in aviation consulting for more than 20 years and has been leading Veregy’s airport sustainability projects since May 2019. Veregy is a national energy service company with a direct market focused on aviation. |
Airport budgets continue to be stretched as energy prices rise. This leaves little to no funding to invest in sustainability initiatives that airports desire but are unable to implement due to budget constraints and other capital prioritization. The IRA provides financial incentives for an array of renewable technologies to local units of government such as airports to accelerate their sustainability and net-zero initiatives and reduce operating budgets. Perhaps the most significant addition is the direct pay option for tax-exempt entities, allowing them to receive direct reimbursement in the form of a direct pay tax incentive. The initial 30% incentive will allow airports throughout the U.S. to revisit implementing renewable energy and battery storage at record-low costs.
While final guidance from the Treasury Department is pending, some details can be spoken to now.
Renewable Technologies Included in the IRA:
The direct pay provision was added specifically for tax-exempt entities and governmental units, including airports. As a unit of government, an airport can use these tax credits, own the renewable technology, and, in turn, better control on how clean energy projects are financed and procured. Previously, only taxpaying entities could take advantage of federal tax credits for renewable energy. For the first time in history, the playing field is level! Direct pay opens the door for projects to be owned directly by airports without utilizing private funding firms to monetize incentives. Direct payment applied through Investment Tax Credit (ITC) and Production Tax Credit (PTC) programs, applies to projects beginning after Dec. 31, 2022, and requires credits received in the year the project is placed in service.
Investment Tax Credits
The IRA updates and replaces the current ITC system (slated to expire in 2023) with a new, more generous credit. In calendar year 2022, the ITC was a flat 26% and was only applicable to tax-paying entities. The new ITC has been increased to 30% for projects under 1MW and for larger projects that meet specific labor requirements. ITCs are a one-time payment option and typically will be more attractive for net metering “metered usage reduction” compared to the Production Tax Credit option described below.
Production Tax Credits
PTCs, like ITCs, were extended and replaced current incentives. However, instead of a flat project cost percentage, the credit is based on the annual energy production of the system. Under PTCs, an organization receives up to 2.6 cents per kWh annually for a 10-year period. Typically, PTCs become more attractive than ITCs for larger “utility-scale” projects but should be analyzed for savings comparison.
Adders and Multipliers
The IRA created a mechanism for “adders and multipliers” that theoretically could result in up to 70% total savings under the ITCs, with similar adjustments for PTCs.
The base rate, adders and multipliers all have independent criterion requirements. Consulting with a qualified company is highly recommended to determine eligibility parameters. Electric vehicle (EV) and EV charging projects do not follow the ITC or PTC formulas.
Stay Informed
Final guidance on the IRA is anticipated in March 2023. For additional resources and guidance, visit: https://veregy.com/federal-funding/ and https://www.irs.gov/inflation-reduction-act-of-2022.
Integration of GIS with CMMS & EAM Systems
A growing number of Airports, Warehouses, private and public utilities today are implementing Computerized Maintenance Management Systems (CMMS) and Enterprise Asset Management (EAM) systems. In 2019, the CMMS software market was worth $0.92 billion. By 2027, it is expected to reach $1.77 billion, increasing at a compound annual growth rate (CAGR) of 8.58% during 2020-2027.