Homeowner Clean Energy Tax Credits

The Inflation Reduction Act of 2022 (IRA)^[1] is the landmark legislation that aims to reduce inflation and boost the economy by investing in infrastructure and clean energy. One of the key provisions of the IRA is the extension and expansion of tax credits for residential energy efficiency and renewable energy. The IRA provides two types of tax credits for homeowners who make energy-efficient improvements or install renewable energy systems: the energy-efficient home improvement credit and the residential clean energy credit. The energy-efficient home improvement credit is a 10% credit for qualified expenditures on energy-efficient building envelope components, such as windows, doors, roofs, skylights, and insulation. The credit also covers certain heating, ventilating, and air conditioning property, such as furnaces, boilers, heat pumps, air conditioners, and water heaters. The residential clean energy credit is a 26% credit for qualified expenditures on residential renewable energy technologies, such as solar panels, solar water heaters, small wind turbines, geothermal heat pumps, fuel cells, and batteries. The credit has no dollar limit and applies to expenditures made in 2022 and 2023. The credit rate will decrease to 22% in 2024 and expire in 2025. If you are interested in learning more about the IRA and how it affects residential energy efficiency and renewable energy, you can visit the IRS website ^[2] or consult a tax professional.

The IRA tax credits may not directly affect utility energy efficiency programs but could have some indirect effects. The IRA may increase the demand for energy-efficient products and services, which could increase participation in the utility programs that promote them. However, the tax incentives may also complicate the program attribution during impact evaluations. It may be difficult to determine if a customer was moved to purchase the energy efficiency measure by the tax credit or the utility program. This could complicate program attribution and could impact cost-effectiveness. If the utility offers similar incentives for energy-efficient improvements or installs renewable energy systems, it may be prudent to factor the tax credits into how the incentives are set.

The IRA is a significant opportunity for homeowners who want to improve their home’s energy efficiency and reduce their environmental impact. By taking advantage of the tax credits available under the IRA, homeowners can lower their energy bills, increase their home value, and support the transition to a clean energy economy. Utility programs will need to adapt to these changes by adjusting their offerings, budgets, marketing strategies, and evaluation methods. They will also need to coordinate with other stakeholders, such as contractors, retailers, manufacturers, regulators, and customers, to ensure compliance with the IRA requirements and avoid duplication of incentives. A robust program management solution such as eTRACK+ can assist in coordinating the complex mix of financing incentives.