Last week’s signing of the Inflation Reduction Act (IRA) by President Biden marks a historic moment not just for the economy but also for the environment, with $369B towards climate goals. This sweeping climate legislation is not merely a fiscal measure but a statement of intent to combat climate change on a grand scale. Among its many facets, the IRA includes provisions that are particularly significant for the clean energy sector, including waste heat to power (WHP) developers like Kanin Energy.
THE HISTORY:
Before the IRA, through bipartisan support in Congress, the enactment of the Consolidated Appropriations Act of 2021 amended the Internal Revenue Service Code to include Waste Energy Recovery Property in the Section 48 Investment Tax Credit for the first time. As a result, WHP technology was given a 26% investment tax credit, equal to that of wind and solar. This important outcome officially recognized support for the zero-emission profile of WHP from both sides of the aisle, and set up the technology for inclusion and enhancement in subsequent proposed legislation, including the Build Back Better and Inflation Reduction Acts.
AN OVERVIEW:
One of the most notable aspects of the passage of the Inflation Reduction Act is the extension and strengthening of the Investment Tax Credit (ITC) for Waste Energy Recovery Property, which includes WHP equipment. This move is poised to significantly alter the economics of WHP projects, making them more financially attractive and thereby driving greater investment in a crucial technology for industrial decarbonization.
The revised ITC offers a base credit of 30% when prevailing wage and apprenticeship requirements, are met. Additional incentives for energy communities and domestic content further sweeten the deal, encouraging siting and community engagement in those communities impacted most by the energy transition away from fossil fuels. The energy community bonus would allow for an additional 10% credit, and the domestic content bonus would allow for another 10%. If all three incentives listed are met, potential investment tax credits would cover up to 50% of qualifying capital costs.
At Kanin Energy, we specialize in developing WHP projects, leveraging our expertise in power and carbon markets, project finance and energy policy, bringing a fresh perspective to industrial decarbonization.
However, we recognize that despite the immense potential of WHP technology, several barriers have hindered its widespread adoption. With the IRA’s support, we are now poised to overcome these barriers by implementing strategies such as utilizing third party financing and turnkey development, thereby unlocking the full potential of this technology.
WHAT THIS MEANS:
The implications of the IRA for industrial decarbonization are profound. By providing a significant boost to WHP projects, it accelerates the transition towards a low-carbon economy. Not only does WHP offer a viable solution for reducing industrial emissions, but it also opens up opportunities for additional marginal WHP projects that were previously deemed unfeasible due to size or location constraints. Moreover, by providing baseload 24/7, carbon-free power, WHP aligns perfectly with the sustainability goals of leading companies, enabling them to match their energy consumption with green power generation.
Furthermore, the integration of WHP into the energy mix enhances the grid’s resilience and reliability. By providing synchronous, distributed generation, WHP complements intermittent renewables, contributing to a more stable and sustainable grid infrastructure.
CONCLUSION:
We commend the IRA for its recognition of the critical role that WHP plays in the journey towards decarbonization. By leveraging the ITC, we are confident that WHP will soon become a key contributor to emissions abatement in all sectors of the American industrial base, driving innovation, creating jobs, and ultimately leading us towards a cleaner, more sustainable future. As we embark on this journey, Kanin Energy stands ready to lead the charge towards a greener tomorrow.
