Inflation Reduction Act provides a 30% Federal Tax Credit for Combined Heat and Power

The CHP Federal Investment Tax Credit (ITC) incentivizes installing combined heat and power systems. The recently signed Inflation Reduction Act increased and expanded the ITC for combined heat and power systems to 30%. Outlined below are the benefits for CHP projects and a breakdown of the key points of the new tax credit rules.

30% Tax Credit for Natural Gas CHP Projects

The Energy Investment Tax Credit (ITC) applies to CHP systems fueled by natural gas, biogas, and other fuels. Technical eligibility requires overall efficiency of over 60% LHV, including heat recovery.

Prevailing Wage and Apprenticeship Requirement for Projects > 1MW

To obtain the 30% tax credit, projects greater than 1 MW must pay prevailing wages and maintain an apprenticeship program during construction and repairs/alterations made in the first five years of operation. The Internal Revenue Service will soon publish specific rules defining these requirements and the evaluation process. A project that cannot demonstrate compliance will only be eligible for a base rate tax credit of 6%.

Begin Construction before 1/1/2025

The 30% tax credit is available for projects that begin construction before January 1, 2025. After this date, the new law establishes a Clean Electricity Tax Credit for zero carbon energy solutions, which will be available through 2032. CHP fueled by renewable fuels, including biogas and green hydrogen, should be eligible for this credit.

Direct Pay Option for Tax-Exempt Organizations

A significant change to the ITC is that projects for non-tax-paying entities will qualify for a “direct pay” option, which will function more like an up-front grant. This significant change dramatically reduces the operating cost of high-efficiency, low-carbon CHP systems for a range of facilities owned and operated by non-profit organizations and state and local government entities. Alternatively, the tax credit can be sold to a third-party entity.

Interconnection Costs Now Eligible

The costs for utility interconnection, including charges related to utility-owned equipment, can be included in the project cost basis for projects less than 5MW.

Interested in Installing a CHP System?

Kinsley Energy is a full-service onsite energy solutions provider, including project development, system design, equipment supply, installation, financing, and service. We represent cogeneration products from TEDOM, a global leader in packaged combined heat and power (CHP) systems from 35kW to 4MW. Kinsley collaborates with experienced developers, engineers, contractors, and financing firms to provide professionally engineered, durable and reliable onsite energy solutions that reduce energy costs, improve energy resiliency, and advance energy sustainability. Learn more at www.kinsleyenergy.com