2022 IRA: Key Takeaways for Solar’s Middle Market
Players in the solar middle market better buckle up - I’m predicting the market triples in size by 2030.
We’ve taken a stance on the Inflation Reduction Act’s expected impacts to non-residential projects below 5MWdc. We’ll be unpacking many of these in blog posts on Conductor Solar’s website over the upcoming weeks, so keep a lookout.
Overall Market Size: $7B of projects were built in 2021. It’ll exceed $14B in 2026 and approach $20B by 2030
26% ITC to a 30% ITC: This will improve pricing across the board by 6-8%
Interconnection Cost Eligibility: For every $100k in IX upgrades, the project price will increase by ~$70k. This will help more projects to pencil, particularly in the community solar market
Bonus ITCs - 30% ITC to a 40% ITC: This will improve pricing by an additional 15-20% (less any increased costs associated with qualifying for the bonuses)
Bonus ITCs - Domestic Content (10% bonus): Short-term, this will have a negligible effect. It’ll begin making a more meaningful impact on this market in 2025+
Bonus ITCs - Energy Communities (10% bonus): More guidance is needed, but we expect that this will have the most significant impact in the Central Appalachian region (around Senator Manchin’s home state of WV)
Bonus ITCs - Low Income Communities (10-20% bonus): More guidance is needed, but this will be most used by community solar projects. It’ll also drive more mission-focused capital into the market, particularly if non-profit third-party owners can receive a direct payment
Production Tax Credit: This will have a negligible impact on the middle market
Transferability: This will have a negligible impact on the middle market
Direct Pay: We estimate that $1.5B, or 20%, of the $7B market in 2021 were cash deals. That will increase to 25-30% in future as more tax exempt entities can own projects directly
Prevailing Wages: Sub 1MWac projects will take up a larger share of the market. For other projects, this will counter some of the pricing benefits from larger ITCs