Provisions within the Inflation Reduction Act–which include historic investments in renewable energy production–could provide new opportunities for coalfield communities that are looking to rebuild their economies after declines in coal production, experts say.
The sweeping $750 billion law raises corporate taxes, negotiates lower prescription drug prices, extends elements of the Affordable Care Act, modernizes the IRS, and is expected to lower the deficit by some $300 billion in the next 10 years.
It also aims to reduce emissions, overhaul the country’s energy infrastructure, and invest in renewable sources of electricity. The landmark legislation is also designed to grow a domestic ecosystem of clean energy production from the ground up.
Solar energy is just one type of renewable energy subsidized by the Inflation Reduction Act. According to Eriks Brolis, the director of Nature and Economy Programs at the Nature Conservancy in West Virginia, taking advantage of the solar provisions in the Act will benefit coalfield communities’ economies as much as it does the environment.
“Solar energy is a really important opportunity for historically coal-producing states like West Virginia to continue to serve as a domestic energy powerhouse,” Brolis said.
Not Your Mother’s Tax Credits
The main mechanism used by the Inflation Reduction Act to support solar energy production around the country is a series of tax credits. And these tax credits are stackable, meaning that many solar systems will be eligible for multiple credits at once.
The first set of tax credits, the Residential Clean Energy Credit, applies a 30% tax credit to all residential solar installations until 2033. This means a homeowner who pays $20,000 for a new solar installation will get 30%, or $6,000, reduced from their federal taxes.
Additional tax credits are geared towards commercial businesses, community solar projects, and utilities-scale systems. Credits of 10% each are available to support solar installations in low- and moderate-income communities, and in energy communities—communities that have previously built their economies around fossil fuel production. And the Act provides another 10% tax credit for installations that use solar panels and materials produced in the United States.
If a business owner has a commercial property in a low-income, former coal-producing community and chooses to use solar panels that were produced by a local manufacturer, three more 10% tax credits would be added on to the baseline 30% credit. As a result, they will have the equivalent of 60% of the cost of installing a solar array deducted from their federal taxes that year.
This series of tax credits not only benefits home and business owners, but could also transform the solar industry in the United States. This guaranteed 10-year government investment in solar is a “huge shift in the pendulum,” according to Tony Smith, the founder and president of Secure Futures, a solar developer based in Staunton, Virginia.
“It creates, for the first time, some certainty and stability for solar developers like ourselves to partner with investors, because we’re no longer looking at a stop-and-go energy policy where tax incentives are subject to change from one year to the next,” he explained.
Non-Profits Now Welcome
For the first time, federal help will be available for non-profits, local governments, and other tax-exempt entities.
Because the government has historically subsidized solar installations with tax credits, institutions that don’t pay taxes—for example schools, libraries, and non-profit organizations—haven’t been eligible for federal support.
But a new direct-payment option included in the Inflation Reduction Act will change that, according to Autumn Long, the director of the Appalachian Solar Finance Fund at Appalachian Voices, which helps local governments, non-profits, and small businesses in coal-impacted communities across Central Appalachia transition to solar energy.
Non-taxable entities will be eligible for the same system of stackable subsidies as commercial entities, meaning that they too could see up to 60% of their solar costs covered if they meet certain criteria.
Instead of getting a break on their federal taxes, these organizations and institutions will receive the equivalent of a check covering a percentage of the cost of their solar installations.
Long said that the energy savings that come from investing in solar can be especially impactful for local non-profits and municipal governments in cash-strapped coalfield communities.
“In many cases, electricity ends up being one of the biggest monthly expenses for schools, local governments, and houses of worship,” Long explained. “So every dollar they don’t have to spend on their electricity, they can redirect towards the services that they provide.”
Developing a New Kind of Energy Industry
But the provisions included in the Inflation Reduction Act can do more than subsidize coalfield communities’ transitions to solar energy. They can also help develop a new local energy industry.
According to Autumn Long, subsidizing local solar projects can help solve the ‘chicken and the egg’ problem that solar developers have been struggling with in Central Appalachia
“We all know that solar is a huge economic opportunity in this day and age,” she said. “But in order to create that flow of new jobs and careers and investments, we need to ensure that there is enough demand for projects that the workforce will be maintained in the long-term.”
According to the 2021 National Solar Jobs Census conducted annually by the Interstate Renewable Energy Council, solar energy jobs increased by 9% between 2020 and 2021 to over 255,000 jobs nationwide. The US Bureau of Labor Statistics predicts that this growth will continue at a rate higher than many other sectors.
But for coalfield communities to get their share of this market, they must build a new energy ecosystem that includes solar developers and investors, a steady stream of customers, and a prepared workforce, according to Virginia solar developer Tony Smith.
In addition to supporting residential and community scale solar project, the Act also offers support for industrial developments in energy communities, from factories to utility-scale solar farms.
The Act incentivizes domestic manufacturing within the solar industry by providing a 10% tax credit for solar projects that use American-made materials. But it also includes an additional 10% tax credit for manufacturers in former energy communities who are looking to make anything used for renewable energy production, from batteries to solar panel racking.
This could be an important economic opportunity for Appalachian communities that have a long history of fabricating tools and technology central to the energy industry, according to Autumn Long.
She gave the example of a company in Southwest Virginia that makes metal boxes used to encase batteries for mining equipment. “Those same types of metal boxes can be fabricated to house batteries for energy storage for micro-grids, for electric vehicles, for electric vehicle charging stations,” she said.
“Once a manufacturer has the basic capabilities, technology, know-how, and workforce to manufacture a component for the mining industry, a lot of that knowledge and expertise is transferrable into these other energy industries,” she continued. “It’s just a matter of tweaking that and pivoting it into these new market sectors.”
The Act also includes a 10% tax credit offered to utility-scale solar developments built in energy communities, on reclaimed mine land, or on contaminated industrial sites known as ‘brownfields.’
According to Eriks Brolis at the Nature Conservancy, this credit is critical to coalfield communities as it incentivizes transforming one of their most significant economic and environmental liabilities—millions of acres of land around the country disturbed by surface mining— into a source of sustainable energy and economic growth.
Building large-scale solar farms on former mine sites makes good sense, said Eriks Brolis.
Defunct mining sites and processing plants may already be connected to the electrical grid, reducing the start-up costs of the development. And building solar farms on mountains that have already been stripped can mitigate the environmental costs of a utilities-scale system, which require large amounts of flat, empty land.
“Prioritizing solar siting on previously disturbed lands, as well as the rooftops of homes and businesses around the state, really helps steer energy development away from forests and other lands that are important for clean water, wildlife, forestry, carbon sequestration, as well as other economic drivers like nature-based recreation and tourism,” Brolis said.
And like factories, solar farms can help replace the gaps in local tax revenue left by the departing coal industry and can be an important source of new jobs for displaced energy workers and young people who want to live and work in the communities where they grew up.
Utility-scale solar developments can create opportunities for all sorts of energy workers, Brolis said, from those operating heavy machinery down in the mines to the accountants, lawyers, and other professions that help a company run.
“There are opportunities for folks who are already familiar with energy and may just need to learn some new skills to apply that knowledge to these clean energy technologies that are coming down the pike,” he said.
CORRECTION: The previous version of this article stated that private homeowners can take advantage of stacking tax incentives on top of the 30% tax credit for solar panel installation. Private homeowners are not qualified for stacking tax incentives under the Inflation Reduction Act and this correction reflects that.