Why Small Businesses Stand to Gain from the Inflation Reduction Act

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Why Small Businesses Stand to Gain from the Inflation Reduction Act

Clean energy producers and green home remodeling companies stand to make big gains out of the Inflation Reduction Act that passed the Senate last week, if it becomes law.

On the wholesale production side, one estimate assumes we’ll see more than a doubling of utility-scale “clean energy” production by 2030, and more than a tripling of wind, solar, and storage, specifically. Tax credits to consumers for green remodeling will jump from a one-time $500 credit to an annual $1,200 credit, allowing consumers to perform multiple upgrades over multiple years, and gaining the tax credits at each turn. These credits will subsidize purchases of these goods and services, and should drive additional sales for companies that offer them. And thanks to the annual component, it should drive sales for years to come.

“Taxpayers can budget out different energy-efficient upgrades over a 10-year period. Insulation one year. Windows and doors another year,” Vincent Barnes, senior vice president of policy and research at the nonprofit Alliance to Save Energy in Washington, D.C., told The Wall Street Journal.

All told, those tax credits add up to $14.5 billion for that work. That’s in addition to “home energy rebates” that would further drive down the cost of specific consumer installation projects, like heat pumps. And tax credits for wind and solar installation get an extra bump of 10-20 percent when built in certain low-income areas or on Native American lands.

Another area that stands to see big gains is manufacturing and recycling “green” equipment, with up to $10 billion in credits. These include equipment for renewable energy, energy storage, grid modernization, and other key green technologies.

Throughout all of these programs, a key innovation in the Inflation Reduction Act is transferrable credits for consumer purchases: Instead of having consumers pay the full price up-front, and then claiming the credit when filing their tax returns, they can now transfer the credit to another company–such as a manufacturer or installer, or a financing company working with them–creating an immediate discount that is likely to drive sales. However, that transfer can be committed only once, meaning that a company that buys a lot of credits from its customers could end up with a lot of loans and little cash. So companies selling with an advance payment on the transfer will need to make sure they’ve established the right credit facilities, lender relationships, and cash-flow operations to see them through.

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