The broad legislative package, dubbed the Inflation Reduction Act, has been signed by President Biden into law. One of the key benefits of note to rural electric cooperatives is the provision of direct federal payments to co-ops when they deploy new energy technologies, including carbon capture, nuclear, energy storage, renewables and more.
Direct pay tax credits allow co-ops to treat tax credits as an overpayment of taxes and monetize these credits as cash refunds from the Department of Treasury after completing annual tax returns. With passage of the legislation, co-ops have equal opportunity compared with for-profit utilities, like investor-owned utilities, which have long enjoyed tax credits to develop renewable energy projects. The bill levels the playing field from a cost perspective.
Co-ops have been excluded from the tax incentives that for-profit utilities receive for energy innovation because co-ops are not for profit and the majority do not pay federal income taxes.
For co-ops that buy or build new clean energy systems, the legislation includes a grant and loan program to apply for funds. The provision allocates $9.7 billion for voluntary applications through the program, which will be administered by the U. S. Department of Agriculture. The bill does not mandate reductions in carbon dioxide emissions or require closures of existing power plants.
The program will provide funding for a wide range of projects, including renewable energy, carbon capture, battery storage, nuclear power and improvements to generation and transmission efficiency. Interested co-ops will be eligible to receive an award for up to 25% of their project costs, with a maximum of $970 million going to any one co-op.
These incentives will allow and encourage co-ops to invest in the rural communities they serve, which will positively impact the entire state of Oklahoma.