Contributing authors: Chris Lombardo, Grace Olupinyo, Bethany Beers, Christina Sanborn
Given the wide-ranging implications of the Inflation Reduction Act, it is critical to remember why this bill matters. In order to capitalize on the added incentives that are associated with the Inflation Reduction Act, Mazzetti is committed to educating and guiding our clients to help them make the right decisions. Our Sustainability Team, in collaboration with our financial partners, has dissected this bill in its entirety and identified the areas that apply directly to the healthcare sector. It is our hope that by informing our clients, that the healthcare industry will proceed with implementing clean energy production strategies, EV charging and electric-fleet conversion, and decarbonization strategies to lower their operational footprints for the future, and therefore further lower the impact that climate change has on human health.
The Inflation Reduction Act was developed in reaction to exponential rises in the cost of energy, global impacts of climate change, and a growing need for the federal government to ease these economic burdens on Americans. The goal of the IRA is simple – to remove around 3.8 billion tons of carbon dioxide from the atmosphere by 2035. by incentivizing emissions reductions through tax credits accessible to private citizens, local municipalities, large corporations, disadvantaged communities and even not-for-profit entities to produce clean power, increase climate resiliency, and modernize existing infrastructure. This bill targets a 40% emissions reduction nationwide by 2035 by increasing domestic clean energy production and security, decarbonizing all sectors of the economy, investing in renewable energy research and development, and promoting habitat conservation and restoration nationwide.
HIGH-LEVEL FINANCIAL IMPLICATIONS
The IRA provides a unique opportunity for not-for-profit entities to access funding that supports efforts to reduce greenhouse gas emissions. There are many reasons for hospitals, clinics, and healthcare organizations to get excited about this bill, and it’s our job at Mazzetti to guide our clients to make decisions that benefit them financially and operationally. For many, now is the time to assess their needs at the operational level and begin to plan how they will take full advantage of the bill’s incentives so that they too can join this global effort in the fight against climate change.
Healthcare organizations can monetize applicable credits by electing to receive direct pay. The Act allows tax-exempt entities like healthcare facilities to take direct pay equal to the amount of specified credits. The direct pay option is only available, however, for projects placed in service after December 31, 2022. The election to receive direct pay must be made no later than the due date for the tax return of the year in which the election is made (or a date yet to be determined by the Treasury if the eligible entity is not required to file a return). In the case of the production tax credits, direct pay election must be made during the 10-year period beginning on the date the qualifying facility is placed in service. It is important to note that tax-exempt entities eligible for direct pay are not permitted to transfer tax credits.
The direct pay credit monetization option is available for credits found in the following sections of the IRA: 30C – Alternative Fuel Refueling Property Credit; 45(a) – Renewable Electricity Production Credit; 45Y – Clean Electricity Production Credit; 48 – Energy Credit; 48E – Clean Energy Investment Credit; 45Z – Clean Fuel Production Credit; 48C -Advanced Energy Project Credit; 45Q – Carbon Dioxide Sequestration Credit; 45U – Zero-emission Nuclear Power Production Credit; 45V – Clean Hydrogen Production Credit; 45X – Advanced Manufacturing Production Credit; and 45W – Qualified Commercial Clean Vehicles Credit.
CREDITS APPLICABLE TO HEALTHCARE INSTITUTIONS
The following credits in the bill can be leveraged by healthcare institutions:
Alternative Fuel Refueling Property Credit
Healthcare organizations can take advantage of this credit by commissioning alternative fuel refueling stations including EV charging stations after December 31, 2022. The IRA is offering a maximum of $100,000 alternative fuel refueling property credit to qualified properties, and this credit is calculated per single unit rather than per location. Qualified properties are properties situated in an eligible census tract (low-income communities or a tract not considered an urban area). The base amount offered by the IRA is 6% of the cost of the qualified property but organizations can receive a bonus credit of 30% if they ensure that all workers (apprentices, laborers, mechanics, contractors or subcontractors, etc.) utilized during the project are paid wages not less than the prevailing rates in the locality where the project is located.
To take advantage of the prevailing wage bonus credit, healthcare organizations also need to meet the apprenticeship requirement (for construction before January 1, 2024, the hours of apprenticeship must equal 12.5% of the total labor hours, and for construction that begins during 2024, the apprenticeship hours must amount to 15% of the total labor hours) to be eligible for the bonus credit. Although the Alternative Fuel Refueling Property Credit applies to qualified properties placed in service after December 31, 2022, the IRA is offering a credit amount of 6% to qualified properties placed into service after December 31, 2021.
Clean Electricity Production Tax Credit
Clean energy investments by healthcare organizations have primarily been executed through power purchase agreements (PPAs) so that a for-profit party can take advantage of the clean energy tax credits available to them and pass along those savings to the healthcare provider. The IRA’s direct payment provision has the potential to shift the calculus meaningfully, making self-funded and owned clean energy projects more feasible for not-for-profit entities beginning in 2025. The production tax credit applies to the production of energy from solar, wind, geothermal, biomass, hydropower, and other eligible clean energy sources. The IRA is offering a base credit of 0.3 cents per kWh of electricity produced by a qualified energy facility with a bonus of 1.5 cents per kWh if prevailing wage and apprenticeship requirements described above are met.
A qualified facility is any facility used for the generation of electricity for which the anticipated greenhouse gas emissions rate is not greater than zero. Healthcare organizations are eligible to receive this credit if they place into service a qualified clean energy production facility after December 31, 2024. Healthcare entities with a qualified facility that is in an Energy Community or that satisfy certain domestic content requirements (requirement that all iron and steel products that are part of the project at the time of completion are produced in the United States; and a requirement that manufactured products that are part of the project satisfy a domestic content threshold of 40% or 20% in the case of offshore wind facilities) will be eligible to receive 10% bonus credit. If eligible for both, the organization can benefit from both percentage increases.
It is important to note that the IRA defines energy communities as:
- Brownfield sites.
- A metropolitan or non-metropolitan area that has direct employment or local tax revenues over an established percentage related to the extraction, processing, transport, or storage of coal, oil, or natural gas; or has an unemployment rate at or above the national average.
- A census tract or any adjoining tract in which a coal mine closed after December 31, 1999, or a coal-fired electric power plant that was retired after December 31, 2009.
Clean Electricity Investment Tax Credit
The IRA makes investments in clean electricity storage facilities a no-brainer for organizations looking to enter this exciting marketplace when this credit becomes available in 2025. The clean electricity investment credit (for any taxable year) is an amount equal to the applicable percentage of the qualified investment for such taxable year with respect to any qualified facility and any energy storage technology. The IRA is offering a base credit of 6%, with a bonus credit of 30% (base credit multiplied by five) if prevailing wage and apprenticeship requirements are met. Healthcare institutions can take advantage of this credit by investing in qualified clean electricity facilities and energy storage technologies that are placed in service after December 31, 2024.
Entities that invest in solar or wind facilities that are part of a qualified low-income residential building project or a low-income economic benefit project would be eligible to receive a 20% bonus credit. Like the clean electricity production credits, investments in a qualified facility or energy storage technology that is located within an Energy Community or meets the domestic content requirement will be eligible for an additional 10% investment tax credit. Furthermore, the IRA is offering a 10% bonus credit for solar and wind facilities located in low-income communities.
Qualified Commercial Clean Vehicles Credit
Greening your vehicle fleet is an important part of reducing your Scope 1 emissions. Start planning for purchases now but wait until the new year to buy. Healthcare institutions that place commercial clean vehicles into service after December 31, 2022, through 2032 would be eligible to receive clean vehicle credit equal to the sum of – 15% of the basis of such vehicle (30% in the case of a vehicle not powered by a gasoline or diesel internal combustion engine) or the incremental cost of such vehicle (the amount equal to the excess of the purchase price of the clean vehicle over the price of a comparable vehicle powered solely by gasoline or diesel).
The maximum commercial clean vehicle credit to be provided by the IRA is $7,500 for vehicles with a gross weight rating of less than 14,000 pounds and $40,000 for all others.
How can Mazzetti help clients to take advantage of these new incentives?
Mazzetti operates at the intersection of healthcare engineering and sustainability, and it is our responsibility to guide clients to make informed decisions about the design and construction of their facilities. Our firm is actively working to align our services with the financial incentives included in the Inflation Reduction Act so that our clients can take advantage of new grants and tax credits that help offset the cost of building efficient and resilient hospitals and healthcare facilities. If your company is interested in exploring how this bill affects your plans for the future, Mazzetti encourages both our current and future clients to schedule a free consultation to learn more.