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Sustainability now: Facing IRA and clean energy credit uncertainty · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought Leadership from PWC's National Office.
• 0:06
  SPEAKER_02: Hello and welcome to PWC's Accounting Podcast.
• 0:10
  SPEAKER_02: Today we're back with Sustainability Now.
• 0:13
  SPEAKER_02: I'm Heather Horn, and thanks for joining us for a special episode to cover the latest on the Inflation Reduction Act, or IRA.
• 0:21
  SPEAKER_02: Despite headlines surrounding U.S.
• 0:23
  SPEAKER_02: clean energy policy, many companies are moving forward with renewable projects, tax credit planning, and decarbonization strategies.
• 0:32
  SPEAKER_02: Today's episode focuses on where things stand, what's moving forward, what's on hold, and how shifting regulatory guidance, tariffs, and financing structures are shaping the landscape.
• 0:43
  SPEAKER_02: We'll also look at some of the key uncertainties companies are facing as we await more clarity from the Treasury and other agencies.
• 0:54
  SPEAKER_02: Our guest for this episode is Rhonda Barsoom, PWC partner in our specialized tax services practice, who specializes in IRA credits and incentives.
• 1:03
  SPEAKER_02: And leading this discussion is our guest host for this episode, Diana Stoltzfiss, a partner in our national office and frequent guest of our podcast and webcasts.
• 1:13
  SPEAKER_02: With that, let's start the episode.
• 1:15
  SPEAKER_03: Welcome to the podcast, Rhonda.
• 1:17
  SPEAKER_01: Thanks for having me today.
• 1:19
  SPEAKER_03: So, Rhonda, it's been a little bit since we talked about the IRA on our podcast.
• 1:23
  SPEAKER_03: So maybe before we jump into some of the more recent updates and uncertainties, maybe you can just quickly start with an overview of, you know, what is the IRA?
• 1:33
  SPEAKER_01: Sure.
• 1:33
  SPEAKER_01: So IRA stands for Inflation Reduction Act.
• 1:37
  SPEAKER_01: It was a piece of legislation that was passed in August of 2022.
• 1:43
  SPEAKER_01: Really the largest piece of legislation that impacts climate and energy and electricity and renewables.
• 1:51
  SPEAKER_01: The key aspects of that tax law package included things like expanding existing rules around investment tax credits and production tax credits, creating new credits that did not exist before for things like producing clean hydrogen, advanced manufacturing for certain components that need to go into energy property, a big focus on decarbonizing our transportation, decarbonizing our manufacturing, looking at building efficiency.
• 2:28
  SPEAKER_01: So not only commercial buildings, but also homes and making them more, providing incentives to make those more energy efficient.
• 2:38
  SPEAKER_01: So really a very wide package.
• 2:40
  SPEAKER_01: It also included provisions in there that promoted things like paying fair wages to workers, providing opportunities to incentivize apprenticeship programs where there may be a concern that workers may need to retool in the new economic area that we're working in.
• 3:04
  SPEAKER_01: There was also provisions to promote domestic manufacturing.
• 3:08
  SPEAKER_01: So a big focus on bringing things back to the US.
• 3:12
  SPEAKER_01: Thirdly, there was an investment component relating to investing in underserved communities, so incentives to put new projects in those locations.
• 3:22
  SPEAKER_01: So overall, you know, yes, it was a tax credit package that focused on renewable energy and decarbonization, but there were also other objectives that were it that were included in that package to incentivize fair wage and social aspects, whether it was the fair wage components to it, the investment in energy communities, or um investing and you know, producing things in the U.S.
• 3:48
  SPEAKER_03: That's some pretty broad-ranging legislation.
• 3:50
  SPEAKER_03: So maybe we can turn now to what's happened since the election.
• 3:54
  SPEAKER_03: So obviously there was a change in the administration with uh the Trump administration coming in at the beginning of this year, and obviously with a different um view on you know renewable energy.
• 4:05
  SPEAKER_03: And so maybe you can just give us an update on what you're seeing, are projects still happening, that type of thing.
• 4:12
  SPEAKER_01: Yeah, sure.
• 4:13
  SPEAKER_01: Um so absolutely, there's been a lot of activity that's been happening um since really the end of last year as companies were anticipating the change in the administration.
• 4:24
  SPEAKER_01: Um we're still seeing a lot of activity.
• 4:26
  SPEAKER_01: Um, and just to maybe set set the stage a little bit, you know, there's an organization called e2.org that has been tracking the um investments that have been made in the renewable space since the IRA was passed in 2022.
• 4:40
  SPEAKER_01: And they have been reporting to date, you know, we're now at May 7th, um, that there has been a total amount of$130 billion of capital investment since the IRA was passed, um, which equates to just under 400 projects.
• 4:59
  SPEAKER_01: Those projects span over 42 states.
• 5:03
  SPEAKER_01: Um there has clearly been a huge increase and a huge interest in moving projects forward, primarily because of the IRA, uh, because it has helped to fund these projects that may not have been able to move ahead otherwise.
• 5:18
  SPEAKER_01: Um just to, you know, thinking about just last year, there was about 26 gigawatts of uh electric power that was added through new solar capacity.
• 5:31
  SPEAKER_01: Um that was you know, year over year, 37 was added in 24, which was 37 gigawatts was added in 2024, which was a record amount.
• 5:41
  SPEAKER_01: Um we are really now in a place where renewable energy is making up about 25% of the total electricity generation in the US, which is you know a huge increase that really has happened in the last three years thanks to the IRA.
• 5:57
  SPEAKER_03: Wow.
• 5:58
  SPEAKER_03: Seems like too, like given that significant increase that like moot, you know, that it will be challenging too to now move away from that.
• 6:05
  SPEAKER_01: That's right.
• 6:06
  SPEAKER_01: But you know, also keep in mind that we, because of the uncertainty that's happening, we've also had eight billion dollars worth of investment, roughly 16 projects that have also been suspended in the last three months because of all that uncertainty.
• 6:20
  SPEAKER_01: So as much as it's becoming a huge part, and that was really the intention of you know growing that sector and finding these new renewable sources of energy, um, this uncertainty is really hitting the industry very hard.
• 6:34
  SPEAKER_01: Right.
• 6:35
  SPEAKER_03: Okay.
• 6:36
  SPEAKER_03: And I guess a big component of that uncertainty too, probably is all the new tariffs.
• 6:41
  SPEAKER_01: Oh yes.
• 6:44
  SPEAKER_01: Just to add another monkey wrench into the mix.
• 6:47
  SPEAKER_01: Right.
• 6:47
  SPEAKER_01: Um yeah, absolutely.
• 6:49
  SPEAKER_01: I mean, I think a lot of the projects that are in flight or haven't begun yet um that are still in the planning stages, are really reassessing the costs it's gonna take to do these projects.
• 6:59
  SPEAKER_01: They're reevaluating their supply chains, trying to figure out where they're going to source a lot of the materials they need to build these projects.
• 7:07
  SPEAKER_01: Um it's I think it's they're looking for alternative places to get materials, but keep in mind, just to kind of take a step back, that IRA did create some incentives for domestic manufacturing.
• 7:21
  SPEAKER_01: And so the real winners in this space where we are all living in this uncertainty around these tariffs are the companies that did invest in manufacturing in the US, and particularly manufacturing components that go into renewable energy.
• 7:38
  SPEAKER_01: So think uh solar, um, you know, solar panels and other, you know, racking and other things that go into solar energy uh renewable projects, wind components, uh battery components, which was a huge growing area, as well as inverters and production of critical minerals.
• 7:58
  SPEAKER_01: So any of those areas where where people have made those investments in the US in the last three years, you know, they're I think they're seeing a huge uptick in sales, uh, because at least you can take that tariff piece out of the equation, um, you know, despite the uncertainty on the um on the whether the credits are going to survive or not.
• 8:18
  SPEAKER_01: And just to give another comment on that, um, there's one particular credit relating to clean fuels.
• 8:26
  SPEAKER_01: And so, you know, farmers that produce corn and soybean and have relied on China as a primary market to export their material, you know, their crops to could now be seeing a new source of um revenue because you know they can turn that corn and soy into ethanol and get a credit for that through a clean fuel credit.
• 8:50
  SPEAKER_01: So we're now looking at you know what could have been a negative thing, you know, turn into maybe a positive thing for some industries.
• 8:57
  SPEAKER_01: Um, but you know, of course, again, we're going back to that word uncertainty, there's some uncertainties with those credits.
• 9:04
  SPEAKER_01: And so, you know, it still poses some challenges.
• 9:07
  SPEAKER_01: But there are, I guess the point being that yes, it's gonna be challenging with the tariffs, but there may be some pockets of opportunity for some companies.
• 9:14
  SPEAKER_03: Right.
• 9:15
  SPEAKER_03: And I know I know we're gonna get into this too, and and maybe this is a component of it.
• 9:19
  SPEAKER_03: But I think given, you know, we've talked about um a number of different components of the IRA and domestic manufacturing, which actually seems to align with some of the objectives of the of the Trump administration.
• 9:31
  SPEAKER_03: And then, you know, there's certain types of energy.
• 9:33
  SPEAKER_03: We know he's he's specifically made comments about wind energy, but then maybe some others, like I think nuclear was a component.
• 9:39
  SPEAKER_03: And you know, you've just touched on there's such a broad range of different types of um energy that are addressed by these bills.
• 9:46
  SPEAKER_03: Do you think as as um we get into talking about maybe what the current status is and and if we have any uh foresight into what we think you know will happen um through the reconciliation project, do we think also maybe like certain components of it um, you know, might have a better chance of surviving than than others, maybe?
• 10:03
  SPEAKER_01: Yeah, absolutely.
• 10:04
  SPEAKER_01: Um yeah, and I think it's important to note that the tax credits are still alive.
• 10:10
  SPEAKER_01: Um, you know, people have heard about the executive orders that were issued over the last few months in January in particular.
• 10:17
  SPEAKER_01: A lot of those really impacted um government grants and loans that were part of the Inflation Reduction Act or part of the bipartisan infrastructure law.
• 10:28
  SPEAKER_01: Um, tax credits cannot be removed by executive order.
• 10:32
  SPEAKER_01: There has to be a legislative act to remove them, repeal them, et cetera.
• 10:37
  SPEAKER_01: So as of now, those credits are all alive and well.
• 10:40
  SPEAKER_01: Well, well enough for now.
• 10:43
  SPEAKER_01: Um and so, you know, when we think about kind of what is you know at risk, you know, we have heard a lot of rumblings around electric vehicle credits.
• 10:54
  SPEAKER_01: Um on May 6th, Mike Johnson, Speaker Johnson, was um quoted in an interview saying that it is likely to kill, that they will likely kill the EV credit, but then also kind of hedged his bets and said, but there's still a chance it could be safe.
• 11:09
  SPEAKER_01: Um EV credits were originally scored to be about$12.5 billion in terms of cost under the IRA.
• 11:18
  SPEAKER_01: Um, but recently a Capital Alpha Partners analysis that was published in March found that the total cost could be as much as$200 billion over 10 years.
• 11:29
  SPEAKER_01: And so, you know, obviously, you know, the IRA is working because people are looking for those incentives, right?
• 11:36
  SPEAKER_01: But but from a cost perspective to the government, it is something to to that could be easily kind of taken away and help to fund some of the deficits that that they're looking to close out.
• 11:47
  SPEAKER_01: As you mentioned, offshore wind is another one that's sort of been getting a lot of press about not being, you know, in favor um by the administration.
• 11:56
  SPEAKER_01: And so we could see some limitations or reductions in offshore wind um credits.
• 12:02
  SPEAKER_01: I mean, the way I look at it, there's really, you know, I'll call it three possible outcomes.
• 12:06
  SPEAKER_01: You know, the first outcome could be repeal of the entire package of tax credits, which, you know, it's over 15 credits or so that are impacted.
• 12:15
  SPEAKER_01: That's really unlikely given the um, you know, the popularity of these credits and the how much they have really um spurred a lot of economic stimulus in the areas where people are making those investments.
• 12:30
  SPEAKER_01: Um the second is repealing certain provisions.
• 12:33
  SPEAKER_01: So we talked about the EV credit, we talked about offshore wind.
• 12:37
  SPEAKER_01: They could just repeal specific credits out of the entire package.
• 12:42
  SPEAKER_01: The third, which is probably the most likely scenario, is where they might do things like limit the length of time that the credits are available.
• 12:52
  SPEAKER_01: Um so these credits were were were designed in a way to be available over a minimum of a 10-year period.
• 13:00
  SPEAKER_01: Um and so there could be a situation where instead of these some of the credits expiring or phasing out in that 2030-2032 timeframe, maybe it's 2028 or or or shorter.
• 13:14
  SPEAKER_01: Um there could also be certain specific, you know, things that could be carved out.
• 13:20
  SPEAKER_01: So um, you know, depending on the credit itself.
• 13:22
  SPEAKER_01: So I, you know, we do expect there to be something, some change, sure, but we absolutely do not think it's all gonna just go away.
• 13:30
  SPEAKER_01: Right.
• 13:30
  SPEAKER_03: And I think another thing that that I've at least heard in the press too is that a lot of these investments are going to red states too.
• 13:37
  SPEAKER_03: So there are some, you know, House Republicans that that do support um these tax credits as well.
• 13:43
  SPEAKER_01: That's right.
• 13:44
  SPEAKER_01: There's, you know, again, going back to my e2.org information, um, just about 80% of the investment is in Republican districts.
• 13:54
  SPEAKER_01: Um and those, you know, 400 or so projects are quite significant for those, you know, locations.
• 14:01
  SPEAKER_01: You know, I'll I'll also mention kind of going back to the EV credit conundrum.
• 14:05
  SPEAKER_01: Um, of those 400 projects, about 170 of them are EV related.
• 14:11
  SPEAKER_01: And so, you know, that investment that's happened of about 133 billion, about 60% of that is EV credit, you know, EV vehicle related.
• 14:22
  SPEAKER_01: So, you know, really a significant investment has been made that if that credit is taken away, there's going to be a lot of very unhappy people that have spent a lot of money that, you know, they don't again uncertain in terms of what's going to happen to those investments and projections and things.
• 14:40
  SPEAKER_03: Yeah.
• 14:40
  SPEAKER_03: So I think I think we've talked a lot about, you know, obviously a lot of uncertainty.
• 14:44
  SPEAKER_03: That maybe that's a word of our thoughts.
• 14:46
  SPEAKER_03: Yeah.
• 14:47
  SPEAKER_03: And, you know, I think as as you said, there's a lot of different outcomes as to what will happen with the IRA.
• 14:52
  SPEAKER_03: Um, and you hear a lot of press, you know, taking different views on what that could be.
• 14:56
  SPEAKER_03: But maybe, you know, given this, um, what are some of the challenges that companies are facing when they're thinking about trying to take advantage of these benefits?
• 15:04
  SPEAKER_01: Yeah, there's there's a few areas um where there's some challenges, and maybe just talking specifically on the Inflation Reduction Act, um, there are these provisions within the um within the law.
• 15:16
  SPEAKER_01: And we mentioned a little bit around some of these um incentives around, you know, prevent you know, paying fair wage and domestic production, et cetera.
• 15:25
  SPEAKER_01: Um, those benefit, those credit kickers, if you will, um, are hugely impactful.
• 15:32
  SPEAKER_01: So there's a provision called the prevailing wage and apprenticeship rules, PWA for short.
• 15:38
  SPEAKER_01: That's the provision that says, hey, if you pay your workers and mechanics that are building the renewable energy property a fair wage based on the job they're doing and the location they're doing it, then your credit gets multiplied by five.
• 15:55
  SPEAKER_01: Wow.
• 15:55
  SPEAKER_01: So that's huge.
• 15:57
  SPEAKER_01: And it really is the difference between whether a project can go forward or not.
• 16:01
  SPEAKER_01: That particular provision applies to 12 credits and incentives.
• 16:06
  SPEAKER_01: So it's not just for the, you know, electric, you know, solar and wind and that sort of thing.
• 16:11
  SPEAKER_01: There are 12 different credits which would get that added benefit with prevailing wage and apprenticeship.
• 16:18
  SPEAKER_01: Um, those rules also include certain um requirements for apprentices.
• 16:23
  SPEAKER_01: So a certain percentage of hours need to be performed by apprentices.
• 16:28
  SPEAKER_01: Um, again, kind of in back into that um, you know, objective of trying to upskill and give people opportunities that they may not have had otherwise.
• 16:38
  SPEAKER_01: So PWA sounds straightforward, sounds simple.
• 16:42
  SPEAKER_01: Pay somebody what they're supposed to be paid, but you know, that's when the complexity comes in.
• 16:47
  SPEAKER_01: Right.
• 16:48
  SPEAKER_01: You know, first you need to understand, like, define your scope, like who are the people that I need to worry about?
• 16:53
  SPEAKER_01: Um, that means understanding what is your project, what is the facility.
• 16:58
  SPEAKER_01: When did you start working?
• 17:00
  SPEAKER_01: You know, when did you start constructing that facility?
• 17:02
  SPEAKER_01: When did you place it in service?
• 17:04
  SPEAKER_01: And that's sort of, you know, trying to create the fence, if you will, of the project and the people then, you know, defining who was going to be in there or not.
• 17:11
  SPEAKER_01: That can sometimes be challenging because, you know, defining when you began construction could be a little bit, you know, unclear.
• 17:20
  SPEAKER_01: Um, and you know, there's different ways to establish it from a tax perspective, but you know, you gotta kind of put that line in the sand.
• 17:29
  SPEAKER_01: Um also just the the data that you're looking to collect is coming from from a company's perspective is generally going to be housed by their their general contractor, by the subcontractors.
• 17:42
  SPEAKER_01: It is not data that the company itself owns or has any access to in most cases.
• 17:49
  SPEAKER_01: And so being able to educate your contractors and subs on the data that's required, getting them comfortable that, you know, you're gonna collect this information, which is frankly personal information about their workers.
• 18:03
  SPEAKER_01: It's gonna be how much they're getting paid, how much they were paid, you know, social security numbers, um, you know, making sure that you have a way to collect that data in a very secure fashion, uh, making sure you have a way to test that data to make sure you're in compliance, um, and then being able to remediate if you do find a foot fault to stay in compliance are extremely challenging, um, especially when you're working in an environment that's quite fast-paced because you've got perkers on site and you got to collect the data, you know, contemporaneously as the project's going forward.
• 18:38
  SPEAKER_01: Domestic content is another area where there's a lot of challenge.
• 18:42
  SPEAKER_01: Um, this is another bonus credit, which can get you a 10% additional credit for your investment tax credits or production tax credits.
• 18:54
  SPEAKER_01: And what this one says is if you source your um the materials to build your facility, uh, your renewable project from the US, a certain percentage, then you get this extra bonus.
• 19:08
  SPEAKER_01: Um, steel and iron uh needs to be sourced from the US 100%, so that's really a gating piece.
• 19:14
  SPEAKER_01: Um, to date, we've only received three notices that help us to interpret how to apply the rules.
• 19:22
  SPEAKER_01: Generally speaking, the domestic content was challenging when it was first released because the way to calculate whether you met that percentage requires you to get information from your suppliers that they're not necessarily willing to give you.
• 19:36
  SPEAKER_01: So we're talking about direct labor, direct um costs of the product that you're that you're purchasing.
• 19:44
  SPEAKER_01: And the reality is that the suppliers did not want to give that information because you can back into their profit margin pretty quickly.
• 19:51
  SPEAKER_01: And so these notices were released to really help try to mitigate some of that.
• 19:57
  SPEAKER_01: And what I mean by that is, you know, there were some safe harbors that were put in place for certain types of um projects to kind of say, okay, well, if you made this component, let's, for example, in a solar project, if your solar module was produced in the US, then you get 30%, for example, as being considered to be produced in the US without actually looking to see what the underlying data for your particular project was.
• 20:27
  SPEAKER_01: And, you know, in some ways that could be helpful for some companies, but in others it may not.
• 20:32
  SPEAKER_01: And so there is a calculation you you can fall back to.
• 20:35
  SPEAKER_01: Um, but you know, as these three notices were were released, the these safe harbor tables started to change.
• 20:44
  SPEAKER_01: So they're not all the same.
• 20:46
  SPEAKER_01: So where in one, you know, I think they continued to evolve to be get more clarity as as comments came back, as as feedback came back from industry.
• 20:56
  SPEAKER_01: So the nice thing is they continue to evolve and and take in our comments and you know, industry comments, but it's not for every type of project.
• 21:05
  SPEAKER_01: So we've got we've got some safe harbors for solar projects, um, we've got some for battery energy storage systems, we've got some for wind projects, but we don't have some for other types of projects.
• 21:19
  SPEAKER_01: For example, geothermal type projects do not have hydropower, doesn't have a set of safe harbors.
• 21:25
  SPEAKER_01: So that then requires, you know, companies that are looking to claim credits and domestic content for those types of renewable energy projects, they're gonna have to figure out how to do those calculations, which, you know, with limited guidance.
• 21:38
  SPEAKER_01: Um, so another area where it gets to be quite challenging.
• 21:43
  SPEAKER_01: Um, you know, companies are working through it with the information we have, but not firmly, you know, not set in firm stone, so to speak.
• 21:51
  SPEAKER_01: Right.
• 21:52
  SPEAKER_01: Um, and then just general business challenges, right?
• 21:56
  SPEAKER_01: Um, permitting has always been a challenge in the US.
• 21:59
  SPEAKER_01: Um, I think.
• 22:00
  SPEAKER_01: It continues to be a challenge.
• 22:02
  SPEAKER_01: I think this current administration recognizes that that that's an issue and are you know trying to expedite some of that.
• 22:09
  SPEAKER_01: But you know, these projects can't even get started if you can't get all your permits in place.
• 22:13
  SPEAKER_01: So I think that continues to be just a business and industry challenge.
• 22:17
  SPEAKER_01: Right, right.
• 22:19
  SPEAKER_01: It's a lot of challenges that come and do it.
• 22:22
  SPEAKER_01: But lots of benefits too.
• 22:24
  SPEAKER_03: Yeah.
• 22:24
  SPEAKER_03: And especially I think as you said, like with some of those, if you can, you know, meet those certain, you know, objectives of the law, those are some pretty big multipliers too on the on the tax credits that you're going to get.
• 22:35
  SPEAKER_03: Um so maybe continuing in our theme, maybe switching now to talk about, you know, developers and purchasers of renewable energy and maybe what are some of the biggest uncertainties that they're facing right now.
• 22:46
  SPEAKER_01: Yeah.
• 22:46
  SPEAKER_01: Um so as I as I mentioned, there there's been a lot of guidance that's come out.
• 22:51
  SPEAKER_01: Um, you know, I think just before the administration change in January, there was probably over a thousand pages of guidance that came out within, you know, a month or six-week period, you know, prior administration trying to finalize rules where they could.
• 23:09
  SPEAKER_01: Um, so I mean, I commend them because that was a lot to try and get out quickly.
• 23:14
  SPEAKER_01: But that being said, there were still some holes.
• 23:16
  SPEAKER_01: Um, so things like so in January, um, we got, for example, a set of notices that provided um draft proposed regulations for Section 45Z, which is the Clean Fuels Credit.
• 23:33
  SPEAKER_01: And that's a credit which is quite limited.
• 23:36
  SPEAKER_01: It starts in 25, 2025, and is only available for a three-year period.
• 23:41
  SPEAKER_01: And so obviously, companies that are producers of uh of you know clean fuels needed the guidance to know how they're going to be able to uh benefit from these credits.
• 23:52
  SPEAKER_01: So they got these notices out, they're you know, draft proposed, which is kind of a new concept.
• 23:57
  SPEAKER_01: We either have proposed or we don't.
• 24:00
  SPEAKER_01: Right, right.
• 24:01
  SPEAKER_01: Um, and so you know, looking at those particular rules, I think people went back and, you know, found some problems with them because again, they were produced in haste, probably, try to get them out.
• 24:13
  SPEAKER_01: And so, for example, there was an issue with um not issue, but a question around a rule in the in those draft proposed regs that talk about the biofuels that are being sold, produced, and sold need to be sold to the end user.
• 24:31
  SPEAKER_01: Well, the reality is that, you know, if I'm a farmer and I'm producing ethanol, I'm gonna sell it to an intermediary who's then gonna maybe sell it to the end user, or there might be multiple intermediaries.
• 24:44
  SPEAKER_01: And so the it brought some question into, you know, how how is that right?
• 24:49
  SPEAKER_01: Was that an error?
• 24:50
  SPEAKER_01: Like, what's going on there?
• 24:51
  SPEAKER_03: Yeah.
• 24:52
  SPEAKER_01: Um, the other thing too is the way you calculate um the benefit and the and the and the calculation of the credit, it you have to measure your carbon intensity in the production, um, kind of keeping it as low carbon intensity as possible.
• 25:07
  SPEAKER_01: Well, the way to do that calculation, there's some different models out there to do that.
• 25:12
  SPEAKER_01: And the ones that were recommended or or provided for in the rules were more stringent than what, you know, the industry would prefer.
• 25:22
  SPEAKER_01: And so there's a question as to whether or not do I really need to rely on these rules since they're draft proposed regulations as opposed to law, you know, final regulations.
• 25:32
  SPEAKER_01: And so that's created some, you know, again, our favorite word uncertainty, but um, you know, it's created some questions as to how to apply it.
• 25:41
  SPEAKER_03: Maybe one question on that too.
• 25:42
  SPEAKER_03: I know um a lot of times um in the rulemaking process for for federal agencies, you know, they put out a rule for comment and there's a comment period.
• 25:51
  SPEAKER_03: Is are these uh rules subject or you know, these proposed regulations are subject to a comment period where they should end and then get updated?
• 25:58
  SPEAKER_03: Or is it I know you use maybe this draft proposed, which is maybe, you know, maybe they're working outside the APA process or um the Administrative Procedures Act.
• 26:09
  SPEAKER_01: Um there is.
• 26:10
  SPEAKER_01: There were some comment periods provided for some of the packages that were released.
• 26:15
  SPEAKER_01: Um to be honest, unclear whether or not you know anyone's been able to even get their comments submitted.
• 26:22
  SPEAKER_01: I mean, there's maybe some limited, you know, there's kind of this new other dimension that we haven't talked about, which is, you know, some of the changes that have been happening and at Treasury and the IRS and you know, resignations happening and and people leaving.
• 26:36
  SPEAKER_01: So, you know, unclear as to whether or not the people that you would even normally go to to evaluate these things are still there to do it, and they've probably have other things on their mind at the moment.
• 26:48
  SPEAKER_01: Um they've all there's also been situations, like to your point, there was a a public hearing for one of the regulation packages that was supposed to happen, um, I believe in the April timeframe, and that got canceled.
• 27:02
  SPEAKER_01: So unclear whether it was canceled because there was nobody who wanted to speak or it was canceled because they weren't going to entertain any comments.
• 27:10
  SPEAKER_01: Right.
• 27:11
  SPEAKER_01: But yeah, just you know, kind of talking, continue, you know, continuing to talk about sort of the the market and what to watch out for.
• 27:17
  SPEAKER_01: I mean, you know, getting back to the fact that these um provisions are, you know, practically supporting and helping a lot of companies in Republican districts.
• 27:28
  SPEAKER_01: You know, we have seen letters go to the House Ways and Means Committee urging them to, you know, consider carefully what they might want to adjust with these um credits.
• 27:42
  SPEAKER_01: Um 21 House GOP members did send a letter to the House and Wains Ways and Means Committee on March 9th, urging that they consider and take a practic pragmatic view in any changes they might make to the to the regulations and the IRA tax law package.
• 28:01
  SPEAKER_01: Um we also saw um during Ken Key's Senate confirmation hearing, where he, you know, he's he's being reviewed to be the Assistant Secretary of the Treasury.
• 28:13
  SPEAKER_01: You know, his responses to some of the questions around the IRA credit did indicate um you know bipartisan interest in preserving the structure of the IRA.
• 28:23
  SPEAKER_01: So that's certainly very positive news um for the credits.
• 28:28
  SPEAKER_01: Um the other thing, too, is that there's been um reports of proposals to expand some of the rules around transferability, which is the ability to sell the credits, creating a new monetization um avenue for companies, you know, looking to expand those transferability rules to other tax credits.
• 28:49
  SPEAKER_01: So, you know, there's definitely parts of the IRA that um that Congress likes, um, whether they might say it publicly or not.
• 28:57
  SPEAKER_01: Um, but there is parts of the the the law that are are of interest and they, you know, should want to be kept.
• 29:05
  SPEAKER_03: Yeah.
• 29:06
  SPEAKER_03: So maybe, maybe that's a a question too, is, you know, so as we've talked about, there's a lot of projects that are underway.
• 29:13
  SPEAKER_03: I'm sure that many of these projects take many, many, you talked about the construction taking many, many years, but then in you know, the completion of the project um over time.
• 29:22
  SPEAKER_03: So what about projects that are underway today that have started but that are still in process?
• 29:28
  SPEAKER_03: Um, how how do should we be thinking about those projects?
• 29:32
  SPEAKER_01: Yeah, I mean, I think generally speaking, projects that have begun construction already are probably safe.
• 29:38
  SPEAKER_01: I mean, if you think historically, um, you know, tax law changes tend to grandfather projects that are in process, or they might provide a deadline of, you know, a sort of a window to say you have to be, you know, completed or placed in service by a certain date, kind of sometime out into the future, to give those projects an opportunity to to get grandfathered under the um the the current law.
• 30:03
  SPEAKER_01: Um that could happen.
• 30:05
  SPEAKER_01: Um, you know, unclear whether that's gonna be the if if they do make those changes, if if anything is um removed or repealed, you know, the unclear whether that will be the way that it will be done.
• 30:17
  SPEAKER_01: But, you know, if we were to go by kind of historically how it's happened, that that's more likely the scenario that we'll see.
• 30:24
  SPEAKER_03: Okay.
• 30:25
  SPEAKER_03: Well well, maybe taking a step back to, I know we've talked about, you know, um a lot of changes coming from, a lot of guidance coming out.
• 30:32
  SPEAKER_03: There's a lot of different uh points of view out there from uh whether these projects are working, whether they're gonna continue.
• 30:40
  SPEAKER_03: But you know, what do you think might be one of the biggest challenges that might um hold policymakers up or you know, maybe make it more challenging to repeal some of this stuff?
• 30:51
  SPEAKER_01: Hopefully it's pressure from their constituents.
• 30:55
  SPEAKER_03: Um how has all this uncertainty and complexity affected financing?
• 31:00
  SPEAKER_03: I know there was a big surge of interest in transferable tax credits as well as traditional tax equity.
• 31:07
  SPEAKER_03: Um but maybe can you touch on that?
• 31:10
  SPEAKER_01: Yeah, absolutely.
• 31:11
  SPEAKER_01: So, yeah, I think tax equity has been the way that most of these projects have been financed historically.
• 31:17
  SPEAKER_01: I think that continues to be a very strong avenue.
• 31:20
  SPEAKER_01: Um tax equity is just essentially uh creating partnerships where a developer who doesn't really have a lot of cash or a need for tax credits, you know, takes that uh renewable project, puts it into a partnership, an investor comes in who wants the tax credits and the depreciation, other tax attributes.
• 31:41
  SPEAKER_01: Um, and so they come in as an investor to finance the project for the developer.
• 31:46
  SPEAKER_01: And so, you know, the the the investor wins because they're getting tax attributes like depreciation and the tax credits, of course.
• 31:55
  SPEAKER_01: Um, developer wins because they're getting um financing um through this uh vehicle.
• 32:01
  SPEAKER_01: And so, you know, that has not died.
• 32:04
  SPEAKER_01: Um, you know, people thought when the IRA was first passed that that was going to die because of the transferability capabilities within the IRA.
• 32:13
  SPEAKER_01: Um, in fact, tax equity has probably gotten stronger and is expanding into other areas, uh, types of renewable property.
• 32:19
  SPEAKER_01: It's been historically been primarily solar and wind.
• 32:23
  SPEAKER_01: Um they're looking, you know, tax equity is looking at broader types of assets now.
• 32:28
  SPEAKER_01: And they're now just including a provision to allow for the ability to sell the pro you know, transfer or sell the credits if if they wanted to within the financing uh structure to offer some more flexibility.
• 32:42
  SPEAKER_01: Um in 2024 alone, there was about 33 billion of tax equity investments done.
• 32:49
  SPEAKER_01: So, you know, still very strong.
• 32:51
  SPEAKER_01: And, you know, kind of switching over to transferability, which is, you know, obviously has a broader application, a little bit easier to do because you don't have the same structuring and things to worry about.
• 33:03
  SPEAKER_01: Um in 2024, there was between 20 and 25 billion dollars of credits that were transferred.
• 33:09
  SPEAKER_01: Um and one interesting point to note is that about 85% of the buyers were corporates.
• 33:15
  SPEAKER_01: So companies that have nothing to do with renewable energy or you know, any any of that, um, you know, as long as they had the tax capacity to use those credits, you know, were in the market and purchased those credits.
• 33:30
  SPEAKER_03: So maybe maybe taking a step back here from all this all this uncertainty we've talked about, um some of these challenges.
• 33:38
  SPEAKER_03: From your point of view, what's working under the um IRA?
• 33:42
  SPEAKER_01: Aaron Powell Well, I think the the most important thing, and we've kind of touched on this already, is just the huge investment in renewables and and huge interest in this area, um, which has translated into a couple of important things like jobs.
• 33:57
  SPEAKER_01: Um, over 150,000 jobs created in 2023 alone as a result of the IRA.
• 34:04
  SPEAKER_01: Um also just the the creation of these new ways of applying renewable energy.
• 34:11
  SPEAKER_01: So we're seeing a lot of new projects with both solar and battery storage, um, which is really new because of the provisions that allow for credits for battery storage.
• 34:23
  SPEAKER_01: Um so a really huge uptick in projects that include both solar and battery storage.
• 34:30
  SPEAKER_01: I think some of the losers or some of the ones where things are slower, um, hydrogen production has been a huge one.
• 34:37
  SPEAKER_01: Um a lot of that has to do with um there's been a lot of policy debate around you know regulations uh and the guidance for hydrogen and how to really measure whether the hydrogen that's being produced is is truly clean hydrogen.
• 34:53
  SPEAKER_01: Um so there's been a lot of debate over the last couple of years around that.
• 34:57
  SPEAKER_01: Um so I think you know, overall, I think it is it is doing what it was intended to do with with some areas that have not moved as quickly because of lack of clarity in the guidance.
• 35:09
  SPEAKER_03: Yeah.
• 35:09
  SPEAKER_03: Well, I think this has been really interesting.
• 35:11
  SPEAKER_03: We've covered a a ton of different um, you know, types of energy.
• 35:15
  SPEAKER_03: We've covered, you know, not only uh clean energy, but also the impact on on jobs and job growth, but um and obviously, you know, the impact of the change in administration and and all this uncertainty um that that we've talked about throughout.
• 35:31
  SPEAKER_03: Um, but it also does sound like there's still a lot of opportunity under the the IRA.
• 35:36
  SPEAKER_03: So maybe what what do you think our viewers should take away uh for planning purposes as they're they're maybe thinking about this?
• 35:43
  SPEAKER_01: Yeah, there's probably three or four things I would say.
• 35:46
  SPEAKER_01: Um the first is you know, don't assume that the IRA is going away.
• 35:50
  SPEAKER_01: Uh the incentives will will still remain in one shape or another.
• 35:55
  SPEAKER_01: Um also just, you know, we we had done a survey um uh where we surveyed companies um and learned that they intend to continue towards their decarbonization goals.
• 36:09
  SPEAKER_01: Um, you know, so outside of just Inflation Reduction Act tax credits motivating um behavior changes, there's still a move towards looking at environmental issues and stakeholder concerns um that are motivating uh companies to continue to um you know make investments in this area, which you know obviously could result in credits as a result.
• 36:33
  SPEAKER_01: Um the third is the tariffs and just really understanding the interplay between the IRA credits and the tariffs and the impact on the projects, both on the short term and in the long term, and what that translates to for your for your projects.
• 36:50
  SPEAKER_01: And then finally, you know, we didn't talk about this much, but you know, the AI revolution is here.
• 36:56
  SPEAKER_01: Um it requires a ton of data and a ton of um energy to really run those data centers.
• 37:03
  SPEAKER_01: And so the demand for electricity is expected to increase.
• 37:09
  SPEAKER_01: And the only way we're really going to be able to meet those demands is by finding new sources of energy, and renewable energy is definitely going to be part of that solution.
• 37:19
  SPEAKER_01: And so as companies are thinking about their energy strategy, they need to make sure it matches with their AI strategy because the two of them are going to be very quickly interrelated, interlocked with each other and codependent on each other.
• 37:33
  SPEAKER_03: Yeah, I mean, I think we've seen a lot of news stories too, right?
• 37:36
  SPEAKER_03: With um like big tech companies bringing nuclear power plants back online to help meet some of their data center needs.
• 37:42
  SPEAKER_03: So I think I think that's a great point.
• 37:44
  SPEAKER_03: Well, Rhonda, thank you so much for joining me today.
• 37:46
  SPEAKER_03: This has been an extremely interesting conversation and appreciate you sharing um your knowledge and insights.
• 37:52
  SPEAKER_03: So thank you for joining me today.
• 37:54
  SPEAKER_01: Thank you so much for having me.
• 37:56
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• 38:18
  SPEAKER_02: From Thought Leadership at PwC, I'm Heather Horn.
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