The Inflation Reduction Act Will Accelerate Commercial Fleet Electrification
With thoughtfully crafted investment incentives for EV charging infrastructure, electric vehicle fleets, and standalone storage, the Inflation Reduction Act presents a huge opportunity to accelerate the electrification of transportation. At TeraWatt, we have been hard at work planning, developing projects, and scaling up to coincide with this historic legislation in order to deliver the best-in-class, reliable charging solutions for zero emission fleets.
Let’s take a closer look at how the IRA will impact fleet owners and operators looking to electrify.
Commercial EV Fleet Tax Credits
The IRA contains several provisions aimed at increasing EV adoption across all classes of vehicles: most significantly, a tax credit for the purchase of commercial vehicles themselves, and a tax credit for the purchase and installation of charging stations – known in the legislation as Electric Vehicle Supply Equipment (EVSE).
The vehicle purchase credit covers either the vehicle’s incremental cost (the difference in price between an ICE vehicle and its electric counterpart), or 30% of the electric vehicle’s purchase price—whichever is less. There is a cap of $7,500 for vehicles lighter than 14,000 pounds (Class 1-3) and a cap of $40,000 for vehicles heavier than 14,000 pounds (Class 4-8).
Based on these maximum allowances and the significantly greater costs of vehicles over 14,000 pounds, the IRA inherently incentivizes adoption of smaller commercial EVs, such as cargo vans or box trucks used for last mile delivery. These vehicles are more likely to maximize the credit as a percentage of sales price, compared to larger medium- to heavy-duty vehicles, such as long-haul tractor trailers.
Light-duty EVs offer a fast ROI for fleet owners, given their investment costs, vehicle miles traveled, and charging costs. Still, adoption is lagging, but the catalyzed investments by the IRA will help more fleets reach the tipping point to first electrify and then scale up their light duty operations.
For the EVSE tax credit, the IRA provides a base credit of 6% of the cost of purchase and installation of EVSE, up to 30% of the total cost maxing out at $100,000 per EVSE installed if certain requirements for labor, wages and the location of the chargers are met. This is an immensely beneficial change for large scale EV charging as the previous tax provision limited the credit to $30,000 per location, rather than per EVSE.
While the EV incentives do not scale up with heavy-duty vehicles, the charging station credits are well positioned to support heavy-duty charging, including for the highest power charging available today and potentially higher capacity chargers in the near future.
The IRA is geographically precise in regards to where investment is intended. Charging projects claiming the tax credit must be located in rural or low income areas to qualify, which aligns with the environmental justice goals of the Biden administration. Indeed, disadvantaged communities often have the highest exposure to transportation pollutants. TeraWatt already integrates environmental justice screens into its site acquisition process; certain target customers and segments naturally locate or charge in these areas incentivized by the IRA. We anticipate being able to utilize the IRA credits along with the Infrastructure Investment and Jobs Act (IIJA) to deliver those benefits to our customers.
Standalone Storage Tax Credits
The new investment tax credit (ITC) for standalone energy storage is another win for decarbonized transport. Previously, storage was only allowed a tax credit if it was tied to a renewables project. With the IRA, all storage deployments are eligible, bringing a reduction of about 30% to the capital cost of storage installations.
Storage can enable a variety of benefit streams for a commercial EV charging hub, including managing high demand and energy charges from the local utility, mitigating peak demand on the regional grid, providing resilience for critical transportation operations in the event of a grid outage, as well as islanding operations from or in excess of the grid capacity prior to the arrival of adequate service from the local utility.
Our team has extensive experience financing projects with embedded tax equity attributes, such that our customers will reap the benefits of these new tax provisions when charging with TeraWatt. Our customers’ charging operations will be cleaner, cheaper, and more resilient as a result of the IRA.
A New Dawn for Climate Policy
While much focus has been placed on cutting emissions in the power sector, the transportation industry is more difficult to decarbonize, and this legislation will facilitate major progress in both sectors. The IRA and IIJA, combined with continued state policy innovation and investment funding, will bring about massive private sector action to shift our economy to zero emission transportation. We’re proud to be a part of it.