Inflation Reduction Act, What We Know

Original post October 11, 2022; Updated November 1, 2022

The Federal Inflation Reduction Act (IRA) will provide tax credits and incentives for clean heating and cooling in homes starting in 2023. These federal incentives will be in addition to the California state incentives that are available for TECH Clean California.

First, the Residential Energy Efficiency Tax Credit (25C) is a substantial tax credit for residents, which covers up to 30% of the equipment and installation costs of qualified electrification projects, including heat pumps, heat pump water heaters, and building envelope upgrades, as well as panel upgrades (if installed in conjunction with other improvements) to an annual maximum of $2,000. Heat pumps must meet the highest efficiency tier established by the Consortium of Energy Efficiency (CEE) for that year. Effective January 1, 2023.

Two building electrification incentive programs will also be available; however, these programs will likely not be up and running until 2024. Projects can take advantage of one of these programs (not both), however, residents with sufficient tax liability could take advantage of these programs as well as claim the 25C tax credit and apply state incentives such as TECH Clean California.

  1. High-Efficiency Electric Home Rebates (HEEHR)

HEEHR will provide point-of-sale rebates to low- and middle-income households for qualifying electrification projects (QEP), to a total of up to $14,000 total.

  • These rebates cover a percentage of project costs dependent on household income as compared to the area median income: 50% project cost for <150% Average Median Income (AMI), 100% project cost for <80% AMI.
  • Projects must replace a non-electric appliance (or be the first time such an appliance is installed in the residence).
  • Contractors can also receive up to $500 incentive for installing a QEP through this program
  1. Whole-Home Energy Efficiency Program (HOMES)

HOMES is a fuel-agnostic rebate program that grants rebates based on modeled or measured savings, regardless of individual measures installed.

  • For the modeled savings pathway, rebates start at $2,000 for 20%+ energy savings, $4,000 for 35%+ energy savings, and are capped at 50% of the project cost.
  • For the measured savings pathway, a dollar amount is awarded per kWh saved over 15% energy reduction, with a 20% reduction netting $2,000 and also capped at 50% of project costs.
  • Rebates are doubled for low- and moderate-income households, with a higher cap of 80% of project costs.
  • The HOMES incentive will provide a $200 contractor incentive for installing projects in disadvantaged communities.

Finally, the IRA will provide State-Based Home Energy Efficiency Contractor Training Grants (50123). This money will be used by State Energy Offices to develop and implement state programs that train and educate contractors involved in home energy efficiency installation and electrification measures.

There is still a lot to resolve about how the provisions in the IRA will interact with TECH Clean California, but we are confident this will be positive for market transformation. We will continue to communicate more as implementation details are rolled out.

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