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To get tax credits, clean-energy firms must soon meet labor standards

In January, new wage and apprenticeship criteria will kick in for companies seeking popular federal tax incentives for renewable energy projects.
By Julian Spector

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A group of people in yellow hard hats and work uniforms gather around an instructor in a training classroom
(Brant Ward/San Francisco Chronicle/Getty Images)

Federal incentives for clean energy projects will come with enhanced labor standards after the Internal Revenue Service kicked off a 60-day countdown this week.

In the past, companies developing or owning renewable power plants could claim tax credits simply for investing their money in renewable energy. But the landmark Inflation Reduction Act that Democrats passed this year links the full 30 percent Investment Tax Credit to wage and apprenticeship criteria. The IRS published the details this week and told the industry the rules will kick in for projects that begin construction on or after January 30.

Tying clean energy incentives to labor standards is one of the more tangible efforts thus far to ensure a just transition for workers as the U.S. shuts down fossil-fueled plants and builds renewables and batteries.

Fossil plants typically support well-paying union jobs, and the plants serve as economic pillars of many communities across the country. But renewables and battery storage plants simply don’t need the degree of round-the-clock skilled work that’s necessary to keep coal, gas or nuclear plants humming along. That’s part of what makes renewables so cheap, along with the fact that they don’t incur fuel costs to operate.

Those fundamental dynamics aren’t changing anytime soon, but the Inflation Reduction Act at least sets a floor for labor conditions during the construction of clean power plants.

Henceforth, clean power plants claiming the full 30 percent tax credit must pay the laborers constructing or repairing the facility at or above the local prevailing wage, as determined by the Department of Labor. For many big solar builders, this is already in their wheelhouse, said Abigail Ross Hopper, CEO of the Solar Energy Industries Association, in a September interview about the implications of the Inflation Reduction Act.

What our companies have told us is that lots of jurisdictions have prevailing-wage requirements — sometimes it’s in the contract,” Hopper said. So they have that built-in capacity and competency.”

There could be more of a learning curve for smaller developers and contractors that have operated primarily in states without prevailing-wage requirements, she added.

The IRS also stipulates that a certain percentage of work hours on projects must be performed by qualified apprentices. The threshold starts at 10 percent, rises to 12.5 percent for projects commencing in 2023, and hits 15 percent for projects built in 2024 and onward. Barring some exceptions, noncompliant companies will be fined proportionally to the labor hours performed without meeting the requirements.

There are certainly a lot of on-the-job training programs that companies have,” Hopper said. But these have to be registered apprenticeship programs. Building those either internally or working with other registered apprenticeship programs is going to be important.”

Some states already enforce some version of this. Large-scale solar plants don’t get built in California without Project Labor Agreements and a union workforce. But the federal update ensures these standards will be in place across the country: Developers could decide they don’t want to bother, but they’ll be at a severe disadvantage in selling their power against competitors who secure the full credit.

There’s still work to do to make sure communities hit by the loss of old power plants don’t suffer in the transition to clean energy. Other parts of the Inflation Reduction Act aim to address that challenge; developers can claim an extra 10 percent credit if they build clean power plants in places that used to host fossil-fueled plants, for instance. Good pay for clean energy construction workers and training programs for up-and-comers are one piece of a broader just-transition strategy.

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Julian Spector is a senior reporter at Canary Media. He reports on batteries, long-duration energy storage, low-carbon hydrogen and clean energy breakthroughs around the world.