Megawatt Minute Blog

The Inflation Reduction Act of 2022 (“IRA”) signifies a turning point in domestic efforts to tackle climate change. Within the multibillion-dollar package are robust investments in climate mitigation initiatives, such as production tax credits, investment tax credits for battery and solar cell manufacturers, tax credits for new and used electric vehicles (“EV”)[1], automaker facility transition grants, and additional financing for the construction of new electric vehicle manufacturing facilities.[2] One thing is abundantly clear, the IRA’s focus on stimulating domestic production of electric vehicles means that the marketplace for electric vehicles will see a dramatic change. The Biden Administration has set an ambitious target of 50% of EV sale shares in the U.S. by 2030. However, if electric vehicles are going to achieve mass market adoption, a central question remains — where is the infrastructure to support them?

Addressing gaps in EV Supply and EV Infrastructure

As it stands, the shortage of charging infrastructure is a substantial barrier in the push for mass consumer adoption of EVs.[3] Experts estimate that in order to meet the Biden Administration’s EV sale target by 2030, America would require 1.2 million public EV chargers and 28 million private EV chargers by that year.[4] Department of Energy data shows that approximately 50,000 EV public charging sites are currently operational in the United States.[5] In comparison, gasoline fueling stations total more than 145,000.[6] However, federal legislation such as the Bipartisan Infrastructure Law (“BIL”) passed earlier this year signifies a clear commitment to remedying this disparity. The BIL establishes a National Electric Vehicle Infrastructure Formula Program (“NEVI”) to provide funding to States and private entities to deploy EV-charging infrastructure and to establish an interconnected network to facilitate “data collection, access and reliability.”[7] The Federal Highway Administration, the federal agency charged with implementing NEVI, proposed minimum standards and requirements that states must meet to spend NEVI funds:

  • Installation, operation and maintenance by qualified technicians of EV infrastructure
  • Interoperability of EV charging infrastructure
  • Network connectivity of EV charging infrastructure
  • Data collection pertaining to pricing, real-time availability and accessibility[8]

The goal of the proposed rule is to secure EV charging infrastructure that works seamlessly for industrial, commercial and consumer drivers. Combining the historic investments in clean energy and climate infrastructure in the BIL and IRA, the federal government has jumpstarted what will be a fundamental shift in how consumers use transportation. Earlier this week, the Biden Administration announced more than two-thirds of EV Infrastructure Deployment Plans from States, the District of Columbia and Puerto Rico have been approved ahead of schedule under NEVI.[9] With this early approval, these states can now unlock more than $900 million in NEVI funding from FY22 and FY23 to help build EV chargers across highways throughout the country.[10]

Section 13404’s Alternative Fuel Refueling Property Credit

Building up the U.S. capacity to build EVs, and then ensuring people can use said vehicles more easily by shoring up EV infrastructure is a crucial facet of the Inflation Reduction Act. Section 13404 of the IRA provides an Alternative Fuel Refueling Property Credit that targets the accelerated installation of EV charging infrastructure and assets.[11] Section 13404 extends existing alternative fuel vehicle refueling property credit through 2032, and significantly restructures the credit by allowing taxpayers to claim a base credit of 6% for expenses up to $100,000 (for each piece refueling property located at a given facility) so long as the property is placed in service before Jan. 1, 2033.[12] However, the alternative fuel property must be manufactured for use on public streets, roads and highways, but only if they are (1) intended for general public use, or (2) intended for exclusive use by government or commercial vehicles and (3) must be located in a qualifying census tract (i.e., low-income communities or non-urban areas).[13] From a job creation standpoint, the IRA also provides an alternative bonus credit for taxpayers that meet certain wage requirements during the construction phase.[14]

The Future of EV Infrastructure

EV stations in city streets, parking garages and gas stations will become a prominent part of the nation’s infrastructure as it moves towards a green future. The effort will require coordination among municipal, state and federal policymakers. Even more, electric utilities must ensure that local infrastructure can support the additional strain on the grid. Utilities also have a direct interest in a cleaner, efficient, and less overburdened grid. Federal tax incentives, like the IRA, and subsides from states and local ordinances are integral to the implementation and construction of these networks. The private sector has already taken steps to do its part. In a recent study conducted by consulting company AlixPartners, as of June 2022, automakers and suppliers expect to invest at least $526 billion to fund the transition from gasoline powered vehicles to EVs through 2026.[15] This is double the five-year EV investment forecast of $234 billion from 2020-2024.[16] Even more, according to Bloomberg, not including deals that have disclosed financials, more than $4.8 billion has already been invested in the EV charging industry this year in the form of debt financing and acquisitions.[17] Driven by fast growth and robust availability of government funds, financiers and large companies seeking to acquire EV charging companies, sense immense opportunity.[18]