Tapping Tax Credits to Fuel Alternative Energy

For years, Paul Holstine spent his free time following news about the growing “alternative energy” sector to keep up with the latest on solar, electric vehicles and other new technologies. 

That was how he learned about new federal tax credits to help consumers cover the cost of making their homes and vehicles more energy efficient.  

In November 2023, when the time came to get a new car, Holstine, a resident of Mound City, Missouri, used a tax credit to buy a new, fully electric Chevy. It covered more than a quarter of the $28,000 price tag.  

The next step was to install an electric vehicle charger at his home, and Holstine remembered learning about rebates that would help bring down the cost of that, as well.  

“I got some rebates from Chevrolet in order to install a level-2 charger in my house, and we got another rebate from my power company, KCP&L — now Evergy — to install that same charger, so that was all but free,” Holstine said. “I got $1,500 in rebates against about a $1,700 install.” 

He added that he is planning to use other credits and rebates to help him update more things around his home. 

“I am due for a new air conditioner and am always up for some tax credit,” Holstine said. “Those credits are set to be in place for the next 10 years, so I’ll do a heat pump this year, and next year, I may do insulation, which is also eligible for the same credit. … Efficient windows, efficient doors, insulation, solar panels — all these things are eligible.” 

Inside the Inflation Reduction Act

These tax credits are part of the Inflation Reduction Act, an almost two-year-old law that aims to cut the country’s greenhouse gas emissions by helping Americans switch to more energy-efficient and environmentally friendly appliances, vehicles and sources of power. 

While more Americans than ever have been installing heat pumps or driving electric vehicles, businesses in the Kansas City area say there is still a lack of awareness about resources to help people cover the cost of these switches.  

Holstine said most of the people he knows don’t know about the credits, and that if it weren’t for his interest in the industry, he might not either. 

“I’ve been into alternative energy for two decades, but I haven’t seen or talked to a lot of people that are hip to all the tax credits that are available,” Holstine said. 

The number of Americans switching to more energy-efficient alternatives in their homes has been rising both locally and nationally. Even so, the current rate is not enough to reach the country’s emissions-reduction goals, according to electrification nonprofit Rewiring America. 

According to the organization’s “Local Pace of Progress” tracker, the counties that make up the Kansas City metro area are on track to add around 21,000 electric heat pumps, 1,600 electric heat pump water heaters, and 8,000 electric or induction stoves over the next two years.  

These projections fall short of the numbers Rewiring America says will be needed for the metro area to be on track to hit net-zero by 2050. To be on pace for that, it says local counties will need to collectively install more than double the number of each appliance over the next two years.  

Although tax credits were meant to help address this gap by reducing cost, Josie Langley, the president of Insulation Pros, said many of her customers don’t know about them. 

“I feel like we educate more people about the fact that (a credit) exists than I get people coming in asking about it,” Langley said. 

Rhody Harris, director of sales at Astrawatt Solar, said awareness among customers has varied, but it’s helped that credits for solar panels and electric vehicle chargers are more widely known than other credits, such as those for energy audits. 

“If we’re meeting with somebody and they have been doing research for a while, they’re likely to have stumbled across this,” Harris said. “But I think the population at-large is probably pretty significantly underinformed.” 

Image may be NSFW.
Clik here to view.

Selling Energy Efficiency

Despite this lack of awareness, both Langley and Harris said the credits have become a selling point they use with prospective customers, and one they’ve found to be particularly persuasive. 

“For adoption, 2022 was a fantastic year. The Inflation Reduction Act helped because it locked in the largest incentive that we’ve ever had for solar, the 30% tax credit — it’s never been higher than that,” Harris said.  

“Then it was locked in for 10 years. We saw a lot of people that have been thinking about it for a while decide that it’s not likely to get much better than this and then jump,” he added. 

Insulation Pros, Astrawatt Solar and other local businesses have seen increased interest in their products and services and say tax credits and rebates have seemed to play a role. But it’s hard to say to what degree federal incentives have affected ongoing growth in the adoption of energy-efficient technologies. 

The impact of the credits will be better understood when the IRS releases data on the number of Americans claiming these credits on their 2023 tax filings. That data is expected sometime next year, according to Wael Kanj, a researcher at Rewiring America.  

One early indicator is electric vehicles. Unlike other credits through the Inflation Reduction Act, which require Americans to file for a reimbursement as part of their annual tax forms, those buying qualifying electric and hybrid vehicles can access the credit directly at the car dealership as of Jan. 1.  

As a result, the IRS has been able to collect real-time data on the number of Americans using the credit to help pay for their electric or hybrid vehicle. In the six months since the policy took effect, the IRS has issued more than $1 billion in credits to more than 125,000 buyers. 

While the verdict may still be out on how many Americans are using federal tax credits to update their homes, recent data suggests heat pumps are continuing to grow in popularity. As of March 2024, shipments of heat pumps outpaced shipments of gas furnaces by around 200,000 units. 

Local Incentives

Locally, the number of households and businesses installing solar panels has risen steadily as well. The number of Evergy customers in Missouri with solar panels increased from just over 3,700 in 2018 to over 9,100 in 2023. 

In Kansas, the number increased from almost 1,200 to almost 6,500 in that span of time, according to Courtney Lewis, a spokesperson for Evergy.  

---

---

Despite this increase, the number of Evergy customers installing solar panels is still relatively low. As of 2023, only 1.3% of Missouri customers and less than 1% of Kansas customers had solar panels.  

Federal tax credits have been more noteworthy for those without local incentives, said Sean Durkin, the general manager at Green Improvement Consulting. 

“There’s a lot of people asking about (credits), for sure,” Durkin said. “Especially with Kansas customers, because if you have Evergy in Kansas, just the start of this month they can get rebates, too. But before that, Evergy in Kansas never had any rebates and Kansas never had any tax deductions, so the federal tax credit was a big thing for Kansas even more so than Missouri.” 

Following the recent passage of the Kansas Energy Efficiency Investment Act, Evergy has this summer started rolling out programs to help Kansans improve the energy efficiency of their homes and businesses. 

While federal credits help, Durkin said, the credit for insulation doesn’t cover much of the total cost, limiting its impact. 

“The tax credit’s just so low — they only get 30 percent of the cost of the materials, and the materials for an insulation job are just never that great — you have to have a giant mansion to get the full amount,” Durkin said. “But it still has a little bit of sway on the decision.” 

While he said there’s some awareness about federal incentives, more of his customers come in asking about rebates from Evergy. 

“Evergy does a really good job of educating the general public in this area about rebates and stuff. We advertise about them quite often,” he said. “The rebates really do help people make the decision to get insulation and energy-efficiency stuff done.” 

In Missouri, customers of KCP&L — now known as Evergy — have been able to take part in energy efficiency programs since 2013. In that time, 67% of the company’s residential customers — over 400,000 households — and 9,500 businesses have taken part.  

The programs help to cover part or all the costs of high-efficiency HVAC, home energy assessments, energy-efficient lighting, and appliances, among other products and services.  

More Work to Do

While participation has gone up over time, there is still progress to be made on raising awareness about both local rebates and federal credits, said Justin Bell, the owner of Fully Charged. 

“I would say probably fifty percent know about (federal credits) and fifty percent don’t,” Bell said. “A lot of people don’t know about the rebate from Evergy — probably seventy-five percent of people don’t know about that, so I do inform them about it.” 

U.S. Representatives Emanuel Cleaver II and Sharice Davids have been trying to raise awareness about the credits through their websites, newsletters, social media and events. Their offices told Flatland they’ve received positive feedback from constituents, advocacy groups, labor leaders and businesses about the impact of the credits.  

“We have heard from local advocacy groups about their happiness with the tax credits (as well as the need to make some fixes to ensure the program works how it was intended, which is why the Congressman introduced a bill to ensure consumers could access the tax credits immediately),” Matt Helfant, communications director for Cleaver, told Flatland in an email.  

“From individual constituents, we’ve mostly heard an overwhelming desire to protect the IRA from being repealed/cut down,” Helfant wrote.  

In addition to tax incentives and rebates to help cover the cost of switching to more energy-efficient technology, several policy changes have also sought to make it easier to access these technologies, according to Rhody Harris from Astrawatt Solar.  

For solar, a recent Missouri law outlawed homeowner associations from banning or restricting solar panels on residents’ homes. In Kansas, a law set to go into effect July 1 will expand the amount of solar capacity a homeowner can install on their property and increase the compensation they can receive for sending their energy back to the grid.  

“It’s a big deal — they are basically acknowledging that we have to do this and we’re probably a little behind schedule. Very much to the credit of the legislators and the operators of the grid itself, they started to realize that we’ve got to do this and put some policies in place to help.” 

– Rhody Harris, director of sales at Astrawatt Solar

Additionally, Harris said, a recent update to the Inflation Reduction Act made tax-exempt entities, such as schools and churches, eligible to receive direct pay for installing technologies covered by the law. These entities initially couldn’t take advantage of incentives because they don’t pay taxes. 

Incentives from companies and various levels of government represent a shift in the larger conversation around energy efficiency and renewable energy, he added. 

“It’s a big deal — they are basically acknowledging that we have to do this and we’re probably a little behind schedule,” Harris said. “Very much to the credit of the legislators and the operators of the grid itself, they started to realize that we’ve got to do this and put some policies in place to help.” 

Ceilidh Kern is a graduate of the University of Missouri journalism school and a summer intern at Kansas City PBS/Flatland and Missouri Business Alert.