Inflation Reduction Act

The Biden administration signed the Inflation Reduction Act (IRA) of 2022 into law earlier this month. There is a lot in this 1000+ page bill but what does it mean for the real estate industry and PropTech in particular? Below is an attempt to digest the key pieces that relate to the ecosystem so you don't have to:  

  • Building Management Systems - Building operations are responsible for 1/4 of the GHG emissions, and accordingly attracted a pile of incentives. Numerous deductions and credit opportunities have been allocated for building upgrades based on the degree of impact on energy efficiency achieved. Interestingly, these incentives can be further torqued by utilizing positive hiring and staffing practices during construction and maintenance. Commercial buildings have an opportunity to earn anywhere from $0.50/sqft up to $6/sqft deductions for the next 3 years based on the increase in efficiency (min of 25% requirement) and positive hiring requirements are followed - for a 19K sqft building, that’s up to $342K over 3 years! These incentives should help drive decision-making for companies that track and improve building efficiency with a clear and immediate boost to ROI. CRE operators, it's a great time to start shopping for a BMS system and/or tracking your usage to get more out of less. See: Green Badger, Radiator Labs, Enertiv, BrainBox, Relogix, Facilio, Measurabl

  • Novel Building Materials - Low-embodied carbon materials and products for construction are a theme that will attract almost $5 billion worth of incentives. This is an area we are increasingly interested in. Better materials that can double as carbon sinks are fundamental to reducing the environmental impact of the built environment. See: Evercloak, Solidia, ZS2

  • Home Improvements - Several tax credits and rebates are in place to help homeowners offset the price of energy retrofits and upgrade to a more high-efficiency home. Time to upgrade those 100-year-old radiators (~$10K available to electrify water heaters and HVAC equipment), insulate/seal your house ($1600 available), install new doors/windows/appliances ($1200/yr available), and fix your ancient electrical panel and wiring ($2500 available). See: Pearl Certification, Sense, Sealed

  • Renewable Energy & Storage Technologies - Taxpayers can claim a credit for qualified residential energy-efficient property purchases (30% tax credit until 2034). Battery storage with a capacity of at least 3kWh is eligible for the credit. Is it finally time for Distributed Energy Resources? Will developers start offering self-sustaining homes? See: Tesla Solar Roof, Wondrwall, Dandelion Energy

  • Electric Vehicles - Up to $7,5000 tax credits for EVs are available. Perhaps it’s time to put in a deposit for your new car? While no doubt somewhat gimmicky, there is some real meat around charging infrastructure with a maximum of a $100,000 credit (up from $30,000) for alternative refueling properties and an extension to 2032. See: Envoy, Kite, ZipCharge

  • Industrial-Scale Energy Generation - Huge incentives towards the promotion of renewable energy production that should curb utility bills down the road. Base credit starts at 0.3 cents per kWh with further upside potential through meeting certain requirements. Renewable energy companies, it’s time to check out the latest technologies. See: Fervo Energy, Aurora Solar, Natel Energy

  • Carbon Reduction - Roughly $12B allocated to incentives (subsidies, tax credits, increasing credit values from $50 to between $85 and $180 depending on the source) for carbon capture and sequestration technologies and R&D. This ties into our excitement around novel building materials as there may be a chance to “double-dip”. See: Carbicrete, CarbonCure, Carbon Upcycling

To sum it up, we expect this bill to support investment in energy efficiency, decarbonization, and positive hiring practices in several important areas of PropTech which should promote energy consciousness at a minimum and may prompt much more aggressive, owner-driven decision making over the next 3 - 5 years. With no additional/expanded stimulus anticipated, it’s probably time to stop putting off investment decisions and capitalize on these incentives. 

As always, we’d love to hear from you, so please feel free to reach out at info@groundbreakventures.com.

From your friends at GroundBreak Ventures

Scott Kaplanis