The Inflation Reduction Act (IRA) has been signed into law. While the IRA is one of compromise, some good and some not-so-good, its impact on the energy sector is significant. For Clean Energy Group’s Resilient Power Project and its partners, the IRA will significantly influence nonprofits seeking to develop solar PV and battery storage (solar+storage) solutions in low-income communities by removing barriers to accessing significant federal tax incentives.
On a recent call discussing the IRA, one of CEG’s nonprofit affordable housing partners stated, “the direct payment option for the Investment Tax Credit would be a game changer for us in building more solar and solar+storage at our properties.”
Clean Energy Group has worked with 90 affordable housing providers, most nonprofit, and almost 80 nonprofit community organizations across the country through its Resilient Power Technical Assistance Fund, which supports resilient power development in low-income, environmental justice, and communities of color by providing funding to complete solar+storage feasibility assessments. A key challenge for these partners has been figuring out how tax-exempt organizations can access the Investment Tax Credit (ITC), (currently) a 26 percent tax credit for solar and some solar+storage systems, in order to make their solar and battery storage project more economical. Currently, tax-exempt organizations don’t have the tax burden necessary to utilize the ITC. Entire financial models and programs have been developed to address the issue of tax-exempt entities trying to access ITC savings – all of which require some financial compromise on the side of the nonprofit, whether that be complex ownership structures, partnerships with tax-equity investors, or other convoluted workarounds that ultimately result in less savings to nonprofit organizations.
The ITC direct payment option will effectively allow nonprofits, such as affordable housing developers, community-based organizations, and state, local and tribal governments, to receive the benefits of the ITC as an upfront payment, rather than a tax credit. In doing so, tax-exempt entities can reap the full benefits of the ITC without needing to go through the hassle and trade-offs associated with dealing with a third-party entity or complicated financing package. This will finally level the playing field for nonprofit organizations – greatly reducing financing costs for nonprofits and opening the door to more direct community-ownership of solar, storage, and resilient power systems.
Additionally, the ITC, which is currently a 26 percent tax credit for 2022 and was set to reduce each year following, is now 30 percent for the next 10 years. For projects developed in certain communities – including low-income communities and affordable housing – there is an additional adder of 20 percent. This means that the ITC could effectively reduce costs by 50 percent.
There are caveats, including that projects must be below one megawatt (most of the solar+storage projects CEG has supported at community facilities and affordable housing properties have been under 1MW). But the message is clear – the Inflation Reduction Act supports solar and battery storage development in and for low-income communities more than any law before it.