Inflation Reduction Act Direct Pay
The Inflation Reduction Act direct pay provision allows non-profits to receive a 30% direct payment from the US Treasury for solar investments. Before this nonprofits who wanted to go solar had to partner with developers or banks to take advantage of the tax benefits. Most organizations would sign an agreement with the developer for a fixed price per kWh for the solar energy over a length of time around 25 years.
Tax exempt organizations like public schools, cities and non-profits can receive direct pay credits and receive a check for 30% of the project price just like a tax paying entity would get when filing taxes. This allows non-profit organizations to own solar projects instead of buying the solar power through PPAs.
The industry is waiting guidance for the treasury department regarding the direct pay and other IRA provisions. The basic qualifying factors are already spelled out in the statute. Here is a list of the entities that are allowed to access direct pay for the solar ITC.
- Tax exempt organizations
This would be any and all organizations that filed out an application with government for tax exempt status will be allowed for direct pay. This will include state colleges and university and nonprofit organizations and more. This will most likely not include homeowners’ associations, which typically file a corporate income tax return.
2. State, local and Tribal governments
All government entities will receive direct pay for the solar ITC. This will include all public schools.
3. Rural electric cooperatives
Rural electric cooperatives have been leaders in solar adoption due to their member centric structure. Cooperatives now can receive direct pay, allowing them to own their own solar projects and receive direct credit for it.
How will Inflation Reduction Act’s direct pay change nonprofit solar project financing?
Tax exempt entities will take advantage of direct pay by likely get a bridge loan from a solar installer or bank, pay the government incentive amount back to the loan company once they receive it, then pay the rest on an installment plan.
With this new ability for nonprofits to be allowed to own solar projects could make energy savings and sustainability an option for more organizations than ever before.
“Having these entities be able to access the systems directly and own the systems if that’s what they choose is a huge step forward for energy sovereignty”.
BCSC LLC can run a competitive request for solar proposals from thousands of qualified nationwide solar & storage providers for your non-profit organization. Inquire today through the contact us button below!