Ways for Nonprofits & Non-Taxpayers to Benefit from the Inflation Reduction Act

HeatSpring hosts a free course titled Getting Solar for Nonprofits, Government, and Non-Taxpayers, organized and moderated by Chris Lord. In the recorded live session, Corey Ramsden of Solar United Neighbors, explains some of the new benefits for non-taxpaying entities as well as some of the new project adders included in the Inflation Reduction Act. Tune into the video to learn more or read the transcript below.

It starts with making the Investment Tax Credit (ITC) upfront – 30% for 10 years through 2032, and then stepping down to 26% in 2033, and then 22% in 2034. That’s just the base. That’s available to anybody who would qualify for that credit. 

And then there’s some adders on top of that, which I’m going to talk about in a minute, but specifically in connection to solar for nonprofits, which is what we’re primarily talking about here today, is the Inflation Reduction Act also included the option for direct pay. That’s something that has not existed before. Starting in 2023 will be to get paid upfront by the Department of Treasury for the value of that 30%, or whatever the percentages are, which will go into tax credits. That is huge for a nonprofit to be able to get that. 

What that looks like, the process involved, the timing for that payment, anything that’s related to considerations of how much that would be available at what time – all of those things have yet to be defined by the government. There is a comment period that’s actually going on right now. A lot of it has been defined in the law, but much of the minutia/the detail has not, and those things really matter, as you all know, for project development, life cycle and, and planning. 

The direct pay option, just to clarify, because I said it was for nonprofits, it’s actually available for nonprofit organizations, private nonprofit schools and public schools, nonprofit faith-based and religious organizations, local and state governments, tribal governments and rural electric co-ops. So there’s a pretty broad set of organizations that could not previously directly access that tax credit can now starting in 2023.

Let’s jump into a little bit more about these adders themselves. They stack on top of that 30%. The first one being the domestic content adder. There’s some definitions in the Inflation Reduction Act that describe what that is. We see this as one that will get used probably pretty frequently assuming that there are supplies available and those match up for people’s calculation of their development/their projects, whether those numbers match, but 10% is available for a certain percentage of the content used throughout the project is sourced domestically. 

The second one for people that are in energy communities. This is, generally speaking, abandoned mine lands, former fossil fuel plant sites, et cetera. But that’s a pretty broad definition, so that’s something for us to all keep an eye on where these energy communities fit. 

Because right there between domestic content and energy communities, if you’ve got a project in those areas, you’re already up to 50%. That’s pretty significant. 

Then you get into some of the ones that are more specifically targeted at low-income communities and disadvantaged frontline communities. This part of the project, which is 10% for being sited in a low-income community as defined, I believe, by the New Markets Tax Credit definition or on tribal lands. And then potentially up to 20%, if a project in one of those areas is on a low-income residential building project or qualifies as specifically directing benefits from the project to income-qualified or otherwise defined populations for that project. So that’s specifically probably targeted at community solar, but not necessarily completely. 

How do those definitions work out – super important and not really known yet in terms of when do you qualify somebody? Do you qualify them again, if they’re taking a tax credit and you want to make sure that it’s still the case by the time they’ve consumed it, if they’re taking it over multiple years. All sorts of questions have to be worked out there. 

One note about the scale for this – any projects under 1 MW qualify for these, assuming that they meet those criteria, and then under 5 MW, if they also meet the labor requirements that are defined in the Inflation Reduction Act. There’s a separate set of definitions that are coming out of the IRS related to that. 

Both of those definitions at under 1 MW and under 5 MW definitely have a focus on community solar projects, because that is roughly the scale of those projects. But they’re available to any project that meets those criteria in that size scale, which means nonprofit project that’s on your building. It might be a small business project that’s located on a warehouse. These all fall into the scope of could be eligible if they meet those criteria for those specific adders.