Direct Pay Provision Available Through The Inflation Reduction Act Brings Solar To Non-Profits – CleanTechnica

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We were pleased at CleanTechnica when our friend Tierney reached out to us. Tierney wanted us to know about a church congregation in Compton, California, that recently held a solar ceremony and resiliency workshop to celebrate their new 12 kW rooftop solar and upcoming battery storage installation. With solar energy, the church is set to save $184,033 on electricity costs over the next 20 years, thanks in part to the direct pay provision available through the Inflation Reduction Act (IRA).

The church will also function as a resiliency hub and safety center for the community, providing emergency services like AC during heatwaves and air filtration during unhealthy air quality days.

Compton Mayor Emma Sharif and community and district leaders joined in the community fete, as multiple constituents have worked hard to advocate for clean air and energy in South Central Los Angeles through the important direct pay provision. Also known as “elective pay,” this provision allows tax-exempt organizations to receive 30% or more in cash back on the cost of a solar system.

What is the direct pay provision of the IRA for tax-exempt organization all about, anyways?

“The solar installation at the Watts-Willowbrook Church of Christ (The Brook) is an excellent example of how the Biden-Harris Administration is helping community-based institutions, especially in communities of color, make clean energy upgrades that reduce costs and lead to quality-of-life improvements. The elective pay tool in the Inflation Reduction Act continues to be a game-changer,” said Ronald Newman, Senior Advisor, IRA Implementation, US Department of the Treasury.

The IRA contained unprecedented support for climate action, including expanding valuable tax credits for renewable energy investments. It also created an entirely new pathway — called “elective pay” or “direct pay” — through which local governments and other tax-exempt entities can access these credits for the first time. The IRA allows nonprofit and public organizations — which would otherwise be unable to claim federal tax credits because of their tax-exempt status — to directly tap into a dozen distinct IRA tax credits.

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The Inflation Reduction Act’s direct pay provisions allows tax-exempt entities to receive a payment equal to the full value of tax credits for building qualifying clean energy projects. Unlike competitive grant and loan programs, in which applicants may not receive an award, direct pay allows entities to get their payment if they meet the requirements for both direct pay and the underlying tax credit.

Applicable entities can use direct pay for 12 of the Inflation Reduction Act’s tax credits, including for generating clean electricity through solar, wind, and battery storage projects; building community solar projects that bring clean energy to neighborhood families; installing electric vehicle (EV) charging infrastructure; and purchasing clean vehicles for state or city vehicle fleets.

The US Department of the Treasury and IRS released final direct pay regulations under Section 6417 of the Internal Revenue Code, as enacted by the Inflation Reduction Act (IRA). Section 6417 allows certain taxpayers to elect to receive a direct payment (i.e., make an elective payment election) in lieu of a tax credit. Specifically, under Section 6417, “applicable entities” (generally speaking, entities exempt from federal income tax) can seek direct payment of 12 of the IRA’s tax credits.

Who is eligible? 501(c)(3) organizations such as public charities, private foundations, schools, hospitals, houses of worship, and others; Religious or apostolic 501(d) organizations; All other organizations exempt under section 501(a) of the tax code.

Why should a 501(c)(3) apply for direct pay? Direct pay can help nonprofits afford to install clean energy, which can help them reduce their own energy use and save money so they can spend more resources on their mission. Nonprofits can also become local climate leaders by using their property to generate clean electricity that benefits their neighbors through technologies like community solar.

As the World Resources Institute explains it, the IRA’s elective pay provision allows local governments and other tax-exempt entities to receive the full value of federal tax credits without entering into third-party arrangements. This makes direct ownership of clean energy assets a more viable pathway, opening up new opportunities to drive local project development, job creation, and other benefits associated with clean energy deployment within local communities.

Special criteria includes projects with sufficient domestic content, projects that are located in “energy communities” (which include sites with brownfield properties, high unemployment or a closed coal mine or coal plant), projects in low-income communities, and rooftop solar projects on affordable housing. These opportunities can provide a 10-30% increase in the value of the direct payment depending on the criteria.

A grant from the Wells Fargo Foundation supported bringing the climate justice non-profit RE-volv and their innovative solar finance model to The Brook. As a result, The Brook was allowed to go solar for zero down and to start saving on their energy bills on day one. Additionally, their solar system will allow The Brook to avoid emitting 646,378 lbs of CO2 emissions over the lifetime of the system, equivalent to the carbon sequestered by 350 acres of trees every year.

“While there is significant clean air and energy progress underway in South Central LA, more work needs to be done to educate community members on its benefits and how solar and other clean energy technologies are accessible to them today,” said Jacquelyn Badejo, Chair of the Climate Emergency Mobilization Commission, City of Los Angeles. “Since The Brook church uniquely serves three neighboring communities, it is the perfect home base to spread awareness, educate, and accelerate local clean energy adoption.”

RE-volv, in partnership with Interfaith Power & Light (IPL) and Green the Church, with support from NREL’s Solar Energy Innovation Network, recently developed an initiative to bring solar to BIPOC (Black, Indigenous, and People of Color)-led Houses of Worship. The Brook is the first completed project of the initiative. Andreas Karelas, Executive Director of RE-volv, highlighted, “Recent data suggests that when a nonprofit or house of worship goes solar, you can expect up to 80 residences in the area to follow suit over the next five years.”

Karelas expresses gratitude for The Brook’s leadership and their commitment to educating community members about clean energy and community resilience.

The solar and soon-to-be battery storage system yields significant benefits beyond producing clean, affordable power. The community was consulted during the resiliency workshop to customize their emergency services, including air filtration on unhealthy air quality days and air conditioning during heatwaves. The event also provided resources for residents, churches, and nonprofits interested in adopting solar energy, leveraging federal tax credits, and funding opportunities through the Inflation Reduction Act.