The Inflation Discount Act features a provision permitting tax-exempt entities to obtain the photo voltaic funding tax credit score as a direct cost. Previously, to make nonprofit photo voltaic tasks financially viable, most organizations needed to accomplice with builders or banks that would benefit from the tax advantages. Organizations would signal energy buy agreements (PPAs) the place they might pay the financial institution or developer a set amount of cash for the photo voltaic power over a size of time, normally 25 years.
Now, tax-exempt organizations like public faculties, cities and nonprofits can get these credit by direct pay, and obtain a verify for 30% of the venture price similar to a tax-paying entity would obtain the credit score when submitting taxes. Direct pay paves the way in which for organizations to personal photo voltaic tasks as an alternative of simply shopping for the ability by way of PPAs.
Though the business is awaiting official steerage from the Treasury Division concerning the logistics of direct pay and different IRA provisions, the fundamental qualifying components are spelled out within the statute. Listed here are the entities that may entry direct pay for the photo voltaic ITC.
1. Tax-exempt organizations
Any group that has filed an utility with the federal authorities for tax-exempt standing will qualify for direct pay, in response to Amit Kalra, accomplice at Sheppard Mullin. This might embody state schools and universities, nonprofit organizations and extra. It probably doesn’t embody householders’ associations (HOAs), which usually file a company revenue tax return, Kalra stated.
2. State, native and tribal governments
Any governmental entities can obtain direct pay for the photo voltaic ITC. This contains an already-hot market section — public faculties. A 2020 report by Generation180 discovered 7,332 faculties nationwide use solar energy, a quantity that’s certainly grown since then.
3. Rural electrical cooperatives
Rural electrical co-ops have been leaders in photo voltaic adoption due to their member-centric construction. Co-ops now qualify for direct pay, permitting them to personal their photo voltaic tasks and obtain credit straight.
4. The TVA
The Tennessee Valley Authority is a federally owned electrical utility company that may now obtain direct pay for photo voltaic tasks.
How will direct pay change nonprofit photo voltaic venture financing?
To benefit from direct pay, tax-exempt entities will probably get a bridge mortgage from a photo voltaic installer or financial institution, pay the federal government incentive quantity again to the mortgage firm as soon as they obtain it, then pay the remaining on an installment plan, Kalra stated.
“The identical events which are at the moment keen to underwrite PPAs and take the credit score publicity to a tax-exempt [entity], I don’t see why they wouldn’t be keen to underwrite a development mortgage to a tax-exempt [entity], or a time period mortgage for that matter, and say, ‘Right here’s your $100. You go set up this facility and then you definitely pay us again,’” he stated.
Fellow Sheppard Mullin accomplice Benjamin Huffman stated financiers beforehand arrange the same cost construction for money grants for photo voltaic installations.
“It was primarily borrowing towards that future authorities cost, which could possibly be structured for this program simply as simply,” Huffman stated.
The flexibility for nonprofits to personal photo voltaic tasks might make power financial savings and sustainability an possibility for extra organizations than ever earlier than.
“Having these entities be capable of entry the methods straight and personal the methods if that’s what they select is a big step ahead for power sovereignty,” stated Andie Wyatt, coverage director and authorized counsel at GRID Alternate options.