Inflation Reduction Act empowers tax-exempt organizations to implement renewable energy projects
This is a cross-post written by Mission Energy, manager of the Catholic Energies program.
New guidance from the Treasury Department and IRS was recently released for tax-exempt businesses to implement solar and storage projects, reinforcing the expanded opportunities for nonprofits to tap into the benefits of renewable energy projects.
The Inflation Reduction Act of 2022 (IRA) updated and expanded the Investment Tax Credit (ITC) for solar and battery storage resilient power projects. The ITC, which was previously set at a 26% credit for 2023 and a 10% credit for every year after that, was updated and raised to cover 30% of the eligible project installation costs through 2032. Nonprofits are now eligible to apply for direct pay reimbursement for the ITC, even if they do not have any tax liability. This means that nonprofits can receive cash payments for the value of the ITC, rather than having to claim it as a credit on their taxes. Based on early federal guidance, organizations should expect they will need to pay for the cost of the system upfront (optionally with assistance from a low or no interest loan) and receive the direct payment within one to two years.
Prior to the IRA, the ITC could only be applied to energy storage if it was installed with solar or wind power. Now standalone storage projects, in addition to solar only and solar combined with storage projects, are eligible for the ITC. The eligibility of storage projects is a major win for nonprofits. Battery energy storage can help nonprofits reduce their reliance on the grid and improve their energy security, which is especially crucial for facilities related to healthcare, housing, schools, and other critical services.
The ITC now includes several bonus credits for projects that serve low-income and underserved communities, which can significantly increase the savings for these projects. Four of these credits are available through the Low-Income Communities Bonus Credit Program, which provides a 10% or 20% bonus credit for projects located in low-income communities, on Tribal Land, or that are part of qualified low-income residential or economic benefit projects. Two additional 10% bonus credits are available for projects located in energy communities and that meet domestic manufacturing requirements.
Direct pay, storage eligibility, and bonus credits for the ITC are significant expansions to the renewable energy outlook for nonprofits. Our team at Mission Energy is continuously staying up-to-date as guidance becomes available from the IRS. Could these incentives provided by the IRA be the key for your nonprofit organization to unlock the benefits of renewable energy? We’re here to help you navigate this rapidly evolving landscape that could make renewable energy initiatives a reality for your organization - contact us to learn more.